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Audio Transcript

[00:00:00] Intro

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, Professor Emeritus of Agricultural Economics, and joining me today is my colleague, Dr. Michael Langemeier, who’s the Director of the Center for Commercial Agriculture and also a Professor of Ag Economics here at Purdue.

We’re going to review the results from the January 2025, 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 January.

[00:00:45] U.S. Farmers’ Retain Optmistic Outlook for 2025 Despite Ag Trade Uncertainty

James Mintert: And Michael, this month’s index for the barometer came in at 141. That’s up a little bit compared to last month. If you go back to November, we were at 145. October, we were at 115. And of course, going all the way back to September, that index was at 88. So, we kind of regained a little bit of the optimism that we apparently lost in, in December. Or you could maybe just say we moved sideways from where we were at December. But from the longer term perspective, we’ve hung on to the optimism, right? We’re on that above 140 range on the barometer.

Michael Langemeier: Yeah, there’s been a couple developments, actually, since the December survey. One of those is that I certainly think we had some strengthening of corn prices in particular, but also soybean prices.

But also, the continuing resolution that was passed in late December provides some payments for corn and soybean producers. And so I think that helped, you know, helped keep people relatively optimistic..

James Mintert: Yeah, that’s a good point. And we saw a little bit of a bump up in the Current Condition Index. It was up to 109. And for perspective, if you go back to September, that index had dipped all the way down to 75. So I think that, uh, You raise a good point with respect to not only the improvement we saw in corn and soybean prices from December to January, but also those payments for the 2024 crop for soybeans, uh, corn and wheat. Uh, and those are going to be significant. So that probably contributed to some of the optimism that we picked up in the survey.

And if you look at, uh, you know, the Future Expectation Index, it continues to be way above the Current Condition Index. That Future Expectation Index is at 156. Current conditions at 109. What’s your take?

Michael Langemeier: I don’t see that changing any time soon and unless we maybe we have an advent of a trade war or something like that. But but I think it’s going to stay elevated for a while.

James Mintert: Yeah. And it really goes back to the election and people becoming more optimistic about the future as a result of the election. And you know, we’ve surveyed a couple of times now with respect to why. And people continue to point to the same things.

We didn’t include those questions in this month’s survey, but in prior month’s survey, people pointed to expectations for a better regulatory environment and a better tax environment, and particularly, uh, with respect to their expectations. And I think that’s really contributed to this idea that the future’s going to be better than the past.

[00:03:09]  Farm Financials & Operating Loans

James Mintert: Um, the Farm Financial Performance Index rose, I would argue, significantly. It was at 98 a month ago. This month, it’s at 111. And so, you know, it’s not a huge move, but it’s, it’s large enough to say there’s a difference there. And as you look at those numbers, again, what’s your take?

Michael Langemeier: I, I think, again, I point back to the relatively stronger corn and soybean prices and those, and those payments and the continuing resolution is, is really helping, uh, not only ’24, but also the prospects for ’25.

James Mintert: Yeah, I think people just feel a little better about the current condition and that translated into a better Financial Performance Index.

Um, we It’s useful sometimes to look, not just at the index, but actually look at the question that the index is based on. And so the question is, as of today, do you expect your farm’s financial performance to be better than, worse than, or about the same as last year? And when you look at the raw responses, there was an increase in the percentage of people who said about the same. That’s now above 60%. But if you look at these last several months, what you can really notice is the change in the percentage of people who say they think, they expect to see better performance. Going back to August, I think only 11 percent of the people in the survey said better. Um, these last three months, it’s been over 20 percent this month. It was a 24 last month. It was a 21. Going back to November, it was a 25. So there was a jump there on the in the green bars, the positive bars. And correspondingly, fewer people say worse. You know, you go back to, um, August and September we were at 39 percent in August and 45 percent in September said worse. And now we’re down to what? 13%.

Michael Langemeier: Yeah, the worse is really glaring. I mean, you had 45 percent there in September, and now we’re down to 13%. And so that just tells you a lot. Uh, you know, about about the difference in what people are expecting for ’24 and ’25 for that matter.

James Mintert: Yeah, looking ahead, they really do think it’s going to be better going forward.

Um, so every year going back to 2020, we’ve been asking a question about operating loans and the characterization of those loans to get a handle on whether or not there’s any financial stress out there. So the two questions that we’ve asked for five years in a row now, actually six years in a row, uh, compared to last year, do you expect the size of your farm’s operating loan to be larger, smaller, about the same as this year?

Um, 18 percent of the people in the survey said they expect to see or have a larger operating loan. A year ago, that was 15%. So statistically really no difference between those two. You go back to 2022. That was a 27%. Of course, in ’22 and ’23, we were picking up this idea of high input cost and that was really starting to push those operating loans up. We’re not picking that up this year.

So, then the follow up question is what is the reason for your farm’s larger operating loan? So this question only goes to people who told us previously they expected to have a larger operating loan. I’ll let you characterize those results. I think they’re kind of interesting.

Michael Langemeier: I think they’re very interesting. I mean, we, 23% indicated that their, their, their operating loans can be larger because of unpaid operator debt. Last year that was 17% and, and, and ’23 that was 5%. So certainly, uh, compared to the ’23 number, that’s a substantial increase. And, and you combine the unpaid operator debt. Uh, with the, and, and the percentage of those that haven’t have a, are having a larger operating loan. Uh, it indicates that there’s more financial stress this year than, than there was last year and certainly more than there was in ’23.

Having said that, I think we also need to go back and compare it to, to 2020 for example. Back in 2020, 35 percent said they had a higher, uh, operating loan this year because of unpaid operator debt. And so even though financial stress is, looks like it’s a little higher right now, it’s It’s still lower than what it was, uh, in 2020. And we, and we have to think back that we went through a period from 2014 to 2019 with relatively low net income. And so back in 2020, uh, liquidity was, was not real strong, uh, and we had, and we had more people that were having trouble paying their operating debt. And so we’re certainly not back in that situation yet, but we are moving in the wrong direction.

James Mintert: Yeah, I’m glad you went back to 2020 because a lot of times you do these comparisons, there’s a strong tendency to look at last year and maybe two years ago, but you’re right coming off of that 2020 era, that was coming off of four or five really pretty challenging years, especially in the for corn crop producers in that environment. And that gave us more stress than what we’ve got today. But when I compare this year’s results to two years ago, I can tell the difference, right? There’s, and this is consistent with what we pick up when we talk to bankers, for example.

Michael Langemeier: We’re, we’re still collecting, they’re still collecting information at the national level and also, also University of Minnesota and FINBIN on, on the current ratio. Uh, I think there’s going to be a corresponding drop in the current ratio when the ’24 numbers come in.

James Mintert: Yeah, so

Michael Langemeier: It’s still going still to be higher than the 2020. But it’s going to be, it’s going to be down substantially from 2022. It’s very consistent with our results here.

James Mintert: Yeah, and we know from talking to farmers individually as well as people in the ag lending community that working capital eroded pretty substantially on many crop farms in 2024.

[00:08:25] Farm Capital Investments

James Mintert: So if you look at the Farm Capital Investment Index, it came in unchanged from last month at 48. Just for perspective, that index for about three years now has been floating between a low of about 30 to a high of about 50. So we’re in the high end of the trading range for the last three years. You know, the longer term perspective, you go back to 2021, this index was above 90. So, uh, but this is a more positive index these last couple of months, maybe the last three months, really, uh, than what we saw really for most of the last two and half,, almost three years.

Michael Langemeier: And I, and I point to that, that increase in the Index of Future Expectations, you look at capital investments, you’re not looking at necessarily what’s happening today. You’re also looking at what’s happening down the road. And so I think that that corresponds with that that increase in the Index of Future Expectations.

James Mintert: Now, I have to say, if you look at things like tractor sales and combine sales, it certainly didn’t show up even in the fourth quarter. As you look at the Association of Equipment Manufacturers data, uh, um, those sales were down substantially, not only for the year, but the biggest decline occurred, uh, in the fourth quarter. Uh, so, Um, it remains to be seen whether or not this, I’ll characterize this, what’s taking place with the Capital Investment Index as a modest improvement. It remains to be seen if that’s actually going to translate into more investment or people starting to just maybe think about making some of those investments.

Um, so we did some follow up questions, actually components here. So we asked people who said it’s a bad time to, um, make investments, make large investments, you know, why is that? And when you look at those results, those are interesting. You go back over the last year, you can see a change in attitude. A year ago, 17 percent of the people who said it’s a bad time to make large investments said it was because of uncertainty about farm profitability. These last couple of surveys, actually the really the last four or five surveys, it’s been significantly higher than that this month. It was a 26 percent saying that was because of uncertainty about profitability. Last month, it was 35%. November was 20 or 26%. So you really saw a shift there kind of started to show up in about September, uh, with respect to more people worrying about profitability and saying, we don’t have good enough profitability to make these investments.

And then the other factor that people have pointed to as a reason to not make large investments that’s shifted over the course of the last year is the percentage of people pointing to interest rates. A year ago, 34 percent said it was because of interest rates. February, it was 38%. It dipped a little bit in March. The last couple of months, it’s dropped into the low 20s, and this month actually dropped down to 19 percent of the people said interest rates. So, compared to a year ago, it’s almost not quite cut in half, in terms of the percentage worried about interest rates. So, the shift has been more towards worrying about profitability. And fewer people worrying about interest rates.

Michael Langemeier: And certainly the less concern about interest rates is going to help that index, long term. How much? You will have to wait and see.

James Mintert: Yeah, I think the related factor is, of course, the Federal Reserve came out after our survey and said no change in rates. However, the market is starting to show evidence of being worried about long term inflation, uh, crowding out effect, uh, from large deficits. And so we’re seeing market rates actually climb. So, for example, things like mortgage rates have actually climbed in recent weeks. Um, so it’ll be interesting to see how that plays out.

We always ask people about their expectations for farmland. The Short-Term Farmland Index, which asks people to look ahead 12 months, did rise this month. I think it was up five points to a reading of 115. That compares to 110 a month ago. Puts it right where it was in November and just slightly below where it was, I think, in October. October was at 120. So if you look at the last three to four months, kind of sideways, but positive. You know, if you go back to, um, I think it was September, uh, that index was actually below 100. Uh, and for remind listeners what that means. If the index drops below 100, that means more people think values are going down than are going up. When it’s above 100, you’ve got more people optimistic about values, uh, than that are negative about values. So we’re back in the positive territory. It’s a pretty big swing when you compare it back to the early fall period, right?

Michael Langemeier: Definitely, and there’s about, right at about a quarter of the people, uh, indicate that they expect land prices to increase.

James Mintert: Yeah. And so, if you think about that, that’s, that’s a little bit higher than what we saw in previous months, right? Yes. At one point, that was down in the teens, right?

Michael Langemeier: And so, one of the things that’s happened is we’ve seen a reduction in those that think it’s going to decrease. Just for the listeners, uh, you know, information.

[00:13:25] U.S. Trade War & Top Concerns

James Mintert: So, for several months in a row now, we’ve been asking people about whether or not they think U. S. agriculture is at risk of a trade war that results in a significant decrease in U. S. ag exports. And the There’s been a little bit of a shift here, Michael, but maybe, maybe not enough to say, uh, any statistical significance. This month, 40 percent of the respondents said they think a trade war is either likely or very likely. A month ago, that was at 48%, and in November, it was at 42%. So, we’re kind of hanging in that 40 percent to not quite 50 percent range. I guess my first question, Michael, is do you think there was a change in attitudes from December to January, or is it just a little bit of noise in the survey.

Michael Langemeier: The fact it’s 40 percent and above is a little bit concerning, obviously. Another thing, I didn’t look at this very closely until now, I’ll have to admit, the unlikely switched a little bit there. It was only about 20 percent very unlikely and unlikely in December. That’s moved up to about 30%, so that’s interesting. It’s kinda like the shift went from less people say likely and very likely to very unlikely and unlikely, not neutral.

James Mintert: Yeah, that’s a good point. Yeah, because the neutrals are essentially unchanged. 32, 31, and 31 percent over the 3 months we’ve asked this.

Michael Langemeier: And so maybe, maybe they’re thinking there’s going to be a safety net there, and so even if this happens, it’s not going to be that problematic.

James Mintert: We didn’t ask about the safety net this month, but a month ago and then the December survey I think 55 percent of the people said they expected the farm safety net to increase following the 2024 election. So we’ll ask that again in next month’s survey and see what people have to say about that but yeah, as I look at it people are worried about the risk of a trade war. But there appears to be this underlying perspective that the last time we had a trade war, we received significant government support and then expectation that maybe we’ll see that again.

Um, we’ve been asking this question, I think, uh, actually goes back, I think, two years now, Michael. Looking ahead to next year, what are your biggest concerns for your farming operation? And higher input cost is, is by far and away number one. Thirty nine percent said higher input cost. Lower crop and livestock prices was at 24. A little bit of a shift there compared to prior months, uh, with more people worried about higher input cost. Some of that could be related to the fact that in January, what are you doing? You’re buying inputs, right? So you’re very cognizant of what those inputs cost and you’re very cognizant of how high they are.

Um, the other thing to think about is, um, in some related work, you and I have been talking about this. We’ve both been looking at how input prices have changed over the last several years. And for a lot of people, the anchor point in terms of what they think about, you know, is normal. It probably goes back to that pre covid period. I was looking at some work that I did earlier this week comparing input prices for fertilizer and diesel fuel to what they were back in 2019 before covid hit. And you know, we’ve seen a lot of gyration, those input prices really took off. They have come down since then, but they have not come down as much as crop prices. And that’s the rub for a lot of producers.

Michael Langemeier: Yeah, and that’s true. A lot of, a lot of the costs, the one that’s, that’s came down, came down a little bit, that’s been providing a little bit of, of help is nitrogen. Uh, but when you look at the, when you look at the ’25 budget and you compare it to the ’24 budget, the fertilizer cost is not that much different. And it’s, it’s still higher, like you said, it’s still higher than where we were back in ’21.

James Mintert: Yeah, and we’re using those input prices for fertilizer and diesel fuel primarily because USDA reports those every couple of weeks with a survey of Illinois retail locations, so we’ve got updated information there. But the other factor that farmers are facing right now when they make those input decisions is, I can’t think of a single other input that has come down. They’ve actually continued to go up with inflation.

Michael Langemeier: That’s the problem. When you look at the USDA NASS overall input price index, it’s flat year to year. And, and flat means we’re still up, up at those higher prices, uh, compared to ’21. And, and there’s, and there’s costs like repairs and, and machinery that are just, just really stubborn. They’re not coming down very fast.

James Mintert: I’d argue they’re not coming down at all.

Michael Langemeier: You could, you could be right.

James Mintert: At least in most locations. So the help we’ve gotten on the cost side really has come, almost I would argue say exclusively from fertilizer and to some extent diesel fuel. Um, so. No surprise.

[00:18:06] Solar Energy Leases & Rates

James Mintert: So, uh, Periodically, we’ve asked people about leasing a farmland for solar energy production, and it continues to be a topic of interest across much of the country, especially here in the Corn Belt, but actually much of the country. So a couple of questions here. The first one is, have you actively engaged in discussions with any companies about leasing farmland you own for the installation of a solar energy project to generate electricity? This month, 11 percent of the respondents said yes. The last time we asked this question was back in July. It was 8 percent then. We had a string last spring of April, May and June when that was higher. We had between 16 and 20 percent of the people in those surveys telling us that they had had the discussions. So, you know, maybe compared to last spring, fewer people having discussions. That 8 to 11% Uh, from last summer and now here in January is pretty consistent with the prior questions that we asked going all the way back to 2021. And you know, I didn’t average this Michael exactly, but it would probably average out to about 10 to 12 percent if I looked excluded those three high months we had. So, um, that gives you a little bit of perspective.

And then the follow up question is, if you’ve engaged in a discussion, we ask about the rates that are being offered. So the question is, what is the annual payment rate per acre you were offered to lease some of your farmland for the installation of a solar energy project to generate electricity? And this is really pointing towards the amount of money you would receive on an annual basis per acre when the solar field is in production. So a lot of these, well, all the solar leases I’m familiar with have multiple payment periods. One’s a, typically a development period, a construction period, and then the actual operational period. So this is referring to the operational payment. Period. And there has been a shift there. Um, you know, we’ve actually had to change how we give the answers to this question to capture the higher rates because in the early days, the vast majority of responses were at $1,000 per acre or less. That’s really started to shift, and if you look at the most recent results, 26 percent of the people who had a discussion, roughly 1 out of 4, said they were offered $1,500 or more per acre. Another 14 percent said they were offered 1, 250 to 1, 500. And I think just 2 percent said they were in the 1, 000 to 1, 250 range. So you add those together, Michael, and you wind up with what? I think 42 percent of the people were offered over $1,000 an acre. And the biggest chunk of those are actually above 1, 500. What’s your take?

Michael Langemeier: It’s always interesting to see the wide dispersion in these rates and it brings up a couple points. There’s probably difference regional, which we can’t pick up because we don’t ask information about regional differences, but the main point I want to bring up is do your homework. Just because you’re quoted a rate, it might seem really good compared to your cash rent. Try to find out what other people have been offered, if at all possible, because the rates vary tremendously.

James Mintert: Yeah, that’s a good point. The companies, uh,

Michael Langemeier: I know. It’s hard that information.

James Mintert: They tried, they tried, they discouraged that because if you sign one of the agreements, uh, many of the agreements, uh, include a non disclosure agreement with respect to the rates, but that doesn’t apply prior to signing.

So, yeah. And, of course, uh, I think for most people it would behoove you to engage in professional help in terms of negotiating these leases. Because there’s a lot more to the lease than just the dollar amount. And so you really want to think about a lot of the details with respect to, um, how the land would be managed, et cetera, and how the payments would be take, uh, you know, how many acres would actually be paid on and so forth. So there’s a lot of details to think about, but as, as we look at our surveys and it goes back to 2021 now, so we’ll be, um, later this spring, it’ll be four years of data. There’s clearly been a shift in the payments. The payments have shifted to the higher dollar values. Um, whether or not that continues to be true with the new administration and perhaps, uh, perhaps less emphasis on, uh, solar energy production, well, what remains to be seen, but that’s certainly the story that we’ve been picking up so far.

And then, um, you know, we asked a question, percentage of respondents who discussed solar leasing with a company reported being offered a lease rate of a thousand more per acre. We’ve got a chart for those of you that download the charts, it’s kind of interesting. If you go back to, uh, 2021, June of 2021, the first time we actually asked questions about these rates, uh, 27 percent said they were offered a lease rate of a thousand or more per acre. This month, 51 percent of the people who engaged in a discussion were offered over $1,000 an acre. So, um, interesting. Interesting how that shifted and you can really see that when you look at that chart.

[00:22:58] Conclusion

James Mintert: Well, Michael, that wraps up the highlights of this month’s survey. You can get the full report on our website, which is purdue. edu slash agbarometer. And, of course, you can download the slides that Michael and I were looking at as we, uh, recorded this podcast, and of course, there’s a complete library of charts available on the, on the website individually as well. So on behalf of my colleague, Dr. Michael Langemeier and the Center for Commercial Agriculture, I’m Jim Mintert. Thanks for joining us.