The U.S. Department of Agriculture’s Economic Research Service recently released its first farm income forecast of 2023.

In the report, the USDA forecast net farm income at $136.9 billion, a decrease of $25.9 billion, or 15.9 percent, compared to the 2022 farm income level. Despite the anticipated decline, net farm income in 2023 would reach 26.6 percent above its 20-year average (2002-2021 of $108.1 billion).

“While net farm income is projected to be lower in 2023, it is still the fifth highest in history, only topped in 2011, 2013, 2021 and 2022,” said Chad Hart, Iowa State University Extension agriculture economist.

Net cash farm income has been forecast at $150.6 billion in 2023, a decrease of $39.4 billion (20.7 percent) relative to 2022. This follows a forecast increase of $40.4 billion (27 percent) from 2021 to 2022.

When adjusted for inflation, 2023 net cash farm income is forecast to decrease by $44.7 billion (22.9 percent) from a forecast record high of $195.3 billion in 2022. Despite the decrease, net cash farm income in 2023 would be 15.4 percent above its 2002-2021 average of $130.5 billion.

“Overall, the report shows that the farm economy is still in good shape, but the profit margins enjoyed over the past couple of years are tightening. Cash receipts are declining and production costs continue to rise, but the balance still remains in the farmer’s favor,” Hart said.

Cash receipts from the sale of ag commodities have been forecast to decrease by $23.6 billion (4.3 percent) from a forecast record high of $543.4 billion in 2022 to $519.9 billion in 2023.

Total crop receipts are expected to decrease by $8.9 billion (3.1 percent) from the forecast 2022 level, led by lower receipts for soybeans and corn. Total animal/animal product receipts are expected to decrease by $14.7 billion (5.7 percent), following declines in receipts for milk, eggs, broilers and hogs.

“I was surprised that the projected reduction in net farm income was linked more with declines in commodity prices than the increases in production costs,” Hart said. “Cattle receipts are projected to be higher. There are fewer cattle, but higher cattle prices are offsetting the lower numbers.”

Also contributing to forecast lower income in 2023 are lower direct government payments and higher production expenses. Direct government payments are forecast to fall by $5.4 billion (34.4 percent) from 2022 to $10.2 billion in 2023. This decrease is expected largely because of lower supplemental and ad hoc disaster assistance in 2023 relative to 2022, the report noted.

“The continuing decline in government support was expected. Mainly the drop from 2022 to 2023 comes from an expectation of less natural disaster assistance,” Hart said.

Meanwhile, total production expenses, including operator dwelling expenses, are forecast to increase by $18.2 billion (4.1 percent) to $459.5 billion in 2023. Interest expenses and livestock/poultry purchases are expected to see the largest dollar increases in 2023 relative to 2022.

Average net cash farm income for farm businesses is forecast to decrease 17.7 percent from 2022 to $92,400 per farm in 2023. All nine ERS Farm Resource regions are expected to see average net cash farm income fall in 2023 relative to 2022 with farm businesses located in the Fruitful Rim and Northern Crescent expected to see the largest decline.

When grouped by commodity specialization, all commodity specializations of farm businesses are forecast to see lower average net cash income in 2023. Those specializing in dairy and hogs are expected to see the largest decline relative to 2022.

Farm sector equity is expected to increase by 5 percent in 2023 to $3.5 trillion in nominal terms. Farm sector assets are forecast to increase 5.2 percent in 2023 to $4 trillion following expected increases in the value of farm real estate assets.

Farm sector debt is forecast to increase 6.2 percent in 2023 to $535.1 billion. Debt-to-asset levels for the sector are forecast to increase from 13.09 percent in 2022 to 13.22 percent in 2023. After increasing in 2021 and 2022, working capital is forecast to fall 11.2 percent in 2023 relative to 2022.

Median total farm household income is forecast to increase in 2022 to $94,853 and again to $96,715 in 2023. That is an increase of 2.8 percent, a 3.6 percent decline after inflation, between 2021 and 2022, and a 2 percent, or a 0.8 percent decline, after inflation in 2023 from the previous year.