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The full report is available at https://purdue.ag/agbarometer.

 

 

Audio Transcript

Hosted by James Mintert

Welcome to Purdue Commercial AgCast, the Purdue University Center for Commercial Agriculture is podcast featuring farm management news and information. I’m your host, James Mintert, director of the Center for Commercial Agriculture. And I’m going to review the results from the July 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.

31:28

This month’s Ag Barometer survey was conducted from the 11th through the 15th of July. The Ag Economy Barometer rose a little bit this month, a six-point rise. In June it was at 97, this month 103. So, a fairly modest rise in the barometer overall and really attributable primarily to an improvement in farmers perspective about current conditions. The index of current conditions, I think rose to a reading of 109.

The index of future expectations rose slightly to a reading of 100. But the biggest rise was that index of current conditions, so farmers felt a little better about their current situation. And that was a little bit surprising given the fact that major commodity prices, for example, wheat, corn, soybeans, all fell in between the time when we collected data in June to the time, we collected data in July.

1:29

So, a little bit of a surprise there, but maybe a reflection of the fact that farmers were assessing their financial situation in the current year, which is largely based at this point on sales from the 21 crop and maybe not quite so hard on perspective sales for the 22 crop. The other factor that did happen, at least in portions of the Corn Belt, is that we did see some improvement in crop conditions, but that depended on where you were in the Corn Belt.

Farmers remain very concerned about a variety of issues, but the number one issue is higher input cost. Once again, we asked the question, looking ahead to next year, what are your biggest concerns for your farming operation? 42% of producers in the survey chose higher input cost. That was by far and away the number one concern expressed by farmers.

2:22

Number two was lower crop and or livestock prices. So lower output prices in general. Rising interest rates was at 17%. So just behind lower crop and livestock prices, which was at 19%. And availability of inputs is still up there at 15%, choosing that is their top concern or one of their biggest concerns. Other concerns that we listed in the question didn’t really receive very many responses.

I think environmental policy was at 4%. Farm policy was at 3%. So, the big issues, higher input cost, rising interest rates, lower crop and livestock prices and availability of inputs. And that’s really hasn’t changed too much. We’ve been asking that question now for several months in a row. The Farm Financial Performance Index rose to a reading of 88 this month. That’s a five-point improvement compared to last month. It’s a seven-point improvement compared to May, but still leaves that index. You know, well below where it was for example, this time last year, I think last year we were at 96 in June and 96 in July So significantly lower than it was even last summer and going into the fall. For example, back in December that index was at 113.

3:40

So, the improvement was again consistent with what we picked up and some of the other questions. So again, that focuses very heavily on the current situation, the 2022 situation. When we asked producers to look ahead to next year, we got a different picture. So, the follow up question is, do you think a year from now will your farm operation be better off, financially worse off, or just about the same as now?

And the percentage of people saying worse off really didn’t change much this month compared to last month. In June, 51% said worse off. This month, 49%. Interestingly, the percentage who said they’d be better off a year from now actually declined from 15% to 12%. So really a difference of opinion there with respect to current conditions right now versus what expectations are for next year. So again, I think that’s very consistent with what farmers are telling us with respect to their concerns about higher input cost, potentially lower output prices and really what that boils down to is creating a cost price squeeze. And then you couple that with concerns about possibilities that we might have difficulty obtaining some of the inputs that we need.

4:49

So that kind of makes sense from that standpoint. But there is a difference of opinion there in terms of current conditions versus expectations for next year. The Farm Capital Investment Index really didn’t change hardly at all. I think it was a one point move from 35 to 36. If you look at the history of the Farm Capital Investment Index, going back to when we first started collecting data and in 15, that’s a very weak reading.

I mean, we’re continuing to hover at record low levels and that occurs in the face of the fact that farm machinery manufacturers, building sales, grain bin sales all continue to be pretty strong, at least as reported by some of the manufacturers. When we asked people about their plans for farm machinery purchases in the upcoming year, 55% said lower.

That’s a little better than last month. Last month was 57%. You go back to March, 62% said lower. So, a small improvement there compared to where we were, for example, earlier in the spring. When we asked about plans for farm building purchases this month 63% said lower. That’s a little better than last month. Last month it was 67.

6:14

The bulk of those people were shifting from lower into increasing or higher building purchases. So, I can think that’s a positive, as you look at the farmers perspectives on the economy. And then we had a new question this month because there’s been this dichotomy with respect to why are people so negative with respect to whether or not now is a good time or a bad time to make large investments?

And yet when we talk to or look at sales of, for example, farm machinery, tractors, combines, etc., those continue to be pretty strong. This question only went to people who said that now is a bad time to make large investments. And we asked, what is the primary reason you think now is a bad time to make large investments in things like buildings and farm machinery?

44% of the people said it was the increase in prices for farm machinery and new construction. That was a little bit of a surprise that that was that high and that that came in, number one, as is the biggest choice or the most common choice among people responding to this question. 15% said it was the uncertainty about farm profitability.

14% said it was rising interest rates. This one is a little bit of a surprise based on some of our other questions that we’ve been asking. Only 7% said that it was the tight farm machinery inventories at dealers that caused them to say now is a bad time.

So really focused on the cost of purchasing new machinery and new building construction really has showed up as a reason why people think now is a bad time to make large investments in their farming operation.

7:57

Looking at farmland expectations, the Short-Term Farmland Value Expectation Index declined to a reading of 127. That’s down from 136. So, people were a little more negative about where farmland values are likely to go here in the short run over the next 12 months. But there was an expectation for rising farmland values over the next five years.

The Long-Term Farmland Value Index rose from a reading of 141 to 150. It’s the long-term and short-term indexes for farmland values don’t always move in tandem, so it’s not a surprise they don’t match up. It is a bit of a surprise that the difference is as large as it showed up this month. And I guess as you think about that short term index, that’s the second month in a row that we’ve had a nine-point drop in that short term farmland value expectation index.

So, we’re picking up some negativity there in the short run that’s really not showing up in the longer run. And I think in next month’s survey, we’ll try and explore that a little more detail to try and ascertain what that difference in thinking might be and why people are maybe a little less optimistic about what’s going on in the short term than they are in the long term.

9:16

The follow up question, you know, we’ve been asking now for several months in a row, what is the main reason you expect farmland values to rise? And again, this question only went to respondents who expect farmland values to rise over the next five years. You know, we’re consistency here going all the way back to January. Non-farm investor demand continues to show up as the number one reason why people think farmland values are going to rise over the next five years. Inflation comes in number two.

This month, non-farm investor demand was chosen by 52% of the respondents. 30% of the respondents said it was inflation. So that’s 82%. The other factors were low. Strong farm cash flows came in at just 9%, low interest rates at 3%.

Interestingly, the response on interest rates hasn’t changed appreciably over the time frame we’ve been asking this. I think the highest response we ever got to low interest rates was back in February at 9%. But since then, if you look at March, April, May, June and now July, they’ve all been between 2-4%. So, I guess if you go back to February, which is really before the Fed started raising rates, people were a little more inclined to think low interest rates were supporting farmland values.

10:37

We have maybe lost some of that support. For the second month in a row, we’ve been asking corn and soybean producers what their expectations are for cash rents in their area in 2023. This month, 42% of the producers in the survey said that they expect to see higher cash rents. That’s down from 52% in June. Just 2% say they’re going to be lower.

That’s essentially unchanged from last month when I was at 3%. And so, the switch has been from people who expect higher cash rents to those who expect cash flow rates to remain the same. 56% of the people in this month’s survey said they expect to see cash rental rates remain the same. Last month that was a 45%. So, the big switch there was really people shifting over from expecting higher rates towards those expecting rates to remain about the same.

We did do the follow up question again, which only went to people who expect to see rents to rise in 2023. And we asked them by how much do you expect to see those 2023 cash rents increase? There has been a little bit of a shift here. Last month, only 18% said the increase was going to be 0 to 5% in their area, this month that rose to 23%. And on the other end of the spectrum last month, 42% said they thought they’d see a rise in cash rental rates of 10% or more, this month that came down to 34%. So really kind of a switch there in terms of more people this month expecting a more moderate rise in cash rental rates than what we saw in June, and I guess that is consistent with what we saw with respect to corn and soybean prices in between the timing of the June survey and the July survey, people kind of backed off their expectations there a little bit. I think probably based on the decline on commodity prices that took place.

Given this big rise in input cost that we’ve been seeing now, going back really into pretty far into 2021, we’ve been wondering whether or not that’s going to lead people to make some changes in their crop mix in 2023.

12:55

So, the question we asked to all the crop producers in the survey is looking ahead, the crops will be planted in 2023. What change do you expect for the 2023 crop input prices compared to prices paid for 2022 crop input prices? And there has been a bit of a change here as you look at the numbers here in July, fewer people are expecting a really large increase in those input prices. And by large, the option we gave them on the survey was 20% or more. This month, only 7% said they though input prices would rise 20% or more compared to 2022’s prices. This first time we asked this question back in April, that was about 21%, so there is definitely a shift going on there. And if you look at people who actually expect prices to decline in 2023 compared to what they were in 2022, there’s been a shift there as well, at least compared to the last two months.

13:56

This month, 18% said they thought prices would go down between one and 10%. That compares to in June and in May. We only at 12% thought prices would actually go down. So, a bit of a shift there. And then as you look at the intermediate categories, a shift there with respect to quite a few more people expecting input prices to rise 1 to 9% or just under 10% again back in April, only 18% thought we’d see a rise of 1 to 9%.

This month it was at 30% and that was up from 25% last month. So that’s probably the biggest shift, people shifting away from expecting a really really extreme increase in input prices in 2023 to those expecting a significant but more moderate increase in input prices.

Truthfully, I think if you look at our survey carefully, what we’re really probably picking up is a tremendous amount of uncertainty with respect to what it’s going to cost to put a crop in the ground in 2023.

15:02

If you look at the diversity in responses here, again, we don’t have a history of asking this year after year after year, so it’s a little difficult to make a comparison to prior years. But I suspect if we had asked this question in prior years, we would not see this kind of dispersion with some people expecting increases of 20% or more and other people expecting a decrease of perhaps 1 to 10%. So tremendous amount of uncertainty about what it’s going to cost to put a crop in the ground.

So, given that diversity in responses with respect to input cost, we’ve been asking a couple of times now, do you plan to change your farm’s crop acreage mix next year in response to the rise in crop input prices? And again, this just went to people who are the crop producers in our survey, which is the majority of people in the survey, but still people who said that they planted corn, soybeans, wheat or cotton in 2021. 24% of them said that they do plan to change their crop acreage mix in response to the rise in input prices.

So, for those that said, they plan to make a change that 24% of the people in our survey we followed up and said, what will be the biggest change in your crop operation next year? And maybe not a big surprise here, 53% of them said that they would increase the percentage of their farm’s acreage devoted to soybeans. The number two choice was 27% said they would plant or devote a higher percentage of their farm’s acreage to corn. 19% they would devote it to a higher percentage of wheat. And then on the cotton side, just 1% said they were going to boost their cotton acreage. So again, I think two months in a row now, pretty consistent responses with a significant majority saying that they plan to devote more of their farm’s acreage to soybeans. That’ll be interesting to see how that plays out as we go through the fall and into the winter.

17:05

We’ve also been following up a little bit with respect to expectations for winter wheat acreage in fall 22 compared to fall 21. So, we asked the question, first of all to people who said that they planted wheat in the fall 2021. In other words, people who ostensibly are normally at least a portion of their operation is devoted to wheat production.

And we asked them, do you plan to increase your winter wheat acreage in fall 22 compared to fall 21. 26% of them, roughly one out of four, said they do plan to increase their acreage of winter wheat. And then we did the follow up for folks who said they did not plant wheat in fall 21. So, people that perhaps have no history of planting wheat or at least didn’t plan it in 2021, didn’t plan it recently. We asked them, do you intend to plant winter wheat in fall 22?

And just 9% of them said that they plan to devote a portion of their farms to acreage to winter wheat production in 21. So that wraps up our discussion today for the Economy Barometer. For more details about the Purdue CME Group Ag Economy Barometer, you can go to our website purdue.edu/agbarometer. You can download the charts that I was referencing and talking about during the course of this podcast, along with the podcast on the website. So, if you want to look at some of those in a little more detail, you can do that. We also keep a chart library on that purdue.edu/barometer website as well. So, the next Ag Economy Barometer will be released on Tuesday, September 5^th, right after Labor Day. And I 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.