October 1, 2024
Farmer Sentiment Reaches Lowest Levels Since 2016 as Income Expectations Weaken
In September, the Purdue University/CME Group Ag Economy Barometer recorded its lowest readings since March 2016. Purdue ag economists James Mintert and Michael Langemeier share some insight into the results of the September 2024 Ag Economy Barometer survey, conducted from Sept. 9-13, 2024. This month, the Ag Economy Barometer fell 12 points to 88, marking significant concerns among producers, especially crop farmers. The discussion highlights shifts in sentiment, the impact of input costs, declining income expectations and profitability, and a detailed look at farmland values and cover crop usage. Understand the current state and future expectations of the U.S. agricultural economy.
The Ag Economy Barometer sentiment index is calculated each month from 400 U.S. agricultural producers’ responses to a telephone survey. Purdue ag economists James Mintert and Michael Langemeier share some insight into the results of the September 2024 Ag Economy Barometer survey on this Purdue Commercial AgCast episode.
The full report is available at https://purdue.ag/agbarometer. The audio transcription is available below.
Audio Transcript
James Mintert: Thanks for joining us for the Purdue Commercial AgCast. I’m Jim Mintert, Director of the Purdue Center for Commercial Agriculture, and joining me today is my colleague, Dr. Michael Langemeier. We’re going to review the results from the Purdue University-CME Group Ag Economy Barometer from the September 2024 survey.
[00:00:22 Ag Economy Barometer]
So Michael, the Ag Economy Barometer fell 12 points this month to 88. That left the index down 18 points compared to a year ago. And to me, the significant part was that we’re below 100, because the base level for the barometer, of course, is the fourth quarter of 2015 and the first quarter of 2016. And so, uh, this month’s reading tells us that sentiment has dipped below what it was in that late 2015, early 2016 era. And for listeners that maybe are a little rusty on what that era was like, that was the early stages of a pretty significant downturn in the U. S. farm economy. And so, that tells me producers are pretty concerned about economic conditions on their farms and for the ag economy right now.
Michael Langemeier: Yeah, and I think that’s particularly true for crop producers. When you look at the responses in, in terms of the livestock industry versus the crop industry, uh, with one of our questions, it’s obvious that people are much more pessimistic about the crop industry. Uh, and just to put this in perspective, if you look at the ’24, uh, perspective or potential net returns, they’re lower than what they were in 2016. So to me, it’s not real surprising that, that the index is below 100 right now.
James Mintert: Yeah, and that’s probably a good point with respect to the difference between what’s going on in the livestock versus, um, the crop sector. And, of course, that’s especially true if you look at the beef sector versus the crop sector. And our survey is weighted towards crop producers. In fact, I think, uh, every month we, uh, shoot for having at least 53 percent of the producers in the survey have a corn and soybean enterprise. Most of the time, it’s actually a little bit higher than that because they might be in the survey because they have another enterprise, but they still have a corn and soybean enterprise. And then you add the wheat and cotton farmers onto that as well, and so it is oriented a little bit towards the crop producers, and that is pulling that index down.
If you look at the Current Condition Index, it was down 7 points compared to last month. And that leaves it 22 points lower than this time last year, Future Expectation Index down 14 points compared to August, and that leaves it down 15 points lower than in September. And Michael, no big surprise here but if there was maybe a little bit of a surprise, maybe it was thinking the current condition index might fall even more.
Michael Langemeier: Yeah, and I, I did not expect the Index of Future Expectations to drop as much as it did. And that speaks volumes of what, about what people think the next several years looks like. Uh, uh, right, you know, we know that this next year is not, doesn’t look very good, but in particular for crop producers. But, but the fact that that Index of Future Expectations dropped as much as it did, did the way those course, those questions are worded, they’re looking out five years. And so that’s pessimistic long term when you have that big a drop.
James Mintert: You know, and that showed up elsewhere in the survey, Michael, with respect to, uh, producer’s attitudes about what’s going to take place with respect to future ag exports. Which again is a five year question. Uh, we asked people to look out five years ahead. I think we got the lowest positive response to that question that we’ve ever gotten since we started asking it, I think back in what, 2019?
Michael Langemeier: Yeah. And the lowest index, you put an index for them. It’s the lowest index.
James Mintert: Yeah. So that again. Historically, export growth has been an engine of growth for the U. S. ag sector, and people are pretty pessimistic about what’s taking place there.
[00:03:43 Farmers’ Biggest Concerns]
Um, we’ve been asking this question about what your biggest concerns are going back now to the beginning of 2023, and these last several months, we have seen a shift with more people telling us that they’re worried about lower crop and livestock prices as a top concern. This month, it was chosen by one third of the people in the survey. That essentially matched the percentage who said higher input cost. Which since the, since we started asking this question, that’s been the number one concern all along, high input cost. Now we’re at a point where lower crop and livestock prices are just as big a concern as, as high input cost. And you know, Michael, to me, that’s just the classic, where people are worried about a cost price squeeze.
Michael Langemeier: Oh, definitely. And, and, and more worried about that than they are policy. I mean, it’s not like there’s not policy concerns. It’s just that these, this, uh, lower crop prices and higher input costs are overwhelming, uh, their concerns about policy.
James Mintert: And then if you look at the responses over the last year, I think consistent with what’s taken place at the Federal Reserve, fewer people are worried about rising interest rates or the concern about interest rates in general. A year ago, one fourth of the people in the survey said that was one of their top concerns. This month, that’s down to 17%. And I think that’s a reflection of the fact that we still have lingering high rates in the ag sector compared to where they were a few years ago. But I don’t think as many people are worried about the potential for rates to go up, right?
Michael Langemeier: Yeah, I think that’s consistent with the high input costs. I mean, if you look at, if you look at agriculture in input price indices, they’re relatively flat for the last year. But they’re much, much higher than what they were two, three years ago. And so it’s the elevated prices that are really concerning and exactly what you said is true for interest rates. It’s not like they’re going higher, but they’re still relatively high compared to what they were a couple of years ago.
James Mintert: Yeah. And I think. You know, there’s been some work on the consumer side and some other surveys outside of what we’ve been doing that look at what people have as an anchor point. And I think for a lot of people, the anchor point is what took place with respect to all these things prior to COVID.
Michael Langemeier: Yes.
James Mintert: That’s certainly true on the consumer side. There’s been several surveys that have kind of documented that. I think we’re looking at the same thing in the ag sector as well.
[00:05:57 Farm Financial Performance]
Um, the Farm Financial Performance Index came in at a reading of 68. That’s down four points compared to last month. And it leaves it 18 points below where it was this time last year, and that really tells the story, doesn’t it?
Michael Langemeier: Yes. Yes, that definitely tells the story that they’re very concerned about this, uh, this margin squeeze.
James Mintert: We had a little bit of a time period earlier this year, in late spring, kind of early summer, when people didn’t seem all that cognizant of how low prices were headed and, and the impact that was going to have on their financial situation. I think everybody’s fully aware, fully engaged at this point. Again, thinking about the crop sector, not true in beef, uh, less true overall in the livestock sector, but, but clearly in that crop sector.
[00:06:43] Farm Capital Investments
Farm Capital Investment Index was up a little bit this month, up four points compared to a month ago, but that still left the index four points lower than a year ago. And I think the big picture there, Michael, is the index remains in very weak territory as a large majority of producers continue to view this as a very poor time to make large investments.
Michael Langemeier: And that’s been true for over two years now. And this is an extended period of time here, and it corresponds with higher interest rates, uh, but extended period of time here where they’re just not very optimistic.
James Mintert: Yeah, if you look at the time series, it is pretty much sideways over exactly the last two years. Two years ago at this time, the index was sitting at a reading of 31. So we’ve been in the 30s most of the time over the last two years. And that contrasts with where that index was back in late 2020 and early 2021. We had a period of time there where we were in the eighties and actually got above 90 for a while. So there was a period when people thought it was a great time to make investments. That’s certainly not true today.
And you can see that when you look at the underlying questions, we ask people as a followup, what their plans are for farm machinery purchases in the upcoming year and going back to June, you can really see a change in how people responded. In June, 53%, a little over half of the people in the survey said they intended to make fewer purchases in the upcoming year than they did a year ago. That percentage keeps climbing month after month, and this month it was up to almost 70%, I think, 69 percent of the people in the survey said fewer machinery purchases in the upcoming year than a year ago.
Um, and at the same time, what they were really doing was flipping from, holding purchases constant or about the same, to saying, uh, fewer purchases. Any surprise for you on that one?
Michael Langemeier: Not really. I mean, when you, when you look at the current, the current environment, uh, with, with relatively low incomes, when you have relatively low incomes, uh, and you’ve had that following years where you had really strong incomes and you probably did buy some machinery, uh, this is, you, you’d expect that the purchases to be down quite a bit.
James Mintert: Yeah. And from a farm management perspective, one of the first things you’d tell a producer who’s looking at the change in the economic environment, pull back on capital expenditures, only make expenditures when you really need them. And I think that’s exactly what’s going on.
When we ask people about what the primary reason it’s a bad time to make large investments, again, there’s been a change there over the last five or so months. Uh, going back to I think May, 16 percent of the people in the survey said it was about uncertainty about farm profitability. That’s now up to 31 percent and, and actually it’s turned into the number one reason. Uh, so that’s, previously people were pointing to things like, high cost of farm machinery, making it a bad time. They were pointing for a while to the fact that interest rates had gone up. Now it’s about profitability.
Michael Langemeier: And, and one of the things that, I hate to be overly pessimistic here, but, uh, this, this survey is pretty pessimistic regard, uh, regarding, uh, uh, large, large investments and you look at the top three, uncertainty about farm profitability, um, uh, you’re also looking at rising, high interest rates. You’re also looking at high prices for farm machinery and new construction. Those are your top three. All three of those are, have some very strong headwinds and really, uh, it really drive home the point that we’re not, probably not going to see. Uh, very large, uh, uh, investments this year.
James Mintert: Yeah, the only one that’s really got any hope of getting better over the next, uh, say six months or so
Michael Langemeier: is interest rates.
James Mintert: Yeah, yeah, yeah. And even there, not a huge amount of help, right?
Um, we do ask people who say it’s a good time to make large investments why they feel that way. I think the significant point here, Michael, is last month only 11 percent of the people in the survey said it was a good time to make investments. This month it was 13%. So very few people think it’s a good time to make investments. Um, and, you know, if they do think it’s a good time to do so, It’s the thing that they’re pointing to is high dealer inventories. So it is easier to strike a deal right now because of the availability of machinery in the, in the high inventory.
Michael Langemeier: And one thing that’s really interesting about this particular question, if you go back a year, 32 percent said there was a good time because a strong cash flow to this last. Uh, month, September, the September 2024 survey this month, uh, correct myself there, it’s only 8%. And so, so obviously there, there’s a few people out there, maybe livestock producers, uh, that, that, that feel that the cashflow is going to be strong enough, uh, to make large investments, but that’s a, that’s a minority.
James Mintert: And it’s a big shift over the course of 12 months.
Michael Langemeier: It’s a huge shift.
James Mintert: Yeah, good, good point. Uh, the Short Term Farmland Value Index was down 10 points compared to last month that left the index at a reading of 95. That’s the first time that index has been, uh, that low since, I think, July of 2020. Um, which is really interesting. And the fact that it’s below 100 is quite striking because the way the index is constructed, of course, it’s the percentage of people who say they think value is going to go up. Minus the percentage of people who say values are going to go down. And so for the first time in a long time, we’ve got more people saying they think values could weaken than actually go up. And that’s significant to me.
Michael Langemeier: Yeah, definitely significant. And I, I look back when we had the last time we had an index below 100. And, and according to my records here, it’s the summer of 2020. So coming out, coming out of COVID. Uh, and so it’s been a while. Uh, but I think we’re in a new environment, uh, for, for land prices.
James Mintert: And, you know, if you look at the raw responses to the question, you can really see that. So, the percentage of producers who said they expect values to rise dropped 10 points this month. And those people essentially, or that percentage group, uh, essentially shifted over to no change in values. Uh, so, when you look at it on a chart, it’s quite striking, right? That the, the green bars have really dropped off the chart pretty hard. We didn’t have any change in the percentage of people who say that values are headed lower, but that did jump up a month ago, right? So it’s sitting at about 19%. Um, so we’re all of a sudden we’re at, we’re at the point where we’ve got more people, as we said a minute ago. Who think values could decline over the next 12 months and think it could go up. And that’s, as you pointed out, we haven’t seen that since 2020.
Michael Langemeier: It’s been a while.
James Mintert: Yeah. Uh, the Long Term Index did the opposite. It would actually, after falling three months in a row, it did actually rise a little bit this month. It was up, uh, to a reading of 147. That’s about a five point increase compared to a month ago. But that still leaves that index six points below where it was this time last year. And of course, it’s a different perspective. It’s, that’s looking out five years. And, you know, if you look at that index over time, it has a tendency to just kind of want to go sideways. It does fluctuate, but it doesn’t correlate that strongly with the 12 month index, does it?
Michael Langemeier: It doesn’t correlate with, any of the indices that strongly and, and I think what’s going on here, and we’ve, we’ve talked about this before, but if you look at any five year average of land values going back quite a while, in, in most cases, well over 90 percent of the time, uh, the values actually go up during a five year period, and that’s what this, this, uh, this, this, uh, index is reflecting.
James Mintert: Yeah. That’s probably a good point.
[00:11:18] Farmland Value Expectations
Um, we do ask the folks who think farmland values are going to rise over the next five years why they feel that way. And probably the most interesting thing there, not a lot of change here, but if you look at the values the last few months, and we started asking there, including this as a response back in, I think, April, the percentage of people who are pointing to energy production, meaning solar and wind energy, as a reason why they’re optimistic about farmland values is holding steady at about six to seven percent. We had, I think we had a couple of months when it was above ten percent, uh, but most of the time in the last three months it’s been six to seven percent. That’s not going away.
Michael Langemeier: It’s not going away, and one of the interesting things about that, that’s higher than the percentage that, uh, the percentage of people that are listing strong, uh, farm cash flows or, uh, low interest rates. And just put in perspective, two, two key fundamentals. Uh, there’s a very small percent, uh, that, that think they’re going up because of that reason. There’s a higher percent think they’re going up because of energy. And I want to just kind of puts that in perspective that this, this energy production, it’s, it hasn’t as a, it’s having a pretty large impact on farmland values in some areas.
James Mintert: Yeah, and I think that’s a good point to maybe reiterate that this is a national survey, right? This is not focused on a single state. It’s not focused on the Corn Belt exclusively. It is a national survey, so it suggests it’s a fairly broad based, um, uh, factor with respect to land values. Admittedly, not in every county across the nation, but enough, widespread enough that we’re seeing some impacts show up there.
[00:15:43] Cover Crop Usage
Um, each year in September, going back to 2021, uh, we’ve been asking people about their usage of cover crops. I guess the first time we asked this, we did it maybe in August of 21, but so for four years in a row now, we’ve been asking a series of questions about cover crop usage just to kind of track what’s going on there. And, you know, a couple of the questions are really kind of interesting. Some of the responses are pretty much the same, so no, no big shift from one year to the next. Um, but, You know, if you look at the percentage of people who say they are currently using cover crops, uh, that’s pretty consistently in our survey been over 50 percent. This month I think it was 56 percent. A year ago it was 52 percent. That’s probably not enough difference to really worry too about it, much about that from a statistical perspective. So that’s, that’s kind of interesting. I think the first time we saw that, Michael, I was a little surprised at how high that percentage was.
Michael Langemeier: Yeah, I was too, and there’s only 25 percent, uh, that do not use. I mean, that have never used, and so that, that, that was smaller than I thought it would be. Uh, and then there’s another, uh, 20 percent or so, I think, I think it’s exactly 20 percent that have used in the past and discontinued.
James Mintert: Yeah.
So the other interesting thing about this is we’ve been asking a question that says annually, what proportion of your farm did you plant to cover crops? Uh, and this is going, I think, Michael, to the people who said, yes, I currently plant cover crops. And there has been a shift there. In the early years, the first couple times we asked this, we got between 54, 59 percent, I think in 2022 it dropped to 50 percent, said they were only planting cover crops on 25 percent or less of their acreage. But these last couple years, the percentage of producers who say they’re doing it on a small piece of their acreage has been declining. And the percentage who say they’re devoting a higher proportion of their total acreage to cover crops has been rising. And, and to maybe put that in perspective, um, I think if you, if you aggregate the people in the 26 percent of the acreage up to 100 percent of the acreage, the first couple times we asked this, that was about 40, One to maybe 46 percent of the people in the survey this time around, that was up to 68 percent of the people, the survey who said they use cover crops. So to me, the message, at least based on our survey, is that, uh, among people who use cover crops, they’re devoting a larger and larger proportion of their total farm acreage. to cover crops. Do you, do you agree with that assessment?
Michael Langemeier: Yes. And, and, and, and a lot of these have been doing this for quite some time. They’ve been doing, they’ve been planting cover crops for quite some time. And so obviously, uh, some of these people that have been doing this for quite some time, it’s working. Uh, and, and when something’s working like the technology is working like that, you’re gonna, you’re gonna put it on more acres. You’re gonna use that on more acres.
James Mintert: Yeah. So there’s, there’s a group of people out there who’ve been pretty successful, uh, using cover crops to the point where they think it’s worthwhile enough to actually over time devote more and more of their acreage to the usage of cover crops. Um, you know, when you look at motivations for planting cover crops, those don’t seem like they’ve changed very much. People point to soil health and improving erosion control. Those are the top two. Water quality shows up as number three. Um, if there is a surprise out there, Not that many people tell us it’s related to carbon sequestration. I think the first couple times we asked this question, 10 to 11 percent of the people said it was carbon sequestration was a motivation for using cover crops. This month, it was only 7 percent. So I was, if there’s a surprise, I would have expected that number to maybe drift upward.
Michael Langemeier: And I think it might. I mean, it seems to me like there’s some policy legislation that’s, that’s, that’s, that’s gonna, that we’re gonna see here relatively soon that may encourage Uh, more carbon sequestration. So we’ll see, we’re going to keep asking that question.
James Mintert: Yeah. So it’d be interesting to see how that tracks over time, but at least so far, we haven’t seen too much take place there with respect to a bump up.
[00:19:47] Conclusion
So that wraps up the highlights for this month’s survey. You can get the full report available on the Purdue-CME Group Ag Economy Barometer website. That’s purdue. edu/agbarometer. We also have a set of slides to go along with this podcast. If you want to look at some of the charts that Michael and I were looking while we were discussing this month’s results and you can download those from our website as well. With that, I want to thank Michael for joining me today and thank you for listening and viewing this podcast. On behalf of the Center for Commercial Agriculture, I’m Jim Mintert.
TAGS:
TEAM LINKS:
RELATED RESOURCES
UPCOMING EVENTS
December 19, 2024
The 2024 Ag Tax Webinar, part of the Purdue Income Tax School, will provide in-depth coverage of selected agricultural and farm income tax issues to supplement material provided at the two-day in-person or virtual tax schools. The 2024 webinar will be taught by Guido Van Der Hoeven, an expert on agricultural tax issues and one of the authors of the 2024 Agricultural Tax Issues book, on Monday, December 19, 2024, starting at 9:00 am ET.
Read More