2023 Agriculture Profitability Outlook
The Mid-West Farm Report
By: Pam Jahnke
Farm incomes have been on the rise for the past five years and while they may drop some in 2023, they will still remain at a healthy level. That’s according to Blaine Nelson, senior economist on the strategy, research, and analytics team at Farmer Mac. He describes what we can expect this year in terms of acreage, commodity prices, and farmland values.
“Farm incomes peaked last year according to the United States Department of Agriculture’s (USDA) February report, on a net cash farm income level, nearly $200 billion, which is the highest level on record,” says Nelson. “What’s interesting is that the USDA doesn’t see that momentum necessarily carrying forward and it’s not necessarily likely that they would, given that we peaked at record levels last year.”
Nelson adds that we’re going to decline about 23 percent this year, according to USDA’s report. While this sounds like a large percent of decline in farm incomes, the thing to keep in mind is that it is only $150 billion, which is about 50 percent higher than the historical average. This means that farm incomes are likely to remain elevated this year.
The USDA expects more corn and wheat acres this year with stable soybean acres at a national level. However, Wisconsin is supposed to increase in soybean acres and decrease in wheat with corn being relatively flat.
“It is a reflection of what’s been going on in the state of Wisconsin for the past 30 years,” explains Nelson. “Fewer dairy cattle has led to fewer acres of hay needed. On the other end of the spectrum, soybean profitability, especially in the upper midwest has increased pretty drastically over the past few decades. So, it’s only natural that you would see the increase in soybean acres.”
When it comes to commodity prices, Nelson says they are down compared to where they were last year. This is a reflection of the fact that last year, as we saw a huge supply disruption from the Russia and Ukraine War.
Nelson adds that farmland values have started to slow due to higher interest rates, the lower commodity prices, and an increase in the amount of acreage being brought to market this year.
“I think it’s really interesting to look over a long-term correlation between agricultural exports in the U.S. and farmland values,” says Nelson. “It’s almost one to one. Exports are such an important component of farm incomes as overall exports account for about 20 percent of U.S. agricultural production. When we see greater export demand, we see higher farm incomes and farmers tend to invest back in their primary asset, which is farmland.”
2022 brought record exports which led to a boost in incomes and farmland values, but Nelson expects that moving forward, we will want to see a weak U.S. dollar in terms of helping encourage exports from a competitive standpoint globally.
“Higher farming incomes have given producers options. They don’t necessarily need to borrow as much because they’re sitting on cash and so that helps give them a decision of how much they want to borrow. It also gives them the ability to absorb higher interest rates. So high farm incomes have really struck at a good time to help farmers kind of navigate the volatility we’ve seen in interest rates.”
To read the full article, click here.