So many elements play a role in a farm’s financial stability. Dramatic swings in income and costs, changing policies, evolving consumer demand, environmental issues, and more all bring both opportunities and risks when it comes to an operation’s bottom line.

This year marks 100 years of farm income estimates conducted by USDA. The first publication of an annual farm income forecast was completed in 1924 by the Bureau of Agricultural Economics, the predecessor of USDA’s Economic Research Service (ERS).

During the USDA Agricultural Outlook Forum, Carrie Litkowski, the farm income team lead for ERS, shared numbers from the recently released farm income forecast. Overall, the net cash income for 2024 is forecasted at $121.7 billion. That is down $38.7 billion from 2023, a decline of 24%. Meanwhile, net farm income is forecast at $116.1 billion, down $39.8 billion or 25.5%.

Litkowski said multiple factors are contributing to reduced farm income expectations in 2024. For one, cash receipts from the sale of crops and animal or animal products are expected to be $21.2 billion or 4.2% lower than in 2023, going from $506.8 billion to $485.5 billion in 2024. The value of direct government payments is also forecast to fall $1.9 billion (15.9%).

At the same time, total production expenses for farms are forecast to go up $16.7 billion, or 3.8%, this year. That puts pressure on the income side of the equation.

Litkowski said that farm sector balance sheets are predicted to remain relatively strong, with assets, debt, and equity expected to rise 4.7%, 5.2%, and 4.7%, respectively. Using a simulation tool, their team looked at how the sector forecast might affect farms. For 2024, average net cash farm income for farm businesses is forecast to decrease 27.2% to $72,000.

No one wants to hear about reduced income levels, but Nate Kauffman from the Federal Reserve Bank of Kansas City reminded the audience that the income is subsiding from exceptional levels seen in 2022. He noted that even with less income, many farms are still in a good financial position if they were able to store up working capital when income was strong.

“In the near term, financial stress in agriculture, despite sharp declines in income, is likely to remain limited due to the economic strength of the past few years,” he said.

He did note that if years of reduced income and working capital follow 2024, we could approach a financial situation similar to that of 2016 to 2019, which was not considered a positive time period for farmers.

“Conditions have tightened since last year,” he continued. “Coinciding with the increase in interest rate, those borrowers with more leverage than others will be in a more difficult position.” He noted that interest expenses are an ongoing headwind farmers will face.

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(c) Hoard's Dairyman Intel 2024
February 19, 2024
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