Net-farm-income forecast to decrease

The U.S. Department of Agriculture released Feb. 7 the first insights into net-farm-income expectations for 2024. The latest report anticipates a decrease from 2023’s forecast of $155 billion to $116 billion – a decrease of almost $40 billion or 25.5 percent. It’s the largest recorded year-to-year dollar decrease in net farm income. The decline marks the second-consecutive decrease since record farm-income levels in 2022.

Net farm income is a broad measure of farm profitability. When adjusted for inflation it’s expected to decrease 27 percent or $43 billion from 2023. If realized, 2024 net farm income would be at less than the 20-year average in inflation-adjusted dollars. A $21 billion expected decrease in cash receipts for agricultural goods and a $17 billion expected increase in production expenses explain 95 percent of the forecast decline.

The forecast for 2023 net farm income in this report was also updated from December’s report, increasing marginally from $151 billion to $156 billion. Net farm income reflects income after expenses from production in the current year; it’s calculated by subtracting farm expenses from gross farm income. A year-to-year decrease of this magnitude parallels a recent decline in general farmer sentiment as reduced expectations set in for commodity prices in 2024. Importantly this is still a very-early measure of farm financial health. Countless factors will shape supply and demand conditions during the course of the next 11 months.

Direct government payments are estimated to decrease by $1.9 billion or 16 percent between 2023 and 2024 – to about $10 billion and about 9 percent of net farm income. That marks the fourth-consecutive annual decrease in government payments for producers since the peak of the COVID-19 pandemic in 2020. It would represent the smallest value since 2014, even without adjusting for inflation. Ad hoc and supplemental-program payments – which include payments from the USDA’s Emergency Relief Program and Quality Loss Adjustment Program as well as other farm-bill designated-disaster programs – are expected to decrease from $6.54 billion to $5.84 billion. That’s an 11 percent decline and $5.49 billion less than paid out during 2024.

The previous announcement of limited additional funds to extend the Emergency Relief Program to cover 2022 disaster losses has reduced expected payments in the category, which is reflected in the reduced values. Pandemic-era programs that contributed to as much as 48 percent of net farm income in 2020 no longer contribute to farmer cash flow.

Commodity-insurance indemnities, included for comparison to ad hoc disaster programs, are forecast to decrease slightly in 2024, moving from $21.77 billion to $20.78 billion. But they will remain at well more than the prior 10-year average of $12.72 billion. The number of crop-insurance programs has increased and along with it the total value of liabilities across sold crop-insurance policies. Increased participation and difficult weather have resulted in greater-than-average indemnity payments the past several years. And the Emergency Relief Program still requires those who receive payments to enroll in crop insurance or the USDA’s Noninsured Crop Disaster Assistance Program coverage – when crop insurance is not available – for the next two available crop years. That increases crop-insurance participation further, contributing to additional indemnities as more farmers are encouraged to manage their risks.