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Audio Transcript

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, 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 the associate director of the Center.

We’re going to review the results from the November 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 13th through the 17th of November.

[00:00:43] Farmer Sentiment
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James Mintert: And Michael, the Ag Economy Barometer rose five points this month. That left it at a reading of 115. That’s 13 points higher than a year ago, and really almost no change compared to two years ago. I think two years ago it was at 116, this month at 115, so virtually no change. Still substantially below where we were three years ago. Three years ago the index was sitting at 167, so sentiment’s certainly not recovered to the levels that we were looking at back in 2020. It is interesting that the sentiment index is a little stronger than it was this time last year, don’t you think?

Michael Langemeier: I find that very interesting. If you look back to last year, you know, 2023 looked like it was going to be lower prices, but same holds true for this year. I mean, you look at the fall of ’23 and, and into 2024, certainly corn and soybean prices is substantially lower than what they were earlier in the year.

James Mintert: Yeah, and if you look at the Current Condition Index and the Future Expectation Index, I think maybe we start to get a little better idea as to what’s going on here.

The Current Condition Index was what drove the improvement. The Current Condition Index was 12 points higher than it was in October, up 15 points compared to a year ago. Whereas the Future Expectation Index was only up two points compared to last month, which I would argue is essentially no change and 12 points higher than it was a year ago.

Um, so if you look at it, you know, one of the things that we were thinking about as we were working on the raw data, Michael, was the idea that: how much of this might be attributable to the fact that producers were pleasantly surprised by how good yields were this fall? Keeping in mind that, you know, every month at least 53 percent of the respondents have a corn or soybean enterprise. However, because of the cross enterprise fertilization, so to speak, uh, we actually wind up with more than that. We usually wind up with, uh, I think this month it was right around 70 percent of the people in the survey have a corn and soybean or corn or soybean enterprise. I kind of think it might have been a little bit of a yield story. What do you think?

Michael Langemeier: I think that’s definitely the case, I don’t think prices have been a big shock, either from the cost side or the output side. And that also would be very consistent with the Farm Financial Performance Index, which was up again, again this month.

James Mintert: Yeah, I mean, that’s, right now, that’s our best explanation. I think the Current Condition Index improving like that, a function of the fact that revenues are going to be better than expected, uh, largely because of the yield improvement. Future expectations, I think that, the fact that it only moved two points compared to a month earlier says they’re not terribly optimistic about what might happen in 2024. Uh, but 2023 perhaps shaping up better than, than they thought. And as you point out, the Farm Financial Performance Index kind of reflects that it was up three points to 95. Uh, last month it was at 92. That’s not a big enough change to get too excited about. But if you compare where that index was back in May, for example, that index was sitting at 76.

Michael Langemeier: And it’s the highest index we’ve seen this year, uh, which is, which I think is, is quite remarkable, uh, because, you know, if we look at the spring, uh, there were some, some expectations that prices are going to be a little bit stronger than they currently are. And so, and so that, I think that’s enlightening, the fact that we, we reached the, we reached the, uh, the highest index this month.

James Mintert: Yeah, that’s that’s a good point. You know, that index improved from May to June. It went up from 76 to 86. And then basically was flat lined all the way through September and then climbed a little bit. Six points in October, climbed a little bit again here in November. It’s gonna be interesting to see what December looks like, right? But I think that does coincide with what we saw in the Current Condition Index. I think it coincides with this argument about yields being pretty good.

[00:04:28] Biggest Concerns
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James Mintert: Looking ahead to next year, what are your biggest concerns for your farming operation? People continue to point to high input cost, but if you look at the responses to that question going back to the beginning of the year, you can see the change that took place. January, 42 percent of the people in the survey said it was high input cost was their top concern. This month that’s down to 32%, which I believe is the lowest reading we’ve gotten on that particular response, or that particular answer since we started asking this in January, at the beginning of the year.

Number two on that list was rising interest rates, chosen by 26 percent of the people in the survey. Back in January, it was chosen by 22, so that’s a modest change. People have been worried about interest rates, maybe, I guess, to some extent, all year, but it does look like we’re picking up maybe a little bit of an uptick there.

And then lower crop and livestock prices that’s been bounced around a little bit beginning of the year, 16 percent of the people in the survey were choosing that this month. It was 20%. That’s up compared to last month. It’s not the strongest response we’ve gotten to that one over the life of the year, but still maybe a little bit of an uptick there.

Fewer people are saying availability of input 7 percent this month. The beginning of the year, that was 10%. The interesting thing to me, Michael, well, it’s all interesting, but I think one of the interesting things to me is the fact that how few people say farm policy is an issue.

Michael Langemeier: Yeah, and environmental policy is similar. It’s a little higher at 10%, but farm policy is only 5%. That’s really low, and it’s below the availability of inputs. And so that’s kind of counterintuitive to some extent. But I think what this chart really summarizes quite well Uh, is why the Index of Future Expectations is not stronger than it is. Uh, you start looking, there’s some warning signs here, you know, relatively tight margins because of lower, uh, lower crop prices. Uh, the input costs are still relatively high, though it’s not as concerning as it was earlier in the year. And then the concern about rising interest rates. You combine all that, and it’s no surprising that the Index of Future Expectations is not, is not higher, uh, than it is.

James Mintert: And I’ve gotten a little bit of pushback when I’ve visited with people about this, particularly with respect to the high input cost. And people pointing out that, for example, fertilizer values have come down substantially over the course of the last year, which is true. But if you look at those values, they’re still elevated to where we were for example in 2020, even 2021. And you’ve looked at the break evens, projected break evens. You’ve updated those Purdue crop cost return budgets recently.

Michael Langemeier: Yeah, if you look at the break evens for corn, for example, it is lower than ’23 break evens, but it’s still really high, even compared to ’21 and ’22 so, it’s no wonder people talk about higher input costs.

James Mintert: Yeah, so I think that that concern is very valid. People are still expressing concern about a possible cost price squeezes. I think how I would characterize that.

[00:07:27] Farm Capital Investments
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James Mintert: The Farm Capital Investment Index was up this month. It rose seven points compared to a month earlier. That’s pushes it to a reading of 42. That’s 11 points higher than it was a year ago. It’s actually a little bit stronger than two years ago. Again, a fairly small change. I think 42 this month versus 39 two two years ago, and of course, it’s well below where it was this time three years ago. Three years ago, the index was sitting at a reading of 80. It reached its all time high a month or two later. I think in either December or January, December of ’20 or January of ’21. Um, so the index from a long term standpoint, it’s still weak, but from a short term standpoint, it’s improved.

Michael Langemeier: This is a really, this is really interesting when you compare the index this month compared to a year ago. 11 points higher. I have to believe that that’s interest rates. That this climb in interest people are you know looking at that? What does explain this? Maybe I should ask you, because interest rates have risen and they’re still optimistic, so it’s not interest rates.

James Mintert: Well, I was wondering when you were going to ask me to weigh in on this. Uh, well, actually, I think you might be onto something with the interest rates. We might be picking up the idea that interest rates have topped out.

Michael Langemeier: Perhaps.

James Mintert: Now that didn’t show up elsewhere in the survey.

Michael Langemeier: They didn’t get quite as high as we thought they were going to be.

James Mintert: Yeah, at least so far. Um, a National Association of Business Economists, uh, press release today, I think, uh, indicated that a majority of the folks in that survey expect interest rates to actually decline a little bit in 2024. So maybe we’re picking up a little of that. Um, and I think, you know, the follow up here is we’ve in recent months, I think, going back to July, we started asking people that think it’s a good time to make large investments. And just as a reminder for our listeners, the Farm Capital Investment Survey index is based on a survey question that says is now a good time or a bad time to make large investments in your farming operation.

And a majority of people every month have been telling us that it’s a bad time. In fact, I think this month it was about 70 percent of the people in the survey say it’s a bad time to make large investments. A few months ago, starting in July, we started asking people who say it’s a good time. Why they think it’s a good time. Um, and we were a little reluctant to do that earlier, Michael, in the survey, because it’s a small number of people every month that are given that response. So you have to take the results here with a little bit of a grain of salt, uh, just because of the small number of people involved. But first couple times we asked it, 40, 41 percent of the people said strong cash flows were the reason to make large investments today. That’s dropped off a little bit these last couple of months, hadn’t it?

Michael Langemeier: Definitely. And, and I think that part of that’s reflecting the fact that, uh, you know, even though, uh, this, this fall might’ve been better than what they were expecting, uh, it’s still a lot not a, a fall where you’re necessarily gonna increase working capital.

You’ve got pretty strong working capital coming off ’21, uh, you know, ’21, ’22. And, uh, but, uh, but certainly this year it, it, you’re not gonna build a lot of working capital, uh, with, with the ’23 crop. Uh, and, and so I think that’s partly what’s being reflected there.

James Mintert: Yeah, I mean, the other way of thinking of that is, I think, uh, earlier, maybe we had people thinking about offsetting taxable income with investments. And I think the reflection going forward is, well, taxable income might be okay, but it’s not a great reason to jump in there and make investments. But what we are picking up is more people are saying that one good reason is there’s better inventories. Um, higher dealer inventories for farm machinery in particular. Uh, that’s risen from, I think, in July, only 12 percent of the people in the survey chose that. These last couple of months, it’s between 24 and 26%. Um, it’s going to be interesting to see where that goes in the future. And then, um, you know, we’ve been looking a little bit at this expansion, uh, question or answer.

Early times, uh, July and August, I think 10 and 4 percent of the people said it was because they had opportunities to expand. Last month 20 percent said it was opportunities to expand. This month it was 14. I think it’s gonna be interesting to see where that goes in the future because you know, from a long term standpoint, I guess I would expect the two dominant influences there to be strong cash flows and opportunities to expand. How about you, Michael?

Michael Langemeier: Definitely. When you look at the fundamentals, it’s usually, it’s usually profit driven. Either short term profit or, or they think that their profits down the road are going to be higher because they’re, they’re expanding.

James Mintert: So, um, the other interesting thing about this is not very many people tell us it’s because they want to invest in new technology, and I interpret that as, you know, like upgrading technology. This month, only 9 percent of the people in the survey said that. Last month, it was 6%. I think the highest it’s ever been in the, what, five months we’ve asked this was 19%. Um, it was a little surprising.

Michael Langemeier: I don’t know what to make of that. And I don’t think we’ve ever asked a question about retrofitting machinery. That might be an interesting question to kind of get at some of this new technology. We’ve asked questions about new technology before. Maybe this is an area where we need to add some additional questions and try to figure out what’s going on there.

James Mintert: Yeah, I think that’s definitely true because the category we usually don’t talk about is the ubiquitous other category. And it’s one of the biggest categories. I mean, um, this month, 26 percent of the people said it was something other than strong cash flows, opportunities to expand their farm, invest in new technology or hire dealer inventories. They said, well, it’s something else. And I think we’ve been scratching our head thinking, well, what would that be?

And you’re, you’re kind of nodding your head.

Michael Langemeier: This whole process of asking these questions about making large investments has made me scratch my head because it doesn’t necessarily follow the textbook. You know, the textbook comes up with some fundamental reasons why you’d invest in machinery. Those are important, but there’s certainly a lot of other factors that are involved in whether these farms are investing in machinery. And so I find this area fascinating.

James Mintert: Yeah, I think I wonder sometimes if we’re just not phrasing things correctly. So invest in new technology. I wonder in that other category, people are just saying, um, you know, need need to update, right? Because the machine, my combine or tractor, new planter or whatever, has a lot of hours on it, has a lot of acres on it. And maybe they don’t, for us, we, we kind of view that as invest in new technology, but maybe the respondents aren’t viewing it quite that way.

Michael Langemeier: And I think some of that other is all of the above. We do get some of that, where they think, you know, all of these factors are important, so they’ll other.

James Mintert: yeah, good point. Yeah, that is a good point where all of those things coming together at once. That’s a good point.

[00:14:29] Farmland
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James Mintert: Let’s talk about farmland. Farmland values is always interesting in the survey. The short term farmland value expectation index was unchanged compared to October. It was down about four points compared to a year ago. And, of course, the index, uh, two years ago was sitting at 157. So, kind of depends on how you want to look at it. Short run, no change. Longer term, the index is weaker than it was. But I always need to remind myself and maybe listeners as well, if the index is above 100, that still means that more people in the survey expect farmland values to go up than said it was going to go down.

What’s your take?

Michael Langemeier: The fact that this is the Short Term Farmland Value Expectation Index has been relatively flat for the last six months is a little bit interesting because usually this index moves with optimism. If producers are more optimistic, that index tends to climb and so a little bit of inconsistency there, but nevertheless, it’s still, it’s still fairly consistent. You know, the, uh, the, uh, the producer sediments have been relatively flat too. I mean, it has bounced around a little bit, but it hasn’t made any major shifts in the last few months.

James Mintert: You know sometimes it’s, it’s more informative to look at the raw responses to, uh, the question, in this case, about farmland values, uh, as opposed to the index. Sometimes you kind of lose some information by looking at the index. So if you look at the raw responses to farmland price expectations 12 months ahead, 36 percent of the people in this month’s survey said they expect values to go up, 11 percent said they expect it to go down. A year ago, 41 percent said they expected values to go up, and 12% down. Two years ago, the percentage of people that said they expected to see farmland values go up was up in the ballpark of about 60 percent of the people in the survey. So you look at that chart and you can tell that although people are still cautiously optimistic, they are less optimistic than they were, for example, especially two years ago and three years ago, right?

Michael Langemeier: Yeah, and farmland values, depending on who you talk to, are relatively flat right now, and so that would be consistent with this chart.

James Mintert: So the long term index, I think, was down, uh, five points, uh, compared to a month earlier, uh, but still was higher than it was a year ago. Uh, so the index is at 151. I think last month it was 156. Again, if you look at the chart, although it’s been kind of bounced around these last two months, basically that index has been hovering just above 150, uh, going back, again, over the last six months. Um, and the difference between the long term Uh, index and the short term index is the long term index is down a little bit compared to its peak, but not much.

Uh, this month’s readings 158. The peak value and that I think was about 160. And it was only up that high one time. So if you go back two years ago, it was sitting at 158. So we’re down compared to that. So people have lost more optimism about the short run outlook. And the long term outlook really hasn’t eroded significantly, at least not very much.

Michael Langemeier: If you want to look at one question in the survey over time where people are relatively optimistic, it’s long term farmland value expectations. Yeah it’s got as low as 130, maybe a bit below 130 a couple of times. But this index for the most part, this index has been very strong. And, and, and I, and I think what this really tells you is, is the people that are filling out this survey are, are fairly optimistic long term, uh, about production agriculture. That’s what it tells me.

James Mintert: Yeah, I, I tend to agree with that, but I have to say I find it to be a little bit of an anomaly that the long term index in February, for example, was down around 135, 136, somewhere in that ballpark. And we’re roughly 15 points higher than that today, in an environment where interest rates went up and commodity prices is didn’t really improve. So it is interesting.

Michael Langemeier: I’ve tried to relate this particular question to other questions in the survey such as producer settlement and financial performance and quite frankly it’s not that closely related. The short term index is very closely related to what’s going on financially and producer sentiment. The long term index has a life of its own.

And so this is, this is one of those, uh, one of those charts that we need to spend more time thinking about. What could, what could be, uh, what could be related, uh, to the, to these expectations in terms of long term, uh, long term farmland values. Well that, that, but they haven’t come up with anything so far.

James Mintert: That’s a good point. And the question says, you know, look ahead five years, there’s always the possibility that people are just taking a very long run view. Right. Um, and that’s because on a telephone survey, we don’t, you know, get a lot of detail. People don’t have a chance to ask us questions about what we mean.

So, when you start thinking about long term farmland values, perhaps people are thinking much longer than five years.

Michael Langemeier: Perhaps, and we’ve said before on this podcast, there’s very few five year, five year moving average periods where farmland values haven’t been up.

James Mintert: Right. And the longer you stretch out your time arousing, the more more more optimistic you are with farmland values. I suspect we might be picking some of that up.

[00:20:06] Farm Policy
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James Mintert: So, Michael, we asked a series of questions about farm policy to learn a little bit more about what people were thinking. And keep in mind, the survey was conducted the same week that Congress voted to extend the current 2018 farm bill provisions for another year until 2024. So not everybody knew that. I think that announcement was made roughly midweek when we were collecting data. So some people responded before that announcement, some after, and we don’t know exactly how closely people were paying attention. But we did ask a couple questions about it. Uh, expectations with respect to choosing the ARC or PLC program for corn and soybeans and this only these questions only went to corn and soybean producers.

Um, we started off by asking, you know, which on corn, for example, which program did you choose in 2023? Um, 71 percent of the people in the survey said it for ’23 they chose the ARC program for corn. 29 percent said they chose PLC. And then we came back and said, if the current farm bill is extended into 2024. And at the time we wrote the question, we didn’t know if that was going to happen. We strongly suspected it might. We asked, would you plan to sign up for ARC or PLC and your corn base acres in 24? And, you know, essentially what people told us, well, two things, first of all, there’s a lot of uncertainty, even though we said, uh, extends the current farm bill into 2024, a high percentage of people basically, they don’t know what they do in 2024. I think with corn, it was about 43 percent said they didn’t know what they would do. I think on soybeans, it was a little over 50, maybe 52 percent said they didn’t know what they were going to do. However, among those who were willing to make a choice, perhaps not too surprisingly, they basically mirrored what they did in 2023.

Um, I think 33 percent said PLC, uh, 68 percent said ARC for corn, and the percentages didn’t differ too much from that for soybeans. Um, I think this ties back to why people aren’t worried about farm policy. They’re, they’re just not too worried about this. They kind of expect things to remain more or less what we’ve got.

Michael Langemeier: And this only went to corn and soybean producers. Corn and soybean producers for the last couple years really haven’t received very much in terms of payment, and so maybe that’s part of their expectation too, that I’ve done fairly well in recent years and my payments been fairly low, and so that’s what I’m expecting to happen in ’24.

James Mintert: That could be reflecting that as well. I mean, I think the idea that it hasn’t been an important part of farm income in recent years therefore, it’s not something that’s really top of mind.

Michael Langemeier: You have to go back to 2020 when it was a very large part of farm income.

James Mintert: So it hasn’t been top of mind here lately. So, um, we’ll learn a little bit more about that in the future as time goes on. And perhaps, uh, probably survey that more as that deadline approaches in 2024.

So that wraps up this month’s, uh, Ag Barometer survey. You’ve got more details on our website, uh, which is purdue.edu/agbarometer. If you want to read the full report or look at any of the charts.

And you can also register for the Purdue’s Top Farmer Conference while you’re on the website. That’s coming up on January 5th. Uh, once again, like last year, you have the choice of registering to attend in person here in West Lafayette or to take part in the conference online. And all those details are available, uh, on the purdue.edu/commercialag website for the Center for Commercial Agriculture. We’ve got a really good lineup, so I’m really excited about the conference. How about you, Michael?

Michael Langemeier: I think it’s gonna be a great conference. We’ve got we’ve got some speakers here that we’ve never had before. And so I and so I think a lot of people have have not heard of the speakers that we’re getting in this time.

James Mintert: Yeah. Just so we’ve really taken the opportunity to recruit some people in. So Jim Bullard, who is the new dean of the business school here at Purdue, is going to be speaking. Jim Bullard, of course, was, uh, prior to coming to Purdue in the summer of ’23, was the president of the St. Louis Federal Reserve Bank. So we’ll be having an interesting conversation with him about the macroeconomic outlook, especially interest rates.

Scott Irwin from the University of Illinois is coming over to talk about biofuels. Brad Lubben from the University of Nebraska is going to talk about farm policy. He’ll have some interesting points to make with respect to where the next farm bill is going to shake out. And then, uh, we’ve got Chad Hart coming back from Iowa State University to take kind of a longer run look at both corn and soybean, uh, prices, so.

Michael Langemeier: And in particular, this will be a good chance for people to learn more about, about ethanol and renewable diesel. I mean, certainly a combination of Scott Irwin and Chad Hart is, uh, is a combination you really don’t get at any other conference. And so you’re, you’re really going to learn about those topics in particular.

James Mintert: Yeah, so we’re looking forward to that. So, uh, with that, uh, we’re going to wrap it up, and on behalf of my colleague, uh, Michael Langemeyer and myself, I want to thank you for joining us, and on behalf of the Center for Commercial Agriculture, thanks.