FAPRI releases baseline projections

The Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri released baseline projections based on data as of January. FAPRI noted, “The baseline reflects current policies, meaning it incorporates programs that had been enacted prior to January 2023, but does not reflect any subsequent policy changes. The baseline is intended to serve as a reasonable point of reference for evaluating alternative scenarios; it is not a prediction of future policy choices.” Key highlights:

• Prices for many crops have been at or near record nominal levels in the 2022-23 marketing year. Unfavorable weather reduced crop production in the United States, the Russian invasion of Ukraine limited exports by a major competitor in world markets, and world economic growth supported demand.
• If weather conditions allow crop yields to return to trend-line levels in 2023, prices for corn, soybeans, wheat, cotton and many other crops are likely to fall. Over the next 10 years, average nominal prices are much lower than they have been in 2022-23, but they remain above the average of 2017-18 to 2021-22.
• Higher fertilizer, fuel and feed costs contributed to a very sharp increase in farm production expenses in 2022. A smaller increase is projected in 2023, and lower prices for some inputs result in a reduction in production costs in 2024 and 2025.
• Cattle, hog, poultry and milk prices all increased in 2022. High feed costs, drought and avian influenza limited supplies, and consumer demand generally continued to be strong. In 2023, most projected livestock sector prices fall as supplies rebound and demand growth slows. The one major exception is cattle, where drought and other factors limit the number of animals available for slaughter.
• Federal spending on farm-related programs was above the historical norm between 2019 and 2022, largely because of short-term, ad hoc programs. This current policy baseline does not assume new ad hoc programs in the future, and projected farm-related outlays decline in fiscal years (FY) 2023 and 2024.
• Crop losses in 2022 result in high budgetary costs for the crop insurance program in fiscal year 2023. Crop insurance accounts for 45% of projected spending on major farm-related programs over the next decade. Commodity program spending associated with Title I of the farm bill is relatively low in FY 2023 and 2024 but rebounds in later years given projected changes in commodity prices and program payment triggers under the price loss coverage (PLC) and agriculture risk coverage (ARC) programs.
• Net farm income reached a record level in nominal terms in 2022, as sharply higher crop and livestock receipts more than offset reduced government payments and increased production expenses. Projected net income declines in 2023 and 2024 as receipts and payments fall.
• Farm asset values have increased with land prices in recent years, and another increase is projected for 2023. Given assumptions of the outlook, lower farm income and high interest rates restrict further increases in farm real estate values in subsequent years.
• Consumer food price inflation jumped to 9.9% in 2022 as farm commodity prices rose, labor and other costs increased, supply chain problems continued, and consumer demand was strong. Price increases have slowed in recent months, and the projected annual increase in consumer food prices is 4.4% in 2023 and under 2% in 2024.

Click here to view the full FAPRI report.