Bolstered by strong commodity prices, U.S. farm earnings should stay well above historic levels this year even as producers grapple with high production costs and the government’s pandemic relief phases out, the Agriculture Department reported Friday.

Net U.S. farm income, a broad measure of profits, is forecast to ease by 4.5%, or $5.4 billion, to $113.7 billion this year. But that would still be 15.2% above the 20-year average for net farm income.

But net cash farm income, which more closely tracks producers’ cash flow, is forecast to rise 1.4% to $136.1 billion, which is 13.6% above the 20-year average. However, adjusted for inflation net cash farm income will actually be down by 2.1%, or $2.9 billion from 2021.

Net cash farm income is based on cash receipts from farming, plus government payments and other farm-related income, minus cash expenses. Net farm income also factors in depreciation and changes in inventory values.

“While 2022 cash receipts overall are expected to increase, lower direct government payments and higher production expenses are expected to counteract their net effects,” USDA’s Economic Research Service says in its forecast.

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Cash receipts from ag commodities are expected to rise 6.8%, or $29.3 billion, in 2022 with increases in in revenue from crops as well from animals and animal products. Revenue from crops is forecast up 5.1%, while receipts from dairy, livestock and poultry is expected to rise 8.9%

Direct government payments are forecast to fall by 57%, or $15.5 billion, to from 2021 to $11.7 billion in 2022, which would be the smallest amount producers have received since 2015. Meanwhile, production costs are projected to increase by 5.1%.

Fertilizer prices alone are expected to be 12% higher this year. Livestock and poultry producers will pay 6.1% more for feed. Labor expenses are expected to rise just under 6%.

The relatively strong commodity prices that farmers have been seeing since the latter part of 2020 is reflected in the expected decline in government support this year. Farmers are expected to receive $279 million in Price Loss Coverage payments this year, down from $2.1 billion in 2021 and $5 billion in 2020.

Coronavirus relief and other forms of ad hoc assistance are expected to fall from $19.8 billion in 2021 to $6.2 billion this year. 

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