USDA forecasts net farm income at $116.1 billion in 2024, which is a $39.8 million (25.5%) dip compared to 2023. Used to gauge a broad measure of profits in agriculture, CoBank’s Tanner Ehmke says there are a lot of nuances in the net farm income numbers.
“It’s a dimmer outlook for the year ahead, although not surprising,” he says. “But it’s a lot to absorb.”
2022 set a record for net farm income. The $40 billion decline forecast in net farm income puts USDA’s numbers at the lowest level since 2020.
“We’re coming off a couple really high years in regard to net farm income, so we can’t accept that as a reasonable watermark,” Ehmke says. “Maybe call it a regression to the mean, if you want to get into the math on it. Perhaps we’re trending back to something a bit more normal if you could put it that way.”
With the softer outlook for 2024, Ehmke says the focus for the downturn is mostly in the row crop sector. He points to three factors leading to USDA’s lower forecast:
1.) Deflationary trends in commodity prices is the largest driving factor.
2.) Higher input expenses.
3.) Lower government payments, which are calculated to be the smallest total in 10 years.
“There’s a big drop is in the supplemental and ad hoc disaster assistance,” Ehmke says. While these programs are “subject to the political winds,” he says during an election year there could be a change in the status and level of supports.
Another factor he’s watching is how conservative farmers become in their mindsets and operational expansion.
“It’s gonna cause a lot of hard conversations. When you look across the board, production expenses were up in their forecast, and there’s only a couple of outliers, fuel being one and interest expense being the other,” he says.
“It’s hard to put yourself in growth mode when things are getting so expensive,” Ehmke adds.
What could cause the USDA forecast to be wrong? Emhke theorizes on a few developments as potential catalysts:
- “We’re always one bad crop away from commodity prices coming back up again.”
- “There’s things in the geopolitical world that could drive demand back to the United States.”
- “A U.S. dollar weakening this year, that’s going to put a stronger floor behind commodity prices.”
