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Best of NAMA 2022


by Michael Langemeier, Center for Commercial Agriculture, Purdue University

In response to relatively stronger net farm incomes, U.S. farm sector capital expenditures have increased dramatically in the last three years. In 2019, farm sector capital expenditures were approximately $30.1 billion. The forecasted value for 2022 is $44.2 billion. This article examines trends in capital expenditures and compares capital expenditures to capital consumption (i.e., economic depreciation).

Trends in Real Capital Expenditures

Figure 1 illustrates real U.S. farm capital expenditures and consumption from 1973 to 2022. Capital expenditures and consumption are expressed in 2021 dollars in Figure 1.

Capital expenditures include tractors, trucks, autos, machinery, buildings, land improvements, and miscellaneous capital expenditures.

Capital consumption represents the declining balance of capital stock or economic depreciation. Using Figure 1, three large increases in capital expenditures and two large decreases in capital expenditures have occurred since 1973.

The first increase occurred during the 1973 to 1979 period. During this period, real capital expenditures increased from $49.4 billion in 1973 to $62.3 billion in 1979. The 1979 peak represents the highest annual capital expenditures level since 1973.

The second increase occurred during the 2009 to 2014 period. During this period, real capital expenditures increased from $29.0 billion to $50.3 billion. We are currently experiencing the third large increase; real capital expenditures have increased from $31.6 billion in 2019 to a projected value of $41.7 billion in 2022.

The first large decrease in real capital expenditures occurred from 1979 to 1986. Real capital expenditures declined approximately 71 percent from the 1979 peak to the 1986 trough. The second large decrease occurred from 2014 to 2018. Real capital expenditures declined approximately 39 percent during this period.

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