Pray, plan and proceed (Editorial)
Inflation is often something that comes up in conversation when regaling the low costs of yesteryear; when gasoline was less than $2 a gallon; when a quarter bought a loaf of bread and so on.
“Adjust for inflation,” they’ll say, to explain the difference from then to now. Similar to someone telling you, “it’s a dry heat, so you don’t feel it as bad,” everyone shrugs and the conversation moves on to the next topic.
But this year, inflation is a very real part of life, especially for farmers, who are forecast to feel it’s sting even more as they enter harvest time.
The USDA’s Farm Sector Income Report released on Sept. 1 estimated U.S. net farm income to increase 5.2 percent from 2021 levels. If the forecast holds, it will be the fourth consecutive year of improved net farm income. This comes on the backs of strong markets, with expectations of a 16.7-percent increase in corn receipts, 30 percent higher in soybeans and 33.7 percent higher in wheat.
That’s the good news, sort of.
When adjusted for inflation, 2022 net farm income drops below last year’s level by about $900 million, or 0.6 percent.
Inflation is more than a general increase in prices, note Daniel Munch and Bernt Nelson, American Farm Bureau economists, in an analysis of the report, it’s a fall in the purchasing value of money.
“So while farmers are facing growth in both operating expenses and net income, that income doesn’t go as far when paying for inputs like fertilizer and fuel,” they wrote.
And for farms around the country and in the Mid-Atlantic region facing major drought impacts, the picture looks worse.
The bad news — price increases in just about every farm expense possible — is not news at all, as farmers have dealt with double-digit increases in fertilizer, pesticides and fuel all year. U.S. fertilizer costs alone are expected increase 52 percent from $29.5 billion to $45 billion.
“Typically, fertilizers represent about 15 percent of a crop farmer’s costs and an increase of this magnitude can be crushing for some producers, even with the increase in revenue,” wrote Munch and Bernt.
Fuel is expected to be up 42 percent, pesticides 20 percent and electricity 7.6 percent. With everything on the rise, farm asset value wouldn’t be left out, projected to rise $328 million higher than 2021. Most of that — $292 million — is in higher farmland values, creating a potentially scary situation for farmers squeezed by surging input costs and low crop production; having to consider liquidating farmland to stay in business.
As gloomy as it looks, forecasts can change, and change drastically. With major world-shaking events the last three years, anyone who claims to know for sure where costs and commodity markets will go in the future is merely pretending.
Use the forecast for what it is, an educated projection based on the information at the time.
As with any other forecast — weather, crop, etc. — the path largely remains the same: Pray, plan and proceed.