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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 Minnert, 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 October 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 their perspectives on the ag economy. This month’s Ag Barometer survey was conducted from the 14th through the 18th of October.

[00:00:43] Farmer Sentiment in October Rebounded

James Mintert: Michael, we got a surprise this month, a big one. The Ag Economy Barometer Index rose 27 points to a reading of 115. That’s the highest October reading for the barometer since 2021. And you look at the two sub indices, the Current Condition Index and the Future Expectation Index, they both jumped up as well. The Current Condition Index was up 19 points compared to last month. That did leave that index still below 100, uh, left it at 95. The Future Expectation Index jumped 30 points compared to last month. And it was the highest reading for that index since July of 2023. And it is well above 100 at a reading of 124.

So we’ve got a little bit of a dichotomy there with respect to what people are thinking. Those readings above and below 100, I think are kind of important. At least we think they are. Cause that 95 suggests that people think conditions are a little bit worse than they were when we first started collecting data for the barometer in late 2015, early 2016. And, of course, that Future Expectation Index at well above 100 says they think it’s better.

Michael Langemeier: Well, this shift up in both indices is a bit of a head scratcher. I mean, certainly we’re in an election cycle. That probably matters. It’s mattered in the past in terms of the Ag Economy Barometer, and it’s probably mattering again this time.

Uh, you look this up, uh, to do the report, it, it, we had slightly higher crop prices, uh, you know, looking at corn and soybeans specifically, and then we’re combining some pretty good corn and soybeans, and so, all those factors are important, but I don’t know if they’re big enough to explain what’s going on here. One of the things that, that I think might be going on here is people are a little more optimistic about ’25, then perhaps we are, uh, or they’re more optimistic about ’25 than they are ’24.

James Mintert: Yeah, I, I, as you think about the total responses, the complete set of responses that we received to the survey this month. It’s clear that there’s more optimism about the future. They kind of view the downturn that we’ve seen here in 2024 as being transitory, and actually think maybe we’re going to have to see, uh, kind of a rebound of sorts in 2025, and that’s probably where they differ from the two ag economists doing this podcast, right? So we’re not that optimistic about 2025.

But, um, you know, if you look at some of the individual responses to the questions that we use to actually compute the barometer, those results are kind of interesting. Um, the percentage of producers who expect bad times for the U. S. ag economy in the upcoming year declined this month from 73 percent of respondents in September to 53 percent in October. But that’s still over half the people in the survey. Uh, the percentage of producers who expect bad times for U. S. uh, agriculture in general in the next five years fell from 48 percent to 33%, so that fed into our indexes, but that’s still one third of the respondents who think they’re gonna see bad times. Um, this one surprised me the most. Just 23 percent of producers expect their financial condition to worsen in the next 12 months. Compared to 38 percent who felt that way in September. I found that to be a pretty surprising result.

Michael Langemeier: I did too, but I think it’s consistent with them thinking that ’25 is going to be better than ’24.

When you do look at, we have a question that also looks at ’24 compared to ’23, and it’s clear to me that they think ’24 is not going to be very good. Uh, but, but, but certainly, uh, certainly when they start thinking about ’25, they’re, they’re, they are really thinking, uh, it’s consistent with many questions in this survey that, that ’25 is going to be better than ’24.

James Mintert: Yeah, and you kind of mentioned that in comparison of ’24 to ’23, I think 56 percent of the respondents this month said their farm’s financial condition was worse than a year earlier.

Michael Langemeier: And like 10 percent said better.

James Mintert: Yeah, so that kind of confirms what you were saying about how people feel about 2024, but it’s pretty clear that they think ’25 is going to be a better year. They view this downturn in ’24 as being kind of transitory.

[00:04:44] Farmers’ Concerns

James Mintert: So one of the things we always do in the barometer surveys, if you go all the way through the survey, the very last question, uh, we allow respondents to just tell us what’s on their mind. Uh, and so that’s an open ended question, and our survey takers kind of jot down whatever people are saying. We take those comments, and we look at them, and we try to summarize them, and we do it in the form of a word cloud. And I’ve included the word cloud in this month’s report. Because I thought it was interesting. So, the top two things in that word cloud were policy and politics. And they’re probably about matched 50-50. After that, people were talking about inputs, and we picked that up elsewhere in the survey. People are very concerned about high input cost. They’re concerned about prices. I think they’re talking primarily there about output prices. Then you see regulation, environment, inflation, Those are a lot of topics that have a lot to do with an election that’s going to take place in just a few days from when we record this podcast, and actually it’s going to be released on election day.

Michael Langemeier: Yeah, you could argue almost all the big words on the word cloud are related to the policy, environment we’re in. And really, things could change depending on who gets elected on a lot of these topics.

James Mintert: So I we’re just kind of making a case for the fact that we both think the November survey, which will be conducted a week after the election, is going to be very interesting. It certainly was in 2016 and in 2020. We think it’ll be interesting again this time.

So we continue to ask the question, looking ahead to next year, what are your biggest concerns for farming operation? Still, high input costs and low crop and livestock prices are the top two concerns. Um, as the year has progressed, people have become more and more concerned about low crop and livestock prices.

And of course, the focus is mostly on the crop side there. And on the third component, the third highest risk, Rising interest rates, that one’s gone the other direction. Beginning of the year, roughly one out of four people were worried about rising interest rates. Um, this survey, I think it was 15%. So, fewer people worried about interest rates, but we are still very concerned about high input costs.

People worried about locking in high break evens. And then, correspondingly, getting, uh, kind of a cost price squeeze because of relatively low prices. So those concerns are still, this part of the survey was very consistent with prior surveys. Some of the other questions, not so much, right?

Michael Langemeier: Yeah, as an example of this, I just talked to someone recently who was very concerned about, uh, you know, cash rents and was, and was, was telling me that his break even, his break even for ’25 still looks, it’d be around $5. You look at futures prices, they’re not anywhere near 5 corn prices.

James Mintert: Yeah, good point. Just

Michael Langemeier: brings that home.

James Mintert: Yeah.

[00:07:27] Farm Financial Performance

James Mintert: So if there’s an index on the survey that’s shocked me, it was this one, Farm Financial Performance Index went up 22 points in October to 90 from 68 in September. And you know, if you looked at that index throughout 2024, it’s been on a downward trend really since the beginning of the year. Uh, not every single month, but if you draw a trend line, it’s, it’s downward sloping. I did not expect to see this index go up at all, truthfully. I especially didn’t expect to see it go up 22 points.

Michael Langemeier: I admit, I double triple checked this number because I didn’t think it could go up that much either. I mean, even in early, early this year, we were running 80, slightly above 80. That seems reasonable to, to me, but we hit 90. We haven’t been in, we haven’t been in 90, in about 10 months, I think it was December ’23, the last time we were at 90 or higher. And ’23 certainly was a different period than ’24.

James Mintert: Yeah, so we really don’t have an explanation for what happened, right? People, except for the fact that people are more optimistic about what’s going to take place in the future than we are. I mean, that’s the bottom line.

Michael Langemeier: That has to be it.

[00:08:36] Farm Capital Investments

James Mintert: Um, the Farm Capital Investment Index, consistent with some of the other results we saw this month, was up. Up 7 points compared to a month ago, 7 points higher than a year ago. Um, That index is still in what I’m going to call kind of a broad trading range, a broad sideways trading range of about 30 on the low end to 50 or so on the high end. So we’re still in the middle of that, so it didn’t break out of the range, but it was up, suggesting people thought it was a little better time to invest than they did a month ago.

Michael Langemeier: And this range has been going on for quite some time, essentially since late ’21, and you really can point to when input costs really skyrocketed in ’21, that’s when this, this, this number really came down and it really hasn’t went up since.

James Mintert: So it’ll be interesting to see what happens with that index next month.

Um, we always follow that question up with a question about people’s plans for farm machinery purchases in the upcoming year compared to a year ago. And if you look at the results from June through September, they made a lot of sense. Uh, in 50 June, 53% of the people in the survey said they plan to reduce their farm machinery purchases in the, uh, in the upcoming year compared to a year earlier. And that percentage was climbing month after month through September. By September, it got up to 69 percent of the people in the survey. This month, that dropped back to 55%. Again, that’s consistent with other responses we received in the survey.

The question I had as I looked at this is, are they really going to follow through? Because what happened is in September, 26 percent of the people said they were going to keep their machinery purchases about the same. That jumped to 39 percent on this survey. And so, that’s kind of where the shift really occurred, right? Uh, the people shifted away from saying, I’m going to lower my machinery purchases to saying, I’m going to keep them about the same. The question is, are they going to really follow through on that?

Michael Langemeier: Yeah, they still just isn’t very optimistic for machinery purchases. That’s the way, that’s the way I’d state it.

James Mintert: So that was the, that was kind of the easy way out there, Michael.

Michael Langemeier: But that’s the way I read it. And it’s hard to read what about the same means. Because we don’t, we don’t ask them, you know, how much they purchased last year. So that, that one’s kind of hard to read what they, what we really mean by that. Or what they, what they think they’re, they’re implying by answering about the same.

James Mintert: Alright, I’m going to let you go on that. So, the follow up is also, if you think it’s a bad time to make large investments, we ask, why do you feel that way? And there was a shift in the responses here in October compared to September. In September, the top reason for thinking it’s a bad time to make large investments was uncertainty about farm profitability.

This month, we kind of reverted back to some responses we’ve gotten previously, which was the focus was very heavy on the increase in prices that’s taken place for farm machinery and new construction. 39 percent of the people in the survey said that was the number one reason for, uh, thinking it’s a bad time to make large investments. That’s very close in terms of responses we’ve got over the course of the summer, like in July and in August. So, What do you make of that?

Michael Langemeier: Well, I, I see, I see where you’re coming from on that increase in prices. That, that changed, that changed quite a bit. But also, you know, maybe, maybe because it’s a small group, uh, that this isn’t that important. But you also look at uncertainty about farm profitability dropped from 31%, uh, as being, uh, as being a primary reason for not making large investments to 23 percent in October. That’s an 8 percent drop. And so it’s consistent with this increase in sentiment.

James Mintert: Yeah. Again, It was an optim a surprisingly optimistic survey this month, um, and they were consistent across the board.

So we also ask people who think it’s a good time to make large investments why they feel that way. So keep in mind, we don’t get a lot of people in the survey who say it’s a good time to make investments. Uh, I think this month it was 15 percent of the respondents, last month I think it was 13%. So those folks said that compared to the beginning of 2024, more of them were pointing to high dealer inventories and new technology and fewer of them were pointing to strong cash flows and their farming operation.

And so to me, the, the two interesting things were that shift in strong cash flows, January, 32 percent of the people said strong cash flows are the reason we want to make investments. Uh, that was their top reason this month that was down to 19%.

And then the other kind of related point there was in, uh, January, 7 percent of the people who said it’s a good time to invest pointed to they wanted to invest in new technology. This month that doubled to 14%. Now keep in mind with a, if it’s only 15 percent of the people in our survey, it doesn’t take very many people to go from 7 percent to 14%, so I don’t want to hang my hat too heavily on that. But it is kind of interesting if you are thinking it’s a good time to invest, maybe technology is a motivation.

Michael Langemeier: I think part of what’s going on here is, is this is the time that people look, uh, for, for new, uh, new technology. This is the time of year where they’re looking, uh, to replace that tractor, or replace that planter, or some other, uh, piece of equipment. And so, and so when they’re doing that, they’re probably noticing, hey, there’s some, there’s some new technology, uh, associated with this new tractor they didn’t have before.

And so, I think that might be part of what’s going on there, at least that’s my hunch. Uh, but going back to your strong cash flows, um, The strong cash flows was at 19 percent in October. I don’t hate to sound like a broken record, but that was up from like below 10 percent in September. So, again, more optimism.

James Mintert: Yeah, good point.

[00:14:08] Farmland Value Expectations

James Mintert: Uh, another surprise, the Short Term Farmland Value Expectation Index jumped. Uh, it was 25 points higher than a month earlier. Um, and that leaves that index only 5 points lower than it was this time last year. Again, throughout 2024, that index was kind of drifting lower. Which made a lot of sense to us. Um, the jump this month, consistent with what we saw elsewhere in the survey, but we’re really not sure why people’s perspective on farmland values all of a sudden became a lot more optimistic. And that short run question is about what’s going to happen in the next 12 months.

Michael Langemeier: This question is usually consistent with the Index of Current Conditions. And so when the Index of Current Conditions jumped, usually you would expect to jump in this. They’re not perfectly correlated, but they’re strongly, strongly core correlated. So I think that’s part of what’s, what’s going on here. Uh, but this, this result surprised me how big this jump was, I mean, we’re talking a really large change in this index from month to month. It usually doesn’t change that much.

James Mintert: Yeah. And I, you mentioned this earlier, but I mean, the one thing that might’ve influenced this a little bit was the fact that we have heard so many very positive yield reports this fall. Yes. And, uh, That would maybe provide a little bit of a boost, I suppose.

When you ask, uh, look at the raw responses to that question, it’s kind of interesting. Uh, the percentage of producers who expect farmland values to rise in the next 12 months jumped by 15 points while the percentage expecting lower values declined 10 points. And, of course, that explains why the index was up so much. But, um, when you look at that on the chart, it’s quite striking, right? So, uh,

The Long Term Farmland Value Expectation Index was also up. It was up 12 points. Um, that’s a pretty big increase for that index because that index is asking people to look out five years. And it usually doesn’t jump around. To that magnitude.

Michael Langemeier: No, it doesn’t. And this is a 20 point increase since August, it jumped a lot. Most of that increase for September to October, but there was also a jump from from August to September. And so it’s a 20 point change from August to October. And like you said that that’s, that’s quite unusual, because here we’re talking five year, five year land values, they don’t seem to change. Expectations don’t change that much for long term land values.

James Mintert: And I think the other interesting thing about that index is, if you go back and look at the history, that 159 reading this month is close to the all time high. Uh, the all time high in that index, I think, is 161, so we’re within a couple of points of that. Uh, again, if you asked me before we did the survey of what I thought was going to happen, I did not anticipate being close to the all time high.

Michael Langemeier: I have to admit that the people that responded to the survey this month are seeing something different than I’m seeing with respect to long run land values. Because I’m not as, I’m not as optimistic. I’m not particularly optimistic. I’m not pessimistic, but not, I’m not as optimistic.

James Mintert: So we always follow up and say, if you think values are going to go up in that five year period, why do you feel that way? And those responses are kind of interesting.

The percentage of producers pointing to inflation did rise this month. So that was, you know, went from, I think, 15 percent in September to 21 percent of them said it was because of inflation. Um, the other thing that we continue to ask about is, you know, the impact of, of energy production on farmland values. That was consistent, again, it was at 7 percent of the people pointing to energy production, so that includes wind and solar, so.

[00:17:36] Conclusion

James Mintert: That wraps up our results for this month’s survey. Uh, the full report is available on the Purdue-CME Group Ag Economy Barometer website, which is purdue.edu/agbarometer. And of course, if you’re listening to this by way of our website, I just wanted to remind you, you could subscribe to the Purdue Commercial Ag Cast. It’s available on all the major podcast providers, as well as being available on our website, which is purdue.edu/commercialag. And so with that, I want to thank my colleage, Dr. Michael Langemeier, for joining us today. And on behalf of the Center for Commercial Agriculture, I’m Jim Mintert. Thanks for joining us.