As the year begins to wind down, economists are closely monitoring the state of the farm economy with an overarching sense of concern that there will be a significant drop in agricultural income in 2023 compared to the previous year. This feeling is backed by data from the U.S. Dept. of Agriculture’s (USDA) 2023 Farm Income Forecast released in August.
The USDA report predicts that net income in the farming sector would drop by 25.4 percent in 2023, which equates to a loss of around $48 billion after inflation adjustments. However, the decline in agricultural income should be understood in the context of the industry’s recent prosperity.
While a 25-percent drop in income might seem alarming, it is essential to remember that it follows a period of record-breaking profits. In fact, the sector saw a net income 30.7-percent increase from 2021 to 2022. In other words, it is a natural correction after a phase of extraordinary success.
David Widmar, co-founder of Agricultural Economic Insights (AEI), puts the decline in farm income into perspective.
“It was a big number—$48 billion, [over] a 25 percent decline—that sounds like a shocking, scary number, especially when you put it in the context of high production expenses, high fertilizer, and high-interest rates,” Widmar explained. “But as we talked about earlier, it’s still historically a really strong year. It is the artifact of coming off of a record-high number. When you start to revert to the mean after record highs, you’re going to have some big adjustments.”
This adjustment, though substantial in percentage terms, is part of the ebb and flow of the agricultural economy.
Widmar also emphasized that this decline is not a sign of impending disaster, but rather, a return to a more typical level of income for the agricultural sector. It is like a pendulum swinging back to its equilibrium after being pushed to extreme heights.
According to the USDA:
Digging deeper into the factors contributing to this decline, Widmar points to challenges in the animal side of agriculture, particularly in the hog and poultry sectors. These segments have experienced a decrease in value, which has had a notable impact on overall income.
