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September 5, 2023
Farmer Sentiment Dips Amid Weaker View of Current Conditions
Producer sentiment was notably lower in August, as the Purdue University/CME Group Ag Economy Barometer index dipped 8 points to a reading of 115. This month’s decline was fueled by producers’ weaker perception of current conditions both on their farms and in U.S. agriculture. The Current Conditions Index fell 13 points to a reading of 108. The Future Expectations Index also declined, down 5 points in August to a reading of 119. This month’s Ag Economy Barometer survey was conducted from August 14-18, 2023.
The full report is available at https://purdue.ag/agbarometer. The audio transcription is available below.
James Mintert: The August Ag Economy Barometer survey dropped eight points to reading of 115. The big news is commodity prices have weakened significantly and the improvement in yield conditions over a big chunk of the summer. The supply situation looks stronger than it did earlier, so weaker prices. Fertilizer prices have softened, but other costs have not. Today we’re gonna review the results from the August Purdue University/CME Group Ag Economy Barometer survey of farmers from across the nation.
James Mintert: Welcome to Purdue Commercial AgCast, the Purdue University Center for Commercial Agriculture’s podcast featuring farm management news and information. I’m your host today, James Mintert, director of the Purdue Center for Commercial Agriculture, and joining me is my colleague, Dr. Michael Langemeier who’s the associate director of the Center. 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 14th through the 18th of August.
Michael, the barometer dropped this month to reading of 115. That’s down from 123 last month and compares to 117 this time last year and two years ago, that index was all the way up at 138. So compared to two years ago, it’s quite a bit softer, down roughly 23 points. If you look at the Index of Current Conditions and the Index of Future Expectations, they were both down this month. The Index of Current Conditions was down 13 points compared to last month. Future Expectation Index was down as well, but not as much. I think it was down five points compared to last month. And if you compare to a year ago, that Current Condition Index is lower than a year ago. I think about 8% below where it was this time last year. Future Expectation Index is up fractionally compared to last year at this time. I think maybe 2% or so.
First of all, did you think the barometer index was gonna come down? Was that a big surprise or not?
Michael Langemeier: Not a real big surprise that it came down. It’s always hard to figure out how much it’s gonna come down, but as we’ve been talking on this podcast before, you know, margins are look considerably tighter, particularly for crop producers you know, this fall than what they were last year and probably even than what they appeared to be this spring. And so I think that’s being reflected in this Index of Current Conditions.
James Mintert: I think the big news here is commodity prices have weakened significantly over the course of the summer, especially following the acreage report that came out at the end of June. And then the improvement in yield conditions over a big chunk of the summer.
And of course, there’s still some uncertainty about yields. We’ll get another round of yield estimates here soon from USDA, but certainly the supply situation looks stronger than it did earlier at the end of the spring, beginning of the summer. So weaker prices. Fertilizer prices have softened, but other costs have not, and in fact might continue to be higher even than they were in ’23 and ’24. So I think people are worried about what the margin’s gonna be. And you’ve looked at that a little more closely with some of your budgets. What do some of those numbers look like?
Michael Langemeier: The ’24 margin actually looks a little bit better than the ’23 margin when you’re looking at a corn and soybean budget. And that’s because you do get a little help from lower fertilizer cost, particularly for corn. But I emphasize here a little bit better. It’s certainly not near as good as what it looked like in ’21 and ’22.
James Mintert: Of course that is heavily dependent on what somebody’s marketing strategy was for the ’23 crop
Michael Langemeier: Yes.
James Mintert: versus the ’24 crop, right?
Michael Langemeier: Yes. I’m assuming you sell part of your crop at harvest and then the rest of the crop after the first of the year.
James Mintert: Yeah. And so for folks that did some pricing earlier in the year. And then I don’t wanna overemphasize that because there wasn’t a huge amount of early pricing that took place, but I think for some folks that is gonna make ’23 look a little stronger than perhaps what your budget might do given the marketing strategy your budget employs.
Michael Langemeier: Yeah, that’s definitely the case.
James Mintert: So looking ahead to ’24 I mean, I think that’s really the challenge for people that are looking at some relatively weak prices compared to recent history and that’s really given them some concerns going forward.
[00:04:02] Farm Financial Performance
James Mintert: The Farm Financial Performance Index really didn’t change appreciably this month. I think it was down one point. So that’s essentially no change. Reading is 86 versus 87 last month. It is lower than it was this time last year. I think this time last year it was about 13 points higher than what we got for this month. And well below where it was two years ago. Are you surprised that given the weakness in the barometer, we didn’t see any change or almost no change in that Farm Financial Performance Index?
Michael Langemeier: Yeah, these two items, the Index of Current Conditions and the Farm Financial Performance Index, are usually linked and so I was a little surprised we didn’t see more weakness in this Farm Financial Performance Index.
James Mintert: I was too. Given the computations for the barometer, and I guess if thinking about why maybe that was the case, it could just reflect the fact that going into this softer environment with respect to margins. People are entering this with a pretty strong balance sheet and a pretty strong cash flow statement, right?
Michael Langemeier: Yeah. When we think farm financial performance, I think profit margin, that may not be what they’re thinking about. You’re exactly right. They may be thinking, well, I got strong working capital, so I’m, I’m in pretty good shape.
James Mintert: Yeah, I suspect that’s kind of what’s going on here and we could maybe see some additional weakness in that index going forward.
[00:05:18] Biggest Concerns
James Mintert: Question we’ve been asking every month now for quite a while, is looking ahead to next year, what are your biggest concerns from your farming operation? And the responses haven’t changed too much on this one. Higher input cost or, as you and I were discussing before the podcast, high input cost continues to be the number one concern of farmers. This month 34% of the people in the survey chose that as their top concern or certainly one of their biggest concerns for the year ahead. The one that has changed a little bit over time here in recent months is we have been picking up more people saying that they’re concerned about rising interest rates, but those are the top two concerns going forward. The one that surprised me on this one, given what took place with respect to commodity prices, was that only one out of five, 20% of the people to survey chose lower crop and or livestock prices. And I guess I kind of thought, given the decline we’ve seen for particularly corn and soybean prices over the course of the summer, that more people would’ve chosen that one.
Michael Langemeier: I’m a little surprised myself, but it just tells us how concerned they are with these high input costs, which would include interest costs and really what’s happened here is we took a big jump in ’22 and ’23 in terms of input costs and they’ve flattened out some. If you look at the USDA NASS overall production input price. It’s pretty much been flat year to year, but the key there, it hasn’t come down. And we’re still dealing with some fairly high breakevens you know, for a lot of commodities. I focus on corn and soybeans. Those breakevens are still considerably higher than what they were in ’21.
James Mintert: Yeah, I think, you know, the way we phrase the question, it’s phrased and the possible response is higher input cost. I think people are really responding to high input cost. Right?
Michael Langemeier: Yeah. I think it’s the same with consumers. If you talk to consumers about there might be some relief in certain grocery items, but there’s still high compared to what they were pre covid, and so that’s what they’re focusing on, the fact that those prices haven’t come down.
James Mintert: Yeah, I, I think that’s exactly what’s taking place here and that’s why people are worried about it.
It also is interesting that we’re still picking up a few people. It’s come down substantially, but a few people are, say they’re worried about availability of inputs. It’s probably about half what it was earlier. We were picking up for a while there are 15% or more people choosing that as one of their top concerns. We’re down to 7% now. We’re not hearing much about it other than just here a little bit here in the survey.
Michael Langemeier: But to put that in context, that’s very similar to farm policy. And you’d think farm policy would be a bigger concern than a availability of inputs.
James Mintert: Yeah, that’s a good point. We’ve asked several questions in recent months about farm policy and we’re not picking up much interest in it or much concern about it.
Michael Langemeier: And maybe that’s because again, going back to corn and soybeans, you look at corn and soybeans there very little of the gross return has come from farm policy. It’s all come from the market. And people always remember, you know, what’s happened in the last couple years when they’re answering questions like this. At least that’s what I think they’re, they’re trying to do. And I think that’s being reflected in that percentage.
James Mintert: Yeah, you don’t have to go back too far though.
Michael Langemeier: For those, it was large.
James Mintert: For those payments have been quite large, right?
Michael Langemeier: Yeah. 2020. 2021.
[00:08:24] Farm Machinery & Buildings
James Mintert: Yeah. Farm Capital Investment Index was down this month’s reading was 37 versus 45 last month, and 45 was one of the highest readings we’d had in quite some time. So in a way, we’re kind of back to the doldrums of where we were. I think it was down eight points compared to last month. It’s down a couple of points compared to this time last year. You go back two years, we were on the downward slide from a peak in that index, but it was still quite a bit higher.
It was 53 two years ago. I don’t know about you, Michael. From my perspective, no surprise that it came down, given what took place with respect to commodity prices and correspondingly the barometer itself.
Michael Langemeier: Yeah. And this index, like you said, came down pretty sharply. After input cost started to increase, which would include of course machinery and building prices, and it really has been kind of stuck in a rutt for basically the last two years.
James Mintert: Yeah. And the people that tell us that it’s a bad time to make large investments, which is depending on the month, between 70 and 75% of the people in the survey, they continue to point the same things. Right. They’re talking primarily a concern about high prices for farm machinery and new construction. That’s the number one concern. And then recently rising interest rates has become more important. Right. More front of mind or focus for folks.
Michael Langemeier: Yeah. And then you look at the people that actually say this is a good time. Overwhelmingly I think the largest reason is strong cash flow. I think that’s important for the listener to hear that ’cause you know, the people that are buying a machinery do think this is a good time. They realize that this is a, you know, it’s a good time because I have the working capital in order to make a down payment on a piece of machinery or a building.
James Mintert: And it speaks to the diversity in the sample that we have each month with respect to who we talk to, right? Because it depends on who you are, the size of your operation. And again, just for the listeners that haven’t been tuned into this on a routine basis, our survey group is people that have an estimated gross farm income of $500,000 and up.
But if you’re in that 500,000 to maybe a million dollar or maybe a shade under a million dollar gross farm income. It’s difficult to make big investments given the prices for example, new machinery. Right?
Michael Langemeier: Yes, that’s definitely the case.
James Mintert: We’ve been asking people what they think is gonna happen to interest rates now for most of this year. I think we started asking this question in February. The question is, what do you expect the U.S. prime interest rate to be one year from now? And the responses haven’t changed a whole lot from a month to month basis, but we continue to get in this month’s survey, I think it was six outta 10 people in the survey said they think interest rates are gonna be higher a year from now than they are today.
30% said zero to 1% higher. Another 30% said one to 2% higher. Both of those are, are more negative with respect to cost then the Federal Reserve. The Federal Reserve is suggesting we’re potentially on kind of a pause with interest rates. And the anomaly here is people seem to expect higher interest rates, yet they continue to be relatively optimistic about asset prices, namely farmland.
Michael Langemeier: With the exception of machinery, depending on you know, it’s certainly machinery and buildings. I think they’ve incorporated that into those investment decisions and those pricing decisions. But as you indicated land, it doesn’t seem to have a huge impact yet.
James Mintert: No. ’cause the Short-Term Farmland Index was virtually unchanged. I think it was 126, which I think maybe was one point higher than last month. Almost no change compared to last year. This time last year, I think it was sitting at 128. Two years ago it was a 146, so it is softer than compared two years ago. But again, anytime that index is above 100, that means more people in the survey think farmland values are going up than think it’s going down. I’d call it at least cautiously optimistic about farmland values.
The long-term index, which asks people about their outlook over the next five years was no change. It was at 151 and it’s been sitting at that 151 level, I think for about three months in a row. That’s actually a little stronger than this time last year. Last year was at 146. Not a big difference. Two years ago was at 155. The interesting thing about that long-term index is it’s really hasn’t backed off much from its all time peak, at least going back to the timeframe we started doing this survey on the farmland values, which is early ’19. It topped out about 160 or 161. So people are pretty optimistic from a long-term perspective in spite of the fact that they think interest rates are going up. That’s, you know, I guess maybe I’m too caught up in the mathematics here of asset values. What do you think?
Michael Langemeier: They must be thinking that this rise in interest rates is temporary and they’re gonna be coming back down a little bit in the next year or two. And actually, if you look at the Fed projections, interest rates are expected to moderate when you get into to ’24 and ’25 compared to ’23. But the key point there is moderates slightly. They’re not expected to go anywhere close to the levels that we saw for most of the 2008 to 2020 period. And so maybe it hasn’t hit yet. The fact that interest rates are probably gonna level off at a higher level and just as importantly, inflation’s coming down. And so when you look at the real interest rate, the difference between the interest rate and inflation, that’s actually stronger than what it has been. And I think that’s a definitely a strong signal. If that continues and that real interest rate remains where it’s currently at. That’s got to be a drag on both short term and long-term land values.
James Mintert: So I guess we’re kind of turning into a broken record here because we keep looking at concerns about tighter margins particularly for crops and the potential for, if not rising interest rates, at least interest rates remaining at elevated levels compared to what they’ve been in the recent past, and expecting that to put some downward pressure on farmland values, and it hasn’t happened. But if we keep forecasting that,
Michael Langemeier: Yeah, eventually it has to happen.
James Mintert: We’ll eventually be right. Kinda like the broken clock. Huh.
Michael Langemeier: Another question that we ask every August, we only ask it once a year, is farmland a good investment? And I think about 60% of the farmers indicated it’s a good investment. So maybe that tells the story right there. Yeah. Very consistent with these results we’ve been talking about.
James Mintert: Yeah. So it’s gonna be interesting to see what happens. But of course, you know, I think the other thing that’s happening in our survey is folks are looking at auction results and
Michael Langemeier: They’re still strong.
James Mintert: The auction results are still strong. So that’s, you know, they’re looking at the more recent data and waiting to see what happens, I guess.
[00:14:58] Carbon Capture
James Mintert: We asked some questions this month about carbon capture because there’s continues to be a lot of interest about what’s going on, especially in row crop agriculture with respect to paying farmers to capture carbon. And we focused our attention this month on corn and soybean growers. So this questions only went to corn and soybean growers. We asked, first of all, had you had some discussions with companies about the possibility of getting paid for capturing carbon on your farmland. I think 6% of the corn soybean growers in the survey said they’d had some discussions. A follow up question was, have you signed a contract to capture carbon? 2% of the corn to soybean growers said they’d signed a contract and then we followed up and asked what was the payment rate that you were offered per metric ton to capture carbon on your farm? And we continued to get a fairly wide dispersion here on these payment rates that that’s centered on the 10 to $20 per metric ton category. 47% said they were offered between 10 and $20 per metric ton. 16% said they were offered between 20 and 30 per metric ton. And at least conversations I’ve had with producers here in Indiana, for example, Michael. I don’t think I’ve talked to anybody in Indiana says they’ve really been offered a rate that high. How about you?
Michael Langemeier: No, I have not. And one of the things we also found in this survey, which is consistent with past surveys, is a lot of times when people are thinking about signing these contracts or actually signing this contracts, they were seriously thinking about doing the practices that are required by the carbon contract before they sign the contract.
James Mintert: Yeah. So, yeah, that’s a good point. Now I wanna point out to our listeners, It’s a small number of people that have signed contracts and even a small number of people in our survey that say they’ve had discussions. So I’m always a little cautious about getting too too strong about those results. But among the people who said they’d signed a contract, I think in this month’s survey, they all said, now again, it’s a small number of people, but they all said that they already planned to implement any changes that were being required under the carbon contract. Which is consistent with what we’ve heard from farmers that we’ve talked to, for example, on the farm management tour, right?
Michael Langemeier: Yeah. Typically it’s people that are very concerned about soil health and soil erosion and these kinds of things. And so they’re thinking about, you know, the two practices that usually are talked about is no-till and cover crops. And so they’re thinking about using those conservation practices to help with soil erosion and soil health. And if you can get a carbon contract that will help you pay for those, why not do it?
James Mintert: Yeah, that’s exactly what we’ve heard on the Farm Management Tour from several farmers that have participated in these programs. So I guess in that sense, our survey’s consistent, but it is a small number of people. Yeah. So I don’t want to push that result too far. But it is an interesting area. So as you think about this, I kinda wonder, this is just really kind of a guess on my part. Given the small number of people that seem to be having the discussions, and I’m thinking about the corn and soybean farmers and the small number so far in percentage terms that are, telling us they’re signing contracts. I wonder if the folks that we’re really interested in doing this, if we’ve largely tapped into that group.
Michael Langemeier: That that could be the case. And maybe it’s kind of a wait and see. You know, let’s see if the contract values go up a little bit. We’ve done other surveys with Solar for example, where sometimes the contract rates do go up a little bit. And so maybe there’s some of that attitude out there.
James Mintert: Well, and I think our survey picks it up ’cause we’ve been asking the question to people who have not signed a contract. So these are people that have engaged in some discussions. And have chosen not to sign a contract. And I think overwhelmingly they’re telling us that they haven’t been offered enough money.
Michael Langemeier: Yeah. They’re hoping for higher rates.
James Mintert: Yeah. They’re waiting to see what happens. They’re, and that wasn’t the only reason, but I mean, that was one of the reasons they gave for not signing the contract. But again, the numbers of people that are in that category of having had some discussions and either choosing to sign or not sign is pretty small, so it’s,
Michael Langemeier: yeah. And we gotta remember, particularly when you’re talking cover crops, the adoption rate, you know, it gets a lot of discussion, rightfully so ’cause there is some benefits to cover crops, but the adoption rate is still relatively small. And so maybe you’re right, you know, maybe there’s some people that have been thinking about that if they’ve already signed the contracts and it’s gonna be a little harder to get that next batch of people, signed up.
James Mintert: Yeah. The interesting thing about cover crops, again, in our surveys we pick up a relatively high percentage of people who say they do use cover crops, but they use it on a very small portion of their acreage.
Michael Langemeier: Yeah.
James Mintert: So again, I get back to your point, I think people are targeting individual fields, individual farms where there’s an issue. Where they wanna do something to potentially minimize erosion, improve soil health, et cetera, but they’re not jumping in with both feet and doing it on their entire operation.
Well Michael, that kind of wraps up our results for this month. The full report is available in the Purdue/CME Group Ag Economy Barometer website, which is purdue.edu/agbarometer. And of course you can download the podcast both on our podcast site and as well as on the Center for Commercial Agriculture site, which is purdue.edu/commercialag. On behalf of the Center for Commercial Agriculture, my colleague Dr. Michael Langemeier, thanks for listening. I’m Jim Mintert.
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