Audio Transcript:

00:06 – Improvement In Farmer Sentiment Carries Over Into 2023

James Mintert:
Welcome to Purdue Commercial AgCast, Purdue Center for Commercial Agriculture’s podcast, featuring farm management news and information. I’m your host, James Mintert, director of the Purdue Center for Commercial Agriculture, and I’m going to review the results from the January Purdue University/CME Group Ag Economy Barometer survey of farmers from across the nation. Each month we survey 400 farmers across the U.S. to learn more about their perspectives on the ag economy.

This month’s Ag Barometer survey was conducted from the 16th through the 20th of January. The Ag Economy Barometer Index rose four points this month to a reading of 130. That’s up from 126 last month and compares to 119 this time last year. So that’s 9% higher than it was in January of 2022. And the barometer is actually up 28 points over the last two months.

The barometer had a big rise last month and a small rise this month to give us that 28 point increase. If you look at why we saw the small move in the barometer this month, we saw a pretty small move in the Current Condition Index, up only just one point. So almost no change compared to last month. That leaves the index 2% higher than it was in January 2022 when the reading was 133. This month’s reading was 136. And the Future Expectation Index was up five points from last month, to a reading of 127. It was at 122 a month ago. And that leaves that index 13% higher than it was a year ago. So, people are a little bit more optimistic this January about the future than they were back in January of 2022.

01:43 – Farm Financial Performance & Farm Operating Loan Expectations

The Farm Financial Performance Index gave us a reading of 93. That’s down from one or nine last month. That’s 16 point decline is maybe a little bit misleading because really what was taking place there was producers were shifting their comparison from ‘22 in a calendar year to ‘21 calendar year to this month. They were being asked about the ‘23 looking ahead to 2023, comparing it to 2022. And of course 2022 is a very strong income year. So what people are really telling us is that they expect to see weaker incomes, weaker financial performance in ‘23 than what they saw in ‘22. And actually, if you look at the index numbers, we asked this question kind of in the background in December to get an idea as to how much change there might be just attributable to the change in the comparison. In this month’s reading, it was actually pretty close to what we picked up on that question. I think it was maybe two points stronger than what we picked up a month ago. So, the bulk of the change there is really associated with the change in the comparison.

One of the questions we’ve been asking in January, going back to 2020, is do you expect to have a larger farm operating loan or a loan of the same size or a loan that’s going to be smaller. In this month’s survey (in January ’23), just a little over one out of five, 22%, of the farms in the survey said they expect to have a larger operating loan in 2023 than they had in 2022. 80% of the farmers who said that they expect to have a higher operating loan said it was attributable to the fact that input costs are higher. And I think the other point and this is really kind of interesting, just 5% of them who say they expect to have a larger operating loan this year says because they’re carrying over unpaid operating debt. What’s interesting about that is if you make the comparisons to January ‘20, ‘21 and ’22 – in January of ‘20, 35% of the producers in the survey who said they expected to have a larger operating loan (and keep in mind that that’s a subset of the total number of people in the survey), but 35% of who expect to have a higher operating loan or larger operating loan said it was because of caring over unpaid operating debt. Same question. January ‘21. That percentage was only 20%. January of last year it was down to 13%, and this January that was down to 5%. And I think if you look at that trend, what that speaks to is the idea that the farm balance sheet and the farm income levels have been very strong in recent years. And so even though there’s an expectation for softer or weaker incomes in ‘23 versus ‘22, the farm sector, by and large is entering this period with a pretty strong balance sheet, a pretty strong financial condition in general.

04:41 – Biggest Concerns

We continue to ask questions about what people’s biggest concerns are for their farming operation in the upcoming year. Again, no surprise, higher input cost continues to be the number one choice. The number two choice the last couple of months, though, has been rising interest rates and this month that was chosen by 22%. That compares to 42% who chose higher input cost. Lower crop and livestock prices was chosen by 16%. That percentage has been rising in recent months. If you go back to the fall (September, for example), only 8% of the people in the survey chose that as a one of their top concerns. 16% this month. So we’ve doubled since September with respect to worrying about lower crops and livestock prices. And then the other interesting thing is the availability of inputs continues to have a number of people choosing it. But this month that was down to 10% of the survey and that number had been as high as 15% back in July. In September, I think it was 14%. And it’s kind of been drifting a little bit lower since then. We’re seeing a little less concerned about availability of inputs, a little more concern about lower crop and or livestock prices, and a little more concern about rising interest rates going forward.

05:58 – Farm Capital Investments

The Farm Capital Investment Index rose two points this month to a reading of 42. That’s up from 40 last month. That’s 11 points higher than it was back in November, but still leaves that index just a little bit lower than it was in January of ’22. In January ’22, that index was at 45. So we’re about 7% lower than we were this time last year.

And of course, we continue to ask the question as a follow up, for those who say now is a bad time to make large investments in their farming operation, what’s the primary reason for that choice? And the top choice continues to be increase in prices for new construction. This month it was chosen by 39% of the producers in the survey. Last month that was chosen by 41%. Two months ago was chosen by 47%. So we might be picking up a little bit of a trend there with respect to maybe a little less concern about the increase in prices. On the other end of the spectrum, we’re seeing more people choose the other category, the undefined category that was up to 22% and rising interest rates didn’t increase this month compared to last month. It was chosen by 25% of the people. The survey last month it was 28%. But if you compare that to, for example, last summer in July, only 14% chose rising interest rates. In August, it was chosen by 18%. So again, I think you can kind of pick up a little bit of a trend there with respect to more people having concerns about rising interest rates and the impact that might have on their operations.

07:33 – Farmland Values

The Short-Term Farmland Value Expectation Index fell four points to a reading of 120. That’s down from 124 last month and compares to 142 a year ago. So, the short term index on a year to year basis is down about 15%. The Long-Term Farmland Value Expectation Index is actually up two points compared to last month. And that leaves it down just, I think, 2% compared to a year ago. The long term index came in at 142 up from 140 last month. And if you go back to last year at this time, it was sitting at about 145. If you look at both of those indices, I think you have to characterize it (since the index values are above 100), you have to characterize it as people still being optimistic about future growth and farmland values, more so in the long term, which is not surprising, less so in the short term.

But there has been this shift in expectations, and the easiest way to look at that is to look at the raw answers to that farmland price expectation question. And when we asked people to look 12 months ahead last January, only 6% of the producers in the survey said they expected to see lower farmland prices in the upcoming 12 months. This month’s survey was 14%. So, there’s definitely been a shift in attitudes there. Not enough to pull the index below 100, but it is definitely a little different composition than what we saw this time last year.

To reinforce that last year at this time, 48% of the people in the survey said they expect to see higher farmland prices in the upcoming year. This month, that was down to 34%. So you’re seeing a shift in some cases from people maybe going from higher farmland prices to lower farmland prices. But the bigger numerical shift is really people shifting away from higher farmland prices to prime farmland prices remaining the same. We continue to ask people who say they expect to see higher farmland values in the upcoming five years.

What’s the main reason you expect to see farmland values rise? And we’re seeing a little bit of a shift here as well. The percentage of people choosing non-farm investor demand seems to be picking up. This month it was chosen by 63% of those who say they expect to see farmland values rise over the next five years. That compares to last month when they was chosen by 54%. And if you go back to October, non-farm investors was only chosen by 47% of the people in the survey. The other shift that’s taking place is it seems like fewer people are choosing inflation as a primary reason. In October, I think a little over one third, 35% of the people in the survey said that inflation was the number one reason why they expect to see farmland values rise over the next five years. That percentage, I think, was down to roughly 23% this month. Not a big change compared to last month. Last month was 24%, but certainly a shift from where we were in October when it was at 35%, maybe a tiny shift compared to November when it was at 26%.

10:41 – Carbon Sequestration

We continue to ask questions and there continues to be a lot of interest about carbon contracting to sequester carbon in agriculture, specifically, I guess, of low crop agriculture. And we’ve asked questions about carbon contracts a number of times. No, the two most recent times were this month, January ‘23, and again in August of ‘22. And both of those months, the responses were fairly similar. About 9% of producers in those two months reported having discussions with companies about signing a carbon contract. The first few times we asked this question was in the first quarter of 2021. There’s been a little bit of a shift there. That quarter, I think about 7% of producers reported having discussions. So not a huge difference there. I mean, from a statistical perspective, really probably no change at all. Maybe just a little bit of a drift towards more people having some discussions. But I think importantly across all these surveys, 1% or less of the producers in the surveys report having actually signed the carbon contract.

There’s definitely some interest among producers in terms of learning more about carbon contracts, what the details are. But very few people have actually signed one. And you know, in some of the other surveys we’ve done, we’ve asked specifically about rates and producers are overwhelmingly they’re telling us that the rates are not high enough. So, we’ll continue to kind of track what’s going on in the carbon markets and how many people are signing and what they’re saying about rates. But majority of the people are telling us the rates simply are not high enough yet.

12:09 – Wrap-Up

That wraps up our discussion today. For more details about the Purdue/CME Group Ag Economy Barometer, you can go to our website, which is pretty easy to use, purdue.ag/agbarometer. And of course, you get the complete report with all the charts available at that site.

The next Ag Economy Barometer will be released on Tuesday, March 7th. And I’m going to wrap it up there and encourage you to share the podcast with your friends and colleagues. On behalf of the Purdue University Center for Commercial Agriculture, I’m James Mintert. Thanks for listening.