War in Ukraine and record-large ag exports to China will drive U.S. net farm income to a record $148.3 billion this year, twice as high as five years ago, said the FAPRI think tank on Monday. Income would decline in 2023 and 2024 as commodity prices soften, and then hold steady through 2027.

High commodity prices will more than buffer the largest-ever year-to-year increase in production costs, $67 billion, said the Food and Agricultural Policy Research Institute. Revenue from crops and livestock would climb even faster, by $91 billion, this year. With farmland appreciating by 9.9%, a key indicator of farm financial health, the debt-to-asset ratio, would decline for the first time since 2013.

“In 2022, farmers are paying a lot more for the inputs they buy and earning a lot more from the products they sell,” said the University of Missouri think tank. “These two effects largely offset each other, resulting in little change in net farm income” from $140.4 billion last year.

“Looking ahead, a projected decline in farm commodity prices outpaces expected declines in farm input prices, and projected net farm income declines in 2023 and 2024.”

Net farm income, a gauge of profitability, averaged $92.7 billion a year in the decade ending in 2021. Commodity prices, and income, surged with the return of China as the No 1 ag export customer in fall 2020 and in reaction to Russia’s invasion of Ukraine six months ago. Massive federal subsidies supported the sector during the Sino-US trade war and the coronavirus pandemic.

“The farm sector has had a few good years in a row as evidenced by land values and the (improving) debt picture,” said IFPRI senior research fellow Joe Glauber.

Higher prices for fertilizer, fuel and livestock feed account much of the increase in production costs this year. FAPRI said fuel and fertilizer expenses would decline in 2023 and 2024 “but many other expense categories increase, resulting in lower farm income.” Income would drop to $138.8 billion in 2023 and average $124.4 billion a year from 2024-27, according to the think tank.

FAPRI’s projection of 2022 net farm income is similar to USDA’s estimate, released two weeks ago. However, the USDA will not forecast farm income for 2023 and future years for months to come.

“The projected decline in nominal net farm income between 2022 and 2024 is $25 billion,” said the think tank. Income would be fairly steady from 2024 through 2027 in current-dollar terms, “but after correcting for inflation, real net farm income continues to decline.” Adjusted for inflation, income in 2027 would be about the same as in 2020.

Like the USDA, FAPRI said net farm income this year would be lower than last year in inflation-adjusted dollars and it would be lower than income in 2013, at the peak of a six-year commodity boom.

Groups such as the American Farm Bureau Federation have pointed to the sharp increase – 18% – in production costs this year, the decline in income when inflation is considered and the uncertainties of harvest time. “Farmers and ranchers face an uphill battle despite increases in net farm income,” said the AFBF.

Interpretation of farm finances could play a role in drafting of the new farm bill in 2023.

FAPRI’s updated farm income baseline is available here.

USDA’s farm income estimate is available here.

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