The economic outlook for agriculture in the second half of 2023 remains similar to the challenges faced in the first six months. Inflationary pressure and slower economic growth are expected to keep farm margins under pressure, according to Nathan Kauffman, senior vice president of the Federal Reserve Bank of Kansas City and Omaha branch executive.
The U.S. gross domestic product, which saw a 6% increase in 2021, slowed to 2% in 2022 and is projected to grow by just 1% in 2023 and 0.5% in 2024. This economic slowdown has far-reaching impacts, including the agriculture sector. Farmers are feeling the effects as they face lower commodity prices and higher production costs.
Commodity prices have declined significantly, with hogs, milk, and wheat experiencing drops of 30% to 40% from 2022 highs, and corn and soybeans witnessing approximately 20% reductions. The U.S. Department of Agriculture (USDA) projected a potential 16% drop in net farm income for 2023 compared to 2022. Additionally, farm production expenses are expected to rise by 4.1% to $459.5 billion this year, with interest expenses and livestock/poultry purchases contributing to the largest gains.
The Federal Reserve has raised interest rates multiple times, with the federal funds rate currently ranging from 5% to 5.25%. The goal is to reduce inflationary pressure. While farmers entered the economic slowdown in a strong financial position, some are now using up their equity.
Farmers are advised to consider the overall bullish outlook for the agricultural economy. Farm loan delinquency rates have remained historically low, and there continues to be a strong appetite for agriculture properties, especially high-quality cropland. Commodity markets will remain a primary driver in land sale activity and value.
As farmers navigate these economic conditions, programs like Illinois STAR offer support for conservation practices, aiding in resilience and sustainable farming practices in the face of economic challenges.
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