After strengthening during the last half of 2023, the Farm Financial Performance Index recorded its weakest reading since May 2023. The 7-point decline from December to January was primarily driven by a shift in expectations, moving away from anticipating income to remain steady in the upcoming year as it was in 2023, towards expecting income to weaken. The percentage of producers expecting weaker financial performance rose from 20% in December to 31% in January, while those expecting incomes to be about the same fell from 63% to 53%. In a related question, producers expressed two key reasons for farm financial performance to weaken in the year ahead. More producers this month cited lower crop and/or livestock prices as top concerns than at any point since January of last year when the question about upcoming year concerns was first introduced in a barometer survey. For the first time, the percentage of producers choosing lower crop/livestock prices (28%) matched the percentage of producers who chose higher input costs. This alignment indicates that U.S. farmers are worried about a possible cost/price squeeze leading to lower farm incomes.

Unsurprisingly, given producers’ concern about farm incomes, the Farm Capital Investment Index fell to 35, 8 points lower than in December. Fewer producers who think now is a bad time to make large investments attributed rising interest rates as the reason this month, reversing a trend evident throughout much of 2023 when concerns about higher interest rates were increasing. This month more farmers pointed to high prices for machinery and construction as a reason to hold off on making investments. Among producers who think now is a good time for large investments, more producers this month pointed to their farms’ expansion opportunities while fewer farmers cited the increase in dealers’ farm machinery inventories as a reason to invest.

Starting in 2020, the January survey has asked producers if they expect their farm’s operating loan in the upcoming year to be larger, about the same or smaller than the previous year. This year, more producers said they expect their operating loan to be about the same as last year while fewer producers said they expect to have a larger operating loan. Among producers anticipating a larger operating loan, 61% said it was because of an increase in input costs, down from 80% who pointed to high input costs last year. This year, 23% of respondents said their loan size rose due to their farm’s expansion, up from 15% in 2023.

The Short-Term Farmland Value Expectations Index dropped to 115, 6 points lower than in December, while the long-term index remained virtually unchanged at 150. Since the index was still above 100, it indicates that more producers in the survey expect farmland values to rise in the upcoming year compared to those expecting values to decline. However, digging into the survey responses used to compute the short-term index reveals an interesting trend. The proportion of producers anticipating a decline in this year’s farmland values in their area rose to 16% in January, up from the 10% who felt that way as recently as October. At the same time, the percentage of producers expecting higher farmland values fell from 35% to 31%. When corn-soybean growers were asked about farmland cash rental rates in 2024 vs. 2023, results were similar to those obtained last summer. Just over one-fifth of respondents (22%) expect rates to rise while a large majority (72%) expect no change in cash rental rates. Among those who expect to see rental rates rise, nearly half (46%) expect cash rental rates to rise less than 5%.

Starting in 2021, barometer surveys have periodically included questions about payments for capturing carbon. In this month’s survey, 8% of respondents said they have engaged in discussions about carbon capture. Reviewing nine barometer surveys conducted in 2021, 2022 and 2023 that included this question, the percentage of producers who discussed carbon contracts with a company ranged from a low of 2.6% to a high of 9%, suggesting relatively consistent interest among producers in this regard. A majority of producers (61%) who reported discussions with companies this month said they were offered a payment rate of less than $10 per metric ton, while 12% of respondents were offered a rate of $30 or more per ton.

Wrapping Up

Declining prices for key commodities weighed on agricultural producer sentiment in January. The percentage of producers citing lower prices for crops and livestock as a top issue this month matched the percentage indicating input prices as a top concern. Previously, the response “higher input prices” was consistently chosen by producers as their top concern. The combination of high input costs and declining commodity prices generated a weaker financial performance outlook for 2024 and a weaker capital investment index. When asked to compare their farms’ operating loan size in 2024 to 2023, fewer producers than a year ago expected a larger loan. Among those anticipating an increase in loan size, fewer farms attributed it to rising input costs with more farms pointing to an increase in their operation’s size as a key reason.

Source:

The Current Conditions Index for December was 112, while the Future Expectations Index was 115. All three indices were weaker than in December 2022, with the Ag Economy Barometer falling 10% below a year earlier.  Additionally, the current and future indices were 17% and 6%, respectively, below last year. Looking ahead to 2024, U.S. farmers inflation expectations are markedly lower than they were at the start of 2023. The December Ag Economy Barometer survey was conducted from December 4-8, 2023.

In December, farmers perceived continued improvement in their farms’ financial performance as the Farm Financial Performance Index rose by 2 points compared to a month earlier. Since late summer, the index has climbed 11 points and was 21 points higher than in May when the index reached its low point for the year. This month’s improvement in the financial performance index coincided with USDA’s upward revision in late November of their forecast for 2023 net farm income. Although USDA still forecasts a sharp drop in net farm income from 2022’s record high level, the November estimate for 2023’s inflation-adjusted net farm income was $10 billion higher than the forecast USDA issued on August 31.

High input costs continue to be the primary source of concern for U.S. farmers. However, over the course of the year, there was a marked shift regarding producers’ apprehensions. In January, only 16% of farmers in the barometer survey pointed to the risk of “lower crop and/or livestock prices” as one of their biggest concerns. This changed as 2023 unfolded, and by December, just over one-fourth of respondents (26%) said the risk of lower prices for crops and livestock was a big concern. The other major concern for the upcoming year cited by producers was “rising interest rates,” chosen this month by 24% of survey respondents.

Wrapping Up

Farmer sentiment bottomed out in September and recovered modestly this fall as the Ag Economy Barometer closed out the year with an index reading of 114. The sentiment improvement was driven primarily by farmers’ improved perception of current conditions on their farms as the Current Conditions Index rose 14% from September to December. At year-end, U.S. farmers still pointed to input costs as their top concern for the year ahead, but the percentage of farmers choosing the risk of lower crop and/or livestock prices rose from just 16% in January to 26% in December.

Inflation expectations among farmers moderated during 2023. Compared to a year earlier, far fewer producers expect inflation to exceed 6% in the new year, and a large majority look for inflation to average less than 4% in 2024. Finally, in December, farmers expressed a somewhat more sanguine view of interest rates than they did in late 2022 with just over one-third of survey respondents indicating they expect prime interest rates to decline in 2024. 

Source:

Mintert says the latest Purdue University/CME Ag Economy Barometer survey asked farmers where they saw the financial health of the operation heading in the next year.

He tells Brownfield, “The last two months the two highest, most negative responses to that question we’ve ever gotten since we started collecting data,” Mintert said. “Roughly half the people in the survey are telling us they think their financial position is going to deteriorate over the next 12 months.”

Mintert will be a general session speaker during our Fall Marketing & Distribution Convention in Orlando – October 25-27. Meeting registration is now open, with early registration discounts available through August 15.

Producers continue to view this as not being a good time to make large investments in their farm operation. One reason producers say it’s not a good time to make large investments is the problems they’ve experienced in the supply chain. For the second month in a row, fifty percent of producers in this month’s survey said that tight machinery inventories impacted their farm machinery purchase plans.

During June farmers were a bit more optimistic about current conditions as the Current Conditions Index of 99 was 5 points higher than in May. However, the small improvement in current conditions was more than offset by weaker expectations for the future, as the Index of Future Expectations declined 5 points to a reading of 96, the lowest level since October 2016. 

Rising costs and uncertainty about the future continue to be a drag on farmer sentiment. This month 51% of survey respondents said they expect their farms to be worse off financially a year from now, the most negative response received to this question since data collection began in 2015.

Link to full report: