Sharply higher fertilizer costs and reduced government payments will take a slice out of farm income this year despite strong commodity prices, according to Roger Cryan, American Farm Bureau Federation (AFBF) chief economist.
U.S. net farm income reached $116.8 billion last year, the highest in eight years, as the result of healthy market returns and substantial government payments, Cryan noted.
“We have a good price outlook going into this year, but it’ll be a challenge to make up those government payments in terms of net farm income,” Cryan said at the AFBF annual convention in Atlanta. “Farmers received very large government payments in connection with COVID in 2020 and 2021, and we don’t expect to see that to continue in 2022.”
Crop market returns are expected to be strong again this year, which will help offset higher prices for fertilizer, chemicals and other inputs, Cryan said.
Beyond input prices, Cryan says there are several other issues to watch this year.
“Inflation is a big concern, and we’re hoping that the Federal Reserve Bank will follow through on their promises to rein that in. All this extra money being pumped into the financial system has led to the highest inflation in almost (40) years,” he said. “Inflation in the 1970s was a painful thing for a lot of folks, and fixing it in the 1980s was even a more painful thing, especially for folks on the farm, and I think it’s absolutely critical that the inflation is reined in quickly.”
Supply chain logistics
Trade and supply chain logistics are another area to watch, Cryan said.
The Port of Los Angeles had 32 vessels waiting to unload last November, reported AFBF Associate Economist Daniel Munch. Just 18 months earlier, the port had no waiting line.
The logjam has prompted many shippers to hustle empty containers back to China instead of waiting for them to be filled with U.S. ag products. The number of empty containers leaving the Los Angeles port has soared from 14% to 71% since the onset of the pandemic, Munch said.
“We hope that the port problems can clear up some, at least for agricultural exports,” said Cryan. “If more containers are built and made available for U.S. exporters, it’ll be easier to get those containers filled up here in the U.S. for the trip back across the Pacific, instead of going back empty. But a lot of supply chain issues will continue well into 2022.”
Geopolitical issues are also impacting U.S. trade relationships, including sanctions blocking Belarusian fertilizer supplies, Chinese food and feed purchases and China’s fertilizer export ban, Cryan said.
China purchased a record $29.4 billion of U.S. ag products in the first 11 months of 2021, but the end of the Phase 1 trade agreement between the countries makes future commitments unclear. Even at record levels, the U.S. share is just a sliver of China’s $130 billion of annual ag imports, noted AFBF senior economist Veronica Nigh.
“What the Phase 1 agreement has shown us is they have the ability to choose who they purchase their products from,” she said.
Labor will also be a continuing issue for the farm economy in 2022.
“We have some early retirements, or on-time retirements, and we have more competition for the employees that are out there,” Nigh said.