Yesterday, the Farm Credit Administration released its quarterly report on the Farm Credit System. The report addresses economic issues affecting agriculture: labor markets, inflation, farm income forecasts, commodity prices, exports, drought reports, and more.
Inflation continues to be a core economic issue despite recent declines. Inflation has been driven in part by the tightness in the labor market, rising production costs, and consumer demand. Recent events in the commercial banking sector have led to tighter financial conditions and less certainty about future interest rates.
Strong prices for many commodities have continued into 2023. Tight global grain stocks, declining cattle inventory, and disruptions to specialty crop production continue to support prices. However, exports have fallen from record 2022 levels because of high prices and strong foreign competition. Net farm income is projected to fall in 2023 but remain well above the historic average.
Input costs are expected to remain high for producers in 2023, curbing farm profitability. National supply chain constraints have normalized, but residual impacts remain for agricultural machinery and selected inputs. Fertilizer costs have fallen with declines in energy prices although they remain above historic averages. Producers have seen persistent growth in costs for labor, rent, and interest expense this year.
With the end of the three-year La Niña pattern, drought conditions have improved across much of the country. Drought coverage has reached its lowest level in nearly three years following record snowpack across the West and northern Plains. In contrast, a large part of the central and southern Plains remains in severe drought as the growing season gets underway.
The FCS reported strong financial results in 2022, including strong loan growth and higher earnings. The loan portfolio continued to perform well, and portfolio credit quality remained strong. Although total capital declined slightly for the year, capital levels remained sound. The system liquidity position of 180 days at year-end was unchanged from a year ago and well above the 90-day regulatory minimum.