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Audio Transcript

James Mintert: Welcome to Purdue Commercial AgCast, the Purdue University’s 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 today is my colleague, Dr. Michael Langemeier who’s a professor of ag economics here at Purdue and also Associate Director of the Center.

We’re going to review the results from the October 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 October.

And the barometer index actually rose 4 points this month, and that left the index at 110. That’s 8 points higher than it was a year ago and 11 points below 2 years ago. And Michael, I don’t want to make too much of that four point rise this month because that’s a pretty small change and from a statistical perspective, probably not statistically significant. But when you compare this year to last year, eight points higher, um, that’s a little bit surprising because farm incomes in ’23 are going to be lower than ’22, at least we think they are. But maybe farmers are trying to tell us something because the related point that we keep picking up is, particularly here in the Eastern Corn Belt, we keep hearing stories about tremendous yields.

Michael Langemeier: Yeah, I think we’re going to note that the Index of Future Expectations right now is higher than the Index of Current Conditions. And I think one of the, there’s a couple of things going on here, I think, uh, I keep track of cost of production, you know, pretty closely for both crop and livestock enterprises and both are down.

Uh, if you look on the livestock side, feed costs for, for swine, and there’s quite a few beef producers in this survey, uh, you know, they’re, they’re certainly the feed grain, uh, portion of those costs are down and, and recently, uh, there’s been some softening of alfalfa prices. And so, and so I think there’s some positive signals on the cost side, both for crop and livestock producers.

On the crop side, it’s primary to fertilizer right now, uh, that’s down, uh, quite a bit from what it was a previous year. And so you, you combine that with higher prices, uh, that tells me that things aren’t exactly rosy, uh, but there’s, it’s a little less pressure on those margins when you reduce those costs of production.

James Mintert: Yeah, so if you think about it, I guess from your perspective then, and really maybe what’s driving this is the fact that people are starting to feel better about the fact that the costs are coming down.

Michael Langemeier: And I think ’24, I’m primarily comparing ’24 to ’23, if those costs continue to be, you know, stay down a little bit. You know, ’24 should be a lower cost year than ’23. And so I, I can see a little bit why there’s, why the, the Index of Future Expectations higher than the Index of Current Conditions.

James Mintert: Yeah, so good point. So you mentioned the sub indices, the current condition index was up three points compared to last month, unchanged compared to a year ago.

Future expectations index was up five points compared to last month. And that does leave it 12 points higher than it was a year ago. So I think your point about the changing cost structure. Um, making people feel better, you know, from a producer perspective, bringing those costs down. Another way of thinking of that is it’s, it’s risk reducing, right?

Michael Langemeier: Definitely.

James Mintert: Yeah. And I think that’s clearly one of the things people have been very concerned about in our surveys for quite some time is the risk of having those high costs and that exposing them in turn to the risk of lower profits coming out of lower prices for the commodities they produce.

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[00:03:29] Financial Performance

James Mintert: The financial performance index was up six points compared to both a month ago and a year ago, but was 12 points below two years ago. So the reading was 92 versus 86 the last couple months. That index has been sitting at that 86-87 level going back to June. So this was a little bit of a change. Given what’s taking place with respect to prices, I wasn’t necessarily expecting that. Again, I think this one maybe does trigger off yields a little bit for crop producers.

Michael Langemeier: I think it’s definitely contributing to the higher index this month.

James Mintert: And we have, you know, our survey is weighted based on value of farm production but that does mean it has a strong corn and soybean influence and we are picking up a lot of positive yield reports. It remains to be seen what USDA will do with their upcoming crop production estimates here in November but…

Michael Langemeier: And the fact that it is lower than a hundred, you know, it’s consistent with U.S. net farm income forecast that showed ’23 income is down quite a bit from ’22. So it’s consistent with that.

James Mintert: Yeah, that makes sense. Okay.

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[00:04:31] Biggest Concerns

James Mintert: We’ve been asking this question now for some time. Looking ahead to next year, what are your biggest concerns for your farming operation? And high input cost continues to be the number one concern. Number two is rising interest rates. And number three is lower crop and livestock prices. And there have been some shifts in that over time. This month, 36 percent of the people in the survey chose higher input cost. 25 percent shows rising interest rates. 18 percent chose lower crop and/or livestock prices. Rising interest rates has become more important as we’ve continued to ask this question over time. Higher input cost has drifted lower, but it’s still pretty high. I mean, it was up in the 40s. Uh, we’re down into 36 percent now. I think that’s the lowest reading we’ve gotten on that for quite some time.

So maybe no big surprises except the one that you and I have talked about in the past and that is we have so many more people say that their number one concern is high input cost versus lower crop and livestock prices. This month it was roughly double.

Michael Langemeier: I’m a little surprised, I’m a little surprised that this, this is not changing. Maybe it’s still coming yet. I, I, I expect the difference between those two to be much smaller. You know, as we move forward with the Ag Economy Barometer survey. Because, as I indicated, the input costs are, are, they are coming down a little bit. I, I looked at the USDA NASS input price indices. And if you look year to year. Going from September ’22 to September ’23. That’s the latest available information. Uh, the aggregate input prices are actually down slightly. Uh, and just as importantly, they’re below general inflation. That’s a different story than what we saw about a year ago. And, and so I, I keep expecting, I keep expecting lower crop and livestock prices to increase. More people saying that’s the concern, and less people the higher input costs.

James Mintert: So our listeners know there’s got to be a counterpoint. So here’s the counterpoint, Michael. And particularly when you look at fertilizer, because that’s the one that’s come down the most over the last 12 months. But if you compare historical fertilizer values to what we’re paying, they’re still elevated.

Michael Langemeier: Yes, they are.

James Mintert: The one that’s come down the most has been anhydrous ammonia. Uh, but the other fertilizer components and even anhydrous is still above. You know, in my data set, what I took a look at was I averaged those costs from 2014 to 2016 and called that an average of, of those months, uh, 100. And if you look at any of those fertilizer inputs, as well as diesel fuel, It’s all more expensive than it was in that 2014-2016 era.

Michael Langemeier: And just to put that into context, I mean, we were talking in 2019 and 2020, you know, 4 break, even for corn, even with this recent drop in fertilizer, we’re still looking at 4.75. So yeah, it’s not back to where it was. It is lower than it was a year ago, but it’s not back to where it was. And so, that higher input cost bar is not going to zero anytime soon. I just expect it to be a little less important than it currently is.

James Mintert: Yeah. And I guess the other point is, the gap between that and lower crop and livestock prices is narrowing.

Michael Langemeier: Yes.

James Mintert: But maybe slower than either one of us thought would take place.

Um, this is a longer term issue that you and I’ve been talking about for a while with respect to its impact on sentiment in general. And it’s this question that we’ve been asking going back to 2019.

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[00:07:45] Ag Exports

James Mintert: Over the next five years, do you think ag exports are more likely to increase, decrease, or remain about the same? And we first started asking this question in 2019 and, and, um, most of 2020. We were typically getting anywhere from 50 to 70 percent of the people in the survey telling us that they were optimistic about future growth in ag exports.

That’s been trending down since, uh, oh, maybe the fourth quarter of 2020. And on this survey, I think we hit, the lowest level ever, or maybe tied, maybe tied with the lowest level ever, I think at 31%. I think one other month we were right around 30%. So, people are less optimistic about future growth in ag exports, and we tend to think that’s important because if you think about long run growth prospects for U.S. agriculture, historically they’ve been tied to growth in exports, right? Whether it’s the grains, whether it’s, uh, you know, the big success story the last, uh, roughly 30 years has been growth in meat exports, which have been phenomenal. We usually talk about pork exports, but when you look at across the board meat exports in general have grown dramatically since the 80s, and it’s had a big impact on U.S. agriculture.

Michael Langemeier: And you think about this from a productivity or production level, the way to think about this is our production has been expanding more than the domestic demand. And if that’s the case, and that continues, which we expect it to continue, you have to have those export markets. And so that’s why this is such an important question, uh, you know, to gauge from the respondents.

James Mintert: And and the related point on this is, you know, this month we had 20 percent of the people in the survey said they actually think exports going to go down, not just fail.

Michael Langemeier: That was the largest, that was the largest in the history of the survey.

James Mintert: Yeah, you go back to 2019 and 2020. That was typically anywhere from five to maybe 10 percent most of the months.

Um, and so that’s a big change as well. So, uh, that lack of optimism about exports we think might be tying back to why the sentiment levels have been as weak as they have been here over the last year and a half or so. Um, this idea that people maybe don’t feel good about what’s going on from maybe a little longer term perspective. Uh, certainly something to keep an eye on going forward.

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[00:10:04] Farm Capital Investment

James Mintert: This month the Farm Capital Investment Index was down four points compared to last month. Three points below a year ago. Um, you go back two years, I think it’s down about 11 points. And of course, you go back to 2020, that index was up around 82. So, people are feeling a lot less positive about making big investments in their farming operation, at least when you look at the total survey. And we’re starting to look a little bit more at the disaggregated version of this, where we look at who’s saying it’s a bad time and who’s saying it’s a good time. Uh, but the overall index is pretty weak.

When we ask the folks who say it’s a bad time to make large investments, they continue to point to two things, but there have been some changes. If you go back to the beginning of 2023, overwhelmingly it was focused on the increase in prices for farm machinery and new construction. Um, in January of ’23, I think 25 percent of the people in the survey said rising interest rates was the reason why they were concerned about it being a bad time for making large investments. That’s changed. Um, here on this most recent survey, 41 percent chose rising interest rates as their biggest concern, uh, with respect to making large investments. And 34 percent are still saying the increase in prices for machinery and new construction. But clearly, people are becoming more and more worried about the impact of these interest rates.

What do you, what’s your take, Michael?

Michael Langemeier: That’s definitely the case. And farm machinery and new construction, I was talking about the, the overall input prices earlier, they haven’t increased as rapidly as they did in the last couple years. But again, you look at it from September to September, they’re still increased slightly. That means it didn’t come down.

James Mintert: Right.

Michael Langemeier: And I think that’s one of the things that people look at. They kept expecting, maybe these are going to come down a little bit from the, you know, given the rapid increases we saw in the last two years.

James Mintert: Yeah, they’re still very much elevated levels. And, uh, You know, there’s some differential things going on. We’ve had some individual conversations both with, uh, people in the ag lending community as well as farmers and, you know, if you’re in a position where you’re trading late model, high quality or very well maintained equipment with low hours, um, the swap isn’t too bad. But if you’re looking at a, a bigger swap, uh, trading older machinery, more hours on it, that swap starts to deteriorate a little bit and so that’s got people very concerned that things, uh, from our perspective.

Um, recently, going back to July, we started asking people who say it’s a good time to make large investments, why? And I have to point out why we waited to do that. There’s not a lot of people in the survey. that tell us it’s a good time. So that means every month, we have a relatively small number of people responding to this question, which from a statistical perspective, means we have a little less confidence in the results on an individual month basis.

But we’ve now asked this question four times in a row, so we’ve started to accumulate, uh, a significant number of responses here. And the first couple times we asked it, July and August, 40, 41 percent said it, they thought it was a good time to make investments. Because they had strong cash flows. The last couple of months, that percentage is coming down.

In September, it was down to 32%. This month, it was down to 24%. It kind of suggests that those cash flows, maybe that working capital is starting to tighten a bit out there. What’s your take, Michael?

Michael Langemeier: That’s what I’m reading from this chart. Uh, also interesting here, Jim, and again, we have to remember this is a small sample. Uh, the percentage that indicated that they, they, that this is a good time because there’s opportunities to expand the farm, increased rather dramatically, uh, in this last month compared to the previous three months.

James Mintert: It did. And just for listeners, uh, the first couple of times we asked this, I think 10 percent said opportunities to expand. Um, August, it was actually 4%. September is only 5%. This month, it was 20%. I’m not willing to hang my hat on that, because I know the, the small number of respondents that could potentially influence that. But it is something to keep an eye on. And, uh, going forward, if that turns out to be more important than strong cash flows, that, uh, could be kind of interesting because that would really suggest that there’s some change taking place out there and people seeing some real opportunities coming from that as opposed to their existing operations.

Michael Langemeier: And then down the road we’ll be asking a question related to farm growth. It would be very interesting to compare the results of that question to this particular question.

James Mintert: But we do kind of see a little change and that would make a lot of sense from our perspective that that working capital maybe is starting to tighten up a little bit and maybe influence these folks.

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[00:14:44] Farmland Values

James Mintert: People continue to be relatively optimistic about farmland. The Long-Term Farmland Value Expectation Index was up 3 points compared to a month earlier. Up 12 points compared to a year ago, and, and the short-term index on a month to month basis just fell 1 point below a month ago, so really no meaningful change there.

Um, for listeners that maybe are just listening and not looking at the charts, this is a chart that’s interesting to look at. Uh, because that Long-Term Farmland Value Expectation Index got all the way down into the mid 130s. I think back in February, it was in the ballpark of about 135 or 136, and now it’s at 156. And, I’m just going to say, if you had asked me in February, what I thought was going to happen to that index, given what we’ve done with interest rates, I would not have anticipated a 20 point rise in the Long-Term Farmland Value Expectation Index. So I’m going to leave that to you to explain, Michael.

Michael Langemeier: Yeah, that certainly would not be a positive factor. I mean, it must be that there’s some, you know, the long term profit prospects, which maybe we can capture with the Index of Future Expectations, are high enough that they’re expecting land values to hold where they’re currently at and even increase a little bit.

James Mintert: It’s really interesting, because the follow up is… When we ask people that say they think farmland values are going up over the next five years, what’s the number one reason? They continue to point to non-farm investor demand. Um, and that’s still just a little bit of a puzzle to me because we know that is a factor with respect to its impact on farmland values, but historically it’s really been farmers that, that, uh, push values as much as anything.

Michael Langemeier: Definitely. And the nonfarm investors also going to be responding to that and in negative fashion to those higher interest rates.

James Mintert: You would think, right? So, um, it’s really interesting. And so I think we’re going to continue to look at that pretty closely. But that’s what people are telling us.

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[00:16:44] Weather

James Mintert: We asked a couple of questions at the end of this survey and this was driven by all the concerns that seem to surface this summer about the unusual dry conditions that we experienced during the growing season, especially in the Corn Belt. We asked people, have you made some changes in your farming operation in response to changes in long term weather patterns in your area? And roughly one out of four producers in the survey, 24%, so that’s just about one out of four, said that they have made some significant changes.

Uh, so then if a producer said that they made some changes, we followed up and said, Well, what were some of the changes you made? And, given phone survey, we had to kind of give them some choices. So there’s a little bit of a limitation there. But 25 percent of them said that they adopted or increased the usage of no-till. Um, almost that many, 23 percent said they changed the mix of crops that they plant. Uh, 1 out of 5, 20 percent said they planted more drought resistant varieties. Um, 9 percent said they installed irrigation and another 9 percent said they installed tile drainage. Those aren’t, none of these categories are mutually exclusive because they could choose a couple of things. But, you know, when I look at them, Michael, it says people are looking at a lot of different things with respect to changing the management of their farm operation because there is a perception that at least in some parts of the country they’re really starting to see some changes.

Michael Langemeier: That’s definitely the case. I, I didn’t know really what to expect with this question. Uh, but the fact that one out of four, uh, you know, indicated they made some changes was a, was a little bit surprising perhaps. And, and then the why, like you said, the wide mix of different things they’re doing was, I also didn’t expect that. Um, one of the things to note for the, for the listener is, uh, the changed mix of crops planted includes cover crops. Uh, we included that in there and so that, that’s where the cover crop, uh, portion of this is. We, we had too many buckets already so we didn’t put a separate bucket for cover crops.

James Mintert: Yeah, good point. And I have to say, um, I’ve asked this question in my class a couple times and, um, I got to give credit to my students because I think what they were telling me in class was more consistent with what farmers said than maybe what I was expecting because I really thought we’d see more people focus on controlling water through tile drainage and/or irrigation than what we picked up, but the students told me pretty much what what the farmers were saying.

They pointed to things like drought resistant varieties. Um, and increased use of, uh, no-till in particular. So they were focused on, how would I, the way I think about that, Michael, is they were focused in this, showed up in the survey as well, focused on technologies you can buy every year.

Michael Langemeier: Yeah, it’s short term versus long term, they were focused on the short term tweaks they could make. Which makes sense.

James Mintert: Yeah, what change can I make as I make plans for the upcoming crop season?

Michael Langemeier: And at least conceptually, those are, not in every case, but they’re probably less money. There’s less money tied up in those changes than there would be in an irrigation system or tile drainage, sir.

James Mintert: Yeah, most of that wouldn’t involve a capital investment. The no-till might, depending on your equipment lineup. But, uh, the other ones, those are simply changing the inputs you purchase, so. Uh, very interesting. We’re going to continue to ask that question. Not every month, but we’ll continue to monitor this. But I think those results are kind of interesting and something we’re going to want to track going forward.

So, that wraps up the highlights of this month’s Ag Economy Barometer survey. You can get more details, uh, the full report is available on the, uh, the website, purdue.edu/agbarometer. And of course, uh, the slide deck that Michael and I were looking at, uh, while we were recording this podcast is available to download if you want to take a look at some of those charts in a little more detail.

Thanks for joining us. And on behalf of the Center for Commercial Agriculture, I’m Jim Mintert.