Although the farm financial climate is not yet to the level of the 1980s farm crisis, University of Missouri Extension business specialist Jason Morris contends it is the closest it has been.

The profit forecast for U.S. agriculture is slated to rise 15.2% above last year's average of $98 billion. However, this figure has not been adjusted for inflation, Morris says in a recent Ag Connection newsletter. When adjusted in 2022 dollars, the real farm forecast for income is predicted to decrease by 7.2%, resulting in an actual reduction of $9.7 billion dollars in net farm income.

With Missouri supporting a large agriculture base, effects of inflation on prices related to production will be visible throughout 2022. Regional and national expectations of farm cash receipts are expected to increase.

However, lower subsidy payments and increased input costs should offset these net increases in earnings, Morris says. “If other modifiers to production or harvest occur such as natural disasters, these farm receipts will take an additional devaluation,” he adds.

Rising costs affect planting decisions

The primary factors involved in agriculture production revenues involve the cost of inputs. Not only has the cost of seed, feed, fertilizer and chemicals increased, but fuel prices have also seen a continuous rise.

“The impacts of inputs have also been felt throughout the agriculture industry as a whole,” Morris says. “Decisions related to production cost are beginning to influence the upcoming planting season.”

Farmers face decisions related to which crops to produce. A possible shift to crops requiring less nitrogen may occur because of fertilizer prices. “If crops planted are significantly different from those intended, the supply and demand curve could be affected, impacting crop prices at harvest,” Morris adds.

Increased costs related to fuel and fertilizer affect livestock operations by placing pressure on hay and feed production. The cost of purchased feed products will also see an increase, and Morris notes that the situation in the world could alter supply and, ultimately, price.

Watch interest rates

Inflation played a major role in the downturn of agriculture and farm production at the beginning of the farm crisis four decades ago.

Interest rates were increased to counter inflation rates, affecting borrowing power.

The good news, Morris says, is that farmland values are predicted to remain stable.

To make sure farming operations are financially sound to withstand inflation, farmers need to be aware of risks and pay attention to the amount of loan borrowing, review their budgets and understand the return value of input costs.

Source: University of Missouri Extension, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.