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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 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 he’s also the Associate Director of the Center for Commercial Agriculture.

We’re going to review the results from the March 2024 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 11th through the 15th of March.

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[00:00:43] Ag Economy Barometer Index Rose

And Michael, the barometer went up a little bit this month. The index rose to 114, that’s up three points compared to a month ago. That still leaves the barometer three points below a year ago. If you look at it on a chart, it’s just really kind of a sideways move. So it wasn’t really a big shift. But if you look underneath, uh, the interesting thing was, even though it was a small rise in the barometer, all of that came about because people became more optimistic about the future.

The future expectation index was up five points compared to last month. That leaves that index seven points higher than a year ago. Current conditions was actually down a little bit down two points compared to last month. And that leaves it down a whopping 25 points compared to this time last year.

So first question, Michael, are you, are you surprised at the results? Are you surprised people became more optimistic about the future?

Michael Langemeier: I’m not really surprised that the Ag Economy Barometer went up a little bit. I mean, it didn’t go up that much, so that wasn’t that surprising. But, but this divergence in, uh, Index of Future Expectations, Index of Current Conditions has huge ramifications for how people think about buying equipment and land values.

If there, if they are relatively more optimistic about the future. That means that those, those land values are going to hold a little bit better than they would otherwise. And they’ll be a little bit more optimistic, uh, when it comes to buying machinery. And so I found that to be a very interesting result.

James Mintert: So, we’ll talk about this more as we look at some of the responses to some of the other questions, but it almost implies that people think that what took place this winter with respect to the downturn that we saw, for example, major commodity prices like corn and soybeans, uh, we’ve had large losses now for a long time in the hog sector, that people are kind of viewing that as a bit of an anomaly. And that a more positive situation is going to come back later in the year. And I guess the real question is, what motivated that?

Michael Langemeier: Yeah, that’s that’s that’s when you start talking about the motivation, you start scratching your head a little bit because the FAPRI (Food & Agricultural Policy Research Institute) just came out with their long run forecast. And and the prices really are pretty flat from from here for the next 10 years. And and they’re at a relatively low price for corn, for example. And so they’re not necessarily expecting, you know, this year to be relatively down and then see an improvement next year.

James Mintert: Yeah, the only thing I could come up with, and I put some of this in the, uh, written version of the report this month, was the idea that people did become a little more optimistic, we’ll talk about this later with respect to the interest rate outlook, and maybe that contributed to this I think it was a factor but how much and it at least from my perspective it if that is the case it made people more optimistic than I expected.

Michael Langemeier: Yeah, that would be pretty important when you come to ask assets again, certainly farmland, equipment that, that, that’s pretty important.

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[00:03:28] Farm Financials

James Mintert: So the Farm Financial Performance Index was almost unchanged. It was down a point at 83 compared to 84 last month. And I suppose that’s sort of consistent with what we saw with respect to the Current Condition Index. So maybe no big surprise there. Although you, with the boost in optimism we saw in that Future Expectation Index, I might have expected to see a little more optimism show up here than than what we picked up. But really, no change. I mean, the last three months we’ve been at 85, 84, 83. So nothing, nothing to earth shaking there. Do you agree with that?

Michael Langemeier: Yeah, it’s usually, this is usually fairly correlated with the Index Current Conditions and no real surprise.

James Mintert: We continue to ask people, looking ahead to the next year, what are your biggest concerns for your farming operation? And the absolute percentages bounce around a little bit from one month to the next, but if you rank them, people are still pointing to high input cost as their number one concern. That was chosen by 36 percent of the people in the survey this month. That is up compared to where we were back in January. Back in January, that was chosen by less than 30%. So, I’m not sure exactly what drove that. If it was maybe some of the concerns about fuel prices, perhaps.

Number two is lower output prices. That’s been on the rise. If you go back to this time last year, that was only chosen by 18 percent of the people in the survey. This month it was chosen by 26. That’s down a couple points compared to last month, but really I think the key is the difference compared to last year.

And then number three is interest rates. Um, that was chosen by 20 percent of the people in the survey. Again, if you go back to this time last year, I think it was chosen by 25 percent of the people in the survey. So those are the big worries. Um, I guess, looking at the data, Michael, are you surprised that we saw this bump in people worried about input cost?

Michael Langemeier: A little bit, yes. I mean, you look at the break evens, uh, you know, this year compared to last year, break evens are down a little bit. So, I’m not exactly sure what, you know, what they’re looking at there. But as you indicated, there has, is some inputs, like fuel, labor has been difficult to find. And so, there is some inputs that still have some upward pressure.

James Mintert: I suspect that maybe part of what we’re picking up there is just this concern about the fact that because of how costly inputs are in general, we’re locking in high break even prices. And maybe if we phrased the question differently, if we said, you know, it’s one of your number one concerns, you know, high break evens, maybe that’s, maybe that’s really what we’re picking up.

Michael Langemeier: And maybe some people were anticipating input costs to decline quite a bit after we got past COVID. That hasn’t happened.

James Mintert: Yeah. I mean, we’ve seen some improvement, obviously, in primarily fertilizer.

Michael Langemeier: It hasn’t happened to it. They’re still much, much higher than they were prior to COVID. That’s my point.

James Mintert: Yeah, the the only thing we’ve really seen back off has been fertilizer.

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[00:06:15] Farm Capital Investments

All right, so the Farm Capital Investment Index was up seven points compared to a month ago. Just one point lower than this time last year. You know, if you look at it on a chart, it’s kind of a sideways move from a longer term perspective. But still, I think, if you think about the interest rate impact and the Future Expectation Index, uh, makes a lot of sense that the Farm Capital Investment Index actually improved, don’t you think?

Michael Langemeier: Yes, I definitely think that. And, and for this index to really increase dramatically, we’re going to have to see some change in the biggest concerns. That high input cost is going to have to be picked by a lot, a lot fewer people. Uh, and then that, that concern about lower crop prices and, and livestock prices is also going to have to go down. And, in other words, we’re going to have to see stronger margins. And obviously we’re just, we’re just not seeing that on the horizon.

James Mintert: Yeah. You know, to put some perspective on this for listeners, the lowest that index has been is about 30. Um. And the highest, of course, it got up over 90, back in early 2021. But if you look at the more recent time frame, we’ve basically been bouncing between that low of around 30 to the mid 40s. And so, I agree with you, to bust out of that range, uh, we’re gonna have to see something change, and I don’t see that happening, at least in the short run.

We do always do the follow up for folks who say it’s a bad time to make large investments. We do the follow up and ask, you know, why do you, why do you feel that way? And like all of our questions or almost all of our questions, we give them a series of choices. The choices are uncertainty about farm profitability, tight farm machinery inventories at dealers, rising interest rates, the increase in prices for farm machinery, new construction, and then the ubiquitous other category for all the things that we don’t know about, right?

If you look at this data over the course of not just one month, but maybe going back, for example, to last fall, you can start to see some change showing up here. Last fall, only 7 percent of the people in the survey who said it’s a bad time to make large investments pointed to uncertainty about farm profitability.

Last month, 22 percent chose that, so it tripled. This month it backed off from that a little, but not a lot. It’s it was at 18%. So these last three months we’ve had 17%, 22 percent and 18 percent of the people who think it’s a bad time to make investments pointing to uncertainty about farm profitability. That’s a shift. Uh, people are, I think it’s another way of saying people are worried about a cost price squeeze.

Michael Langemeier: Uh, that’s definitely the case. And if you track capital expenditures nationwide for agriculture, it’s, it’s very, it’s quite correlated with income. And so that’s what we call the fundamental, you know, one of the fundamentals associated with, with buying machinery, but there’s more to the answers that we’re getting here than the fundamentals.

One of the things that intrigues me is that farm capital investment index has been below a hundred for the life of the survey. That means there’s only some people it seems like that are pretty pessimistic. And the natural question is why? I think in their situation, uh, they can’t afford to buy some of the new machinery. I think that’s partly what’s going on with some of these people.

James Mintert: Yeah, I think the demographics of our survey are, are the issue there. So, again, for listeners, we survey people who have an estimated gross farm income of $500,000 and up. And that was chosen initially because we felt like that was a large enough gross farm income that it was an important part of your family’s annual income. Uh, meaning that you really managed it as a business. And we wanted to talk to people who are managing or engaged in production agriculture as a business as opposed to more of a hobby or kind of a consumption item. And I think we’re consistent in that respect, but you’re right, Michael, in terms of people have estimated gross incomes of 500 to maybe a million dollars, probably aren’t in very good position to make very many purchases of at least new equipment, for example, or make big capital investments in things like land. So, um, that, that is one of the issues of our survey. So I think that’s something that maybe we’d think about with respect to some future survey work we might do.

Michael Langemeier: And and just for example at the Top Farmer Conference this January we surveyed those people in terms of the farm capital investment index, and it was 25 points higher than the December survey that we had with respect to the Ag Economy Barometer. So it’s really group dependent. And if you get a group of people that are maybe a little larger farmers, but are not planning to reduce their size or stay the same size, that they’re growing their business, they’re probably going to have a higher index.

James Mintert: Yeah, good point, and of course we do the annual question in February where we talk to people about, uh, what rate of growth they might expect for their farm operation. And every year that we’ve done that, it’s been in the ballpark of almost 50 percent who say they are either, um, not going to grow or they plan to exit agriculture within the next five years. And so that presents an interesting research question for us, I think, going forward in terms of how we deal with that.

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[00:11:10] Farmland Values

So, the Short-Term Farmland Value Expectation Index, consistent with the other responses, bumped up. It was up nine points. compared to a month ago. Uh, that left the index 11 points higher than a year ago, so the index is at 124.

A year ago, it was at 113. Two years ago, it was at 145, so we’re not back to that level of optimism. But a nine point move in that index in a month is kind of significant, but again, I think it’s consistent with what we saw with that Future Expectation Index. I think, uh, people are also elsewhere telling us that they have improved expectations for interest rates. By the time I got to this chart, Michael, I was no longer surprised. I was a little bit surprised as we worked through some of this, getting ready to work on the report and do the write up. By the time I got to this one, it was like, well, okay, this actually makes sense, right?

Michael Langemeier: I wasn’t either. And the way I typically summarize this, this is towards the end. And so, you know, by the time I summarized all those, all those other questions, I said, well, this, this makes sense. You know, as you said, the Index of Future Expectations was up, uh, rather sharply and then, and then more positive outlook for interest rates. And it makes sense that, that farmland value expectations in the short term would be higher.

James Mintert: However, I think you and I have both been a little bit on the bearish side with respect to farmland, maybe not here this winter and spring, but looking ahead maybe to the end of ’24, beginning of ’25, these folks don’t seem to agree with that outlook.

Michael Langemeier: I’ve been telling outreach audiences that I expect flat to slightly higher, and so I’m, I’m in that category of, of higher. Now we don’t have a follow up question here that says how much higher?

James Mintert: Yeah, that’s a good point. It’s gonna be really interesting to monitor this, especially if we don’t see a recovery or an improvement in commodity prices.

Michael Langemeier: Yeah it If corn prices stay low for an extended period of time here, it’s going to be interesting to see what happens to that index.

James Mintert: Yeah. And if you look underneath in terms of the raw responses to the question, which I think is always interesting to look at, not just the index, what really drove this was a significant jump, in the percentage of people who just say flat out, we think farmland is going higher.

Michael Langemeier: Yes.

James Mintert: There was a small decline in the percentage of people who say lower farmland prices, but the big driver was there were just more people in the survey said, yeah, we think farmland is going higher.

And you know, Michael, the related point here, and we’ll, and we’ll, this will come up a little later in our discussion on the podcast here, but the related point that you and I were talking about before we started recording was the fact that we’re getting more and more expressions from producers that there’s interest in things like carbon capture. There’s interest in solar energy production. Those lease rates are relatively high, especially on the solar side. We don’t know as much about carbon capture rates. I’m starting to wonder if that’s one of the factors that maybe is causing people to be optimistic about farmland values.

Michael Langemeier: And certainly in some areas of the, some areas of the, the Corn Belt, that’s certainly the case.

James Mintert: And maybe beyond the Corn Belt too, right?

We might change our farmland question with respect to asking about that. We haven’t, we have not explicitly given that as a possibility for why you might think land, land values are going up.

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[00:14:12] Solar Energy & Carbon Capture

So, the follow up there, this month, we included a couple of questions, going to folks, with respect to, first of all, have you or one of your landowners engaged in a discussion with a company about carbon capture, utilization, and storage. 18 percent of the people in the survey said yes, either, either I have or one of my landowners has had that discussion. Same question went to folks about solar energy. 12 percent of the people in the survey said we’ve had a discussion or one of my landowners has had a discussion with respect to, leasing farmland for solar energy. I was surprised at this, especially on the carbon capture side.

Michael Langemeier: I was definitely surprised at the solar energy has been running right around 8, 10, 12 percent. Right around that percentage when we’ve asked this in the past. But this carbon capture, we only asked this I think once before and it wasn’t 18 percent when we asked it last time. I was really surprised at that. When I talk to producers, I typically hear a lot more about the solar energy than the carbon capture.

James Mintert: Yeah.

Michael Langemeier: Yeah. But maybe that’s, maybe that’s because there’s so much interest in solar energy in Indiana.

James Mintert: Well, I think that’s part of it, but the other thing is, the carbon, I think the carbon capture thing is really starting to take off with respect to discussions. You point out that we don’t have a lot of data here, so we don’t know if the 18 percent is an anomaly in terms of our survey. We’re going to repeat this question to try and get a better grip on this and ask some follow up questions.

We did ask a follow up question this month on solar lease rates. And we did change the responses because we could tell from previous questions that the rates were drifting up, but we didn’t have a good grip on how much, uh, by how much they were drifting up. So the question is, after the development and construction periods are complete, what is the annual payment rate per acre that you are offered to lease some of your farmland for the installation of a solar energy project?

And we’ve changed the question slightly to, to make sure people are giving us contemporaneous responses. So we’ve restricted it to people saying they’ve had a discussion in the last six months because it’s been going on long enough that we were starting to get concerned that we were picking up rates from two and three years ago.

So these are hopefully, at least the way we phrased question, contemporaneous offers. And it looks like the rates are going up. 54 percent of the people in the survey said they were offered a rate of a thousand dollars per acre or more. And we added a new bucket on this survey question this month. So one of the new bucket was you were offered 1250 per acre or more. 27 percent, one fourth of the people who said they’d had a discussion said they were offered a rate of 1250 per acre or more, with 27 percent being in the 1, 000 to 1250. Those are the two biggest buckets. The third bucket, and this continues to be, uh, kind of an issue. We’re not sure exactly what’s going on here is the less than 500. That was reported by, I think 22% of the people.

Michael Langemeier: What keeps running through my mind when I look at this chart, and look at these results when they come in, is I wonder if a large percentage of those people under 500, are more in the Western Great Plains, where the cash rents are a lot lower. And so that seems like a really good rate, whereas here, you talk 300, 325 cash rent, yeah, 1250, still a lot of money compared to that. But the cash rent’s higher to begin with, so you have to offer a lot higher rate, and so, I don’t know if we can do this, but it’d be nice to have a follow up question, uh, and try to pair this with cash rents.

James Mintert: Yeah, uh,

Michael Langemeier: To see my hypothesis is right.

James Mintert: I’m thinking out loud here. That is a good way. We might be able to do it that way. The other thing I was thinking about is, uh, this has turned into a big enough issue. Maybe we need a supplementary survey.

Michael Langemeier: Yeah, that’d probably be even a better idea.

James Mintert: So listeners, for a little clarity here, given the size of our survey, we don’t have a large enough sample that we can say anything about the geography of the respondents. So I, we’ve, strictly speaking, we don’t have enough information to point and say, those less than 500’s are unequivocally from the Great Plains. We simply don’t have that kind of sample size just to do that kind of analysis. We’d have to have a much bigger survey or a simply different survey. There are ways to do this, but not with our, not with our survey.

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[00:18:38] 2024 Election

James Mintert: So we included some follow up questions that really were based on some things that we’ve asked or at least versions that we’ve asked before and after elections. And given all the controversy about what’s taking place with respect to the 2024 election, we thought it would be interesting to learn not who people are going to vote for. We don’t ask those kind of questions, but just to get an idea is what’s on people’s minds in terms of what they’re concerned about and how it might affect agriculture.

So the first question we asked is, are you concerned that following the fall 2024 elections, there will be government policy changes affecting your farm in the years ahead? So pretty wide open question. People are able to interpret that in a multitude of ways. 80 percent. 8 out of 10 said, yes, we’re concerned. We’re concerned something’s going to change following the election that will affect how we farm and how our farm is operated.

Michael Langemeier: And the way we’re asking this question, you know, keep in mind a policy change could be positive or negative. But the way we’re asking this question, we’re really getting at negative policy changes or detrimental policy changes. And so 80 percent that’s, that’s big, that’s a large percentage.

James Mintert: We asked a couple of follow ups to learn a little bit more. These went to everybody. So do you think regulations impacting agriculture will be more restrictive, less restrictive, or about the same following the fall 2024 elections? And this was split. 40 percent said about the same. In other words, no change. 43 percent said they anticipated more restrictive regulations for agriculture. And then 1 out of 5, approximately 18%, said less restrictive. So the about the sames, I think, are in the, you know, we have no idea, right? Right? Flip a coin, who knows? Depends on who gets elected. But 4 out of 10 are kind of thinking, yeah, we’re going to see some more restrictive information here. More restricted about regulatory environment.

And then we asked a tax question. Do you think taxes impacting agriculture will be higher, lower, about the same following this fall 2024 elections? Wide open. Again, this could be interpreted a lot of different ways. Some people might have been thinking, you know, about, you know, estate taxes. Some people might have been thinking about farmland real estate taxes. I mean, some people could be thinking income taxes. We didn’t quantify any of that. Half of the people said, who knows. About the same. But four outta 10, 39%, said that we think taxes impacting agriculture are gonna go up. So if you think about the folks thinking about the policy changes, I think we hit on a couple of things that people are at least concerned about. The possibility of a more restrictive regulatory environment and maybe a tougher tax environment.

Michael Langemeier: Now I know we have in the past, and perhaps we will ask a question here before the ’24 election, specifically related to estate taxes. I think the answers would be similar to what we’re seeing here, but I don’t know. If there’d be more or less concern about that and because that gets a lot of that gets a lot of press, for obvious reasons. We’ve got some things that are gonna expire in ’25 unless the policymakers change them. That’s gonna have a big bite on estate taxes.

James Mintert: So, my gut, you’re, you’re right, and we, we will ask that question here over the summer probably. So, my gut feel is that the folks who say they’re worried about taxes, a big chunk of those are probably thinking estate taxes. That’d be, that’s sort of a guess.

Michael Langemeier: You’re probably right. And there’s been a lot of discussion on capital gains taxes too, and that’s huge for agriculture. We’re very capital intensive, and so those are very real when you’re selling machinery or you’re selling land.

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[00:22:12] Conclusion

James Mintert: Yeah. So that wraps up our discussion for this month’s survey. If you want to read a little bit more about the details, uh, the full report is on our website purdue. edu slash agbarometer. And you can also get it from the Purdue Center for Commercial Agriculture there’s a button that’ll take you right to that site. And then of course, you can download the slides that Michael and I were looking at, the charts, while we were making this discussion. The charts, there are more charts in this slide deck than are in the report because we cover a few more details in the podcast than we typically do in the written report. And of course, we’ll be doing this again next month. And, looking forward to doing that as well, Michael. And Michael, thanks for your help as well. So, on behalf of the Center for Commercial Agriculture, I’m Jim Mintert. Thanks for joining us.