Ag Economy Barometer Falls for Second Month; Rising Input Costs Causing Concern for Farmers

The Purdue University/CME Group Ag Economy Barometer marked a second month of decline, down 21 points to a reading of 137 in June. Producers were less optimistic about both current conditions on their farming operations as well as their expectations for the future. The Index of Current Conditions dropped 29 points to a reading of 149, and the Index of Future Expectations fell 17 points to a reading of 132.

“Farmers expect their input costs to rise much more rapidly in the year ahead than they have over the last decade, contributing to their concerns about their farm finances and financial future,” said James Mintert, the barometer’s principal investigator and Director of Purdue University’s Center for Commercial Agriculture.

Since peaking in April, producers’ views of their farms’ financial performance has also fallen. The Farm Financial Performance Index, which is based on a question that asks producers about expectations for their farm’s financial performance this year compared to last year, declined 30 points this month, and 42 points since April, to a reading of 96.

Weakening perceptions of farm financial performance spilled over into the Farm Capital Investment Index, which declined 11 points to a reading of 54, the lowest investment index reading since May 2020. This decline appears to be driven more by plans to hold back on constructing new farm buildings and grain bins than purchasing farm machinery. In June, 61% of producers said they reduced plans for new construction, while 9% said they increased plans. In comparison, 44% of producers indicated they plan to reduce their machinery purchases, 45% plan to hold purchases constant, and 10% plan to increase purchases, all compared to a year ago. (Also see Equipment Purchases Article in this week’s AIR).

Rapidly rising production costs related to both consumer and farm input price inflation are a concern for agricultural producers. Nearly 30% of producers said they expect farm input prices to rise by 8% or more in the upcoming year, which would be more than four times the average rise over the last 10 years of just 1.8%. On the other hand, 21% of producers expect prices paid for inputs to increase less than 2%, which would be more in line with recent history.

Labor concerns may also be contributing to producers’ anxiety as farms that normally hire nonfamily labor reported more difficulty in hiring this year than in 2020. Just over half (54% in 2020, 51% in 2021) of those surveyed reported hiring nonfamily members. In June 2021, nearly two-thirds (66%) of respondents said they either had “some” or “a lot of difficulty” in hiring adequate labor, that compared to just three out of 10 respondents in 2020.

Even as sentiment dipped in June, producers remained bullish on farmland values. The Short-Term Farmland Value Expectations Index, based upon producers’ 12-month expectation for farmland values, declined nine points to a reading of 148; however, that matches the third-highest reading for the index since data collection began in 2015. The Long-Term Farmland Value Expectations Index, based upon producers’ five-year outlook, declined just 3 points to a reading of 155, which was also the third-highest reading on record for that index.

EDITOR'S TAKE:

This mixed bag of results from the folks with Purdue’s Ag Barometer is not completely unexpected. Farmers in many areas have been battling either drought or the opposite extreme with too much water during planting season. The report also shines a light on another major concern, rising input costs. Despite rising prices for many commodities, farmers’ margins are being challenged and, in some instances, offset by higher prices for many inputs.

All that said, farmers are still relatively optimistic about the future of land prices. While falling very slightly in June, the indices for land value expectations remain near all-time highs. Similarly, while farmers say they plan to cut back on some capital expenditures such as buildings and grain bins, there is little change in their demand for ag equipment.

One thing for sure, given the concerns over rising input costs, it is a perfect time to emphasize your CAD AgPack advantage. Potentially saving farmers and ranchers thousands of dollars will help calm some of their concerns. They are purchasing ag equipment and are likely on the lookout for a truck or two. Let them know you are a CAD member and only CAD members can offer AgPack!