Nebraska farm income prospects look strong for 2022 despite some of the challenges producers faced this year. Whether those expectations prove out in the end and where the sector goes in the coming years remains to be seen.

Recent projections produced through a collaboration of the Center for Agricultural Profitability (CAP) at the University of Nebraska-Lincoln and the Rural and Farm Finance (RaFF) Policy Analysis Center at the University of Missouri put expected farm income for Nebraska in 2022 at just over $8.03 billion, nearly unchanged from the 2021 level of $8.05 billion.

The numbers are based on USDA Economic Research Service data for Nebraska through 2021 and national projections for 2022, as well as projections and modeling by RaFF and the Food and Agricultural Policy Research Institute (FAPRI), also at the University of Missouri.

The $8 billion level over the past two years is up dramatically from the previous five years — when the average was just $3.6 billion, and the low fell all the way to $2.2 billion in 2017. The 2021 number was a record farm income for the state, at least in nominal terms, exceeding the previous record of $7.5 billion in 2011.

While the farm income prospects are strong overall and help establish a solid financial position for agriculture in the state, some further analysis helps identify strengths and also challenges going forward.

Crop prospects

The farm income projections developed by CAP and RaFF show crop receipts for 2022 at $15.7 billion, $2.3 billion above 2021. While Nebraska and many other states are facing intense drought conditions with accompanying yield declines, the substantial share of state production coming from irrigated acres — along with stronger prices — more than offset the projected drought losses.

Looking at the crop production estimates (based on August USDA reports), state-level yields in 2022 relative to 2021 fall from 7% for corn to 30% for wheat. Irrigation obviously helps hold up the corn yield in the state, as nonirrigated production would show substantially more yield losses.

Factoring in some acreage changes, production falls from 8% to 29%. Offsetting the estimated yield and production losses, expected season-average prices have gone up from 7% for corn to 20% for wheat, and more than 39% for hay.

While crop receipts look strong for 2022, there are several concerns on the horizon. First, the projections for 2022 may prove to be too optimistic given that they were developed from August crop report estimates. Yield estimates were lower in the September report, and may ultimately move even lower as drought impacts are fully realized.

Looking ahead, continuing drought concerns could also hinder 2023 crop prospects while prices falling back toward long-term averages would also pull down receipts in 2023 and beyond.

Livestock prospects

Livestock receipts are also projected higher for 2022 in the CAP and RaFF report. Receipts are projected to be $15.4 billion in 2022, $2.4 billion higher than 2021. While Nebraska livestock receipts are projected up nearly 19% over 2021, they trail national estimates that are up by 28% on the strength of poultry and dairy gains that outpace meat animal receipts.

Nebraska is not surprisingly heavily weighted to the cattle sector, which makes up nearly 90% of Nebraska livestock receipts, but only about a third of national receipts.

The higher livestock receipts for 2022 come primarily on the strength of both higher numbers of cattle marketed (4% above 2021), as well as higher implied cattle prices (14% above 2021). The numbers for 2022 also foretell some transition ahead as cattle inventory and ultimately marketings are projected to decline in the years ahead because of the downward trend of the cattle cycle (perhaps spurred on by drought-induced liquidation in 2022). Total cattle receipts are still projected higher in the coming years as higher price projections look to more than offset the declining marketings.

Production costs

The substantial growth in both crop and livestock receipts added nearly $5 billion in gross revenues for Nebraska agriculture in 2022, but that didn’t translate into higher net farm income primarily because of a sharp rise in production costs ($3.2 billion above 2021).

Fertilizer and fuel led the cost push higher with more than 50% and 25% increases, although the impact could have been higher if not for some inputs priced for 2022 before major market disruptions occurred. Feed costs were also projected to be 13% higher, which is not a surprise given the rise in crop prices.

Government payments

A major factor in the farm income calculations for 2022 compared to 2021 is the sharp decline in projected government payments, falling from more than $1.3 billion in 2021 to less than $500 million in 2022. Traditional commodity program payments have been negligible for a few years with commodity prices above support levels. But, ad hoc payments have been overwhelming, coming in 2018 and 2019 for trade and then in 2020 and 2021 for COVID-19 pandemic relief.

While more ad hoc assistance has been rolled out in 2022 with the Emergency Livestock Relief Program and the Emergency Relief Program for crops, the projected payments fall sharply compared to the previous ad hoc support. Barring more ad hoc programs or substantial changes in the coming farm bill debate, the impact of government safety net programs on Nebraska agriculture could look relatively small in the coming years.

This analysis doesn’t include the significant role of the federal crop insurance program and the support provided to producers via the insurance program (for both crops and livestock). While premiums often exceed indemnities in good years, much higher indemnities for drought and other losses in 2022 help offset the risk for producers and add to the bottom line.

The analysis also doesn’t include the large and potential growing role of conservation payments. Conservation payments to Nebraska producers have grown to nearly $150 million in recent years and could grow substantially higher based on projected spending from recent climate and conservation program legislation.

Bottom line

Steady farm income projections for Nebraska for 2022 indicate continued strong performance and financial strength of the ag sector. While the Nebraska outlook for 2022 trails the national outlook, the fact that the state is projected to hold steady after setting a record of $8 billion in net farm income in 2021 is a solid outlook despite the challenges of 2022.

There are substantial production challenges across the state because of drought and other events in 2022, and some producers will unfortunately bear more than their share of the losses. But aggregate revenues are stronger for both crops and livestock, offsetting the substantially higher production expenses and the sharply lower government payments.

The aggregate numbers hide the individual results that producers had, but suggest the ag sector as a whole is well-positioned to manage the outlook and the risks ahead in the coming year and beyond.

Lubben is the Extension policy specialist at the University of Nebraska-Lincoln.