Farmer Concern Over Rising Costs in 2022 Increases While 2021 Financial Performance Improves

The Purdue University/CME Group Ag Economy Barometer slipped 5 points in November to a reading of 116 as farmers continue to be concerned about the future outlook for the agricultural economy.

Farmers are facing sharp rises in production costs coinciding with fluctuating crop and livestock prices, the prospect of changing environmental and tax policy, uncertainty over COVID-19, as well as a host of other issues, all of which are impacting farmer sentiment. Rising production costs, including those for fertilizer, farm machinery, seed and fuel, are of increasing concern to farmers. For example, in November, 43% of survey respondents said they expect farm input prices to rise by more than 16% in the upcoming year. This compares with the actual average rate of farm input price inflation over the past decade of less than 2%.

Supply chain problems could be responsible for a drop in the Farm Capital Investment Index. The index declined 7 points to a reading of 39, the lowest reading since April of 2020. In November, 44% of producers said their farm machinery purchase plans were impacted by low farm machinery inventories. When asked what their biggest concerns are for their farming operation in the upcoming year, nearly half (47%) of survey respondents chose higher input costs.

Unlike the broader sentiment measures, the Farm Financial Performance Index rose 2 points to 106 in November, 10% above its low reading in June of 2021. Compared to late spring, strong crop yields for fall harvested crops and strength in wheat prices helped push 2021 crop revenue and profitability estimates up, compared to one year ago.

Producers remain very optimistic about farmland values over both the next twelve months and the next five years, as both the short-term and long-term farmland value expectations indices remain near their peaks. Strong cash flows from crops in 2021, low interest rates and, possibly, rising concerns about inflation continue to propel farmland values higher. Somewhat surprisingly, given the concerns about rising input costs, 52% of corn/soybean producers expect cash rental rates to rise in 2022, compared to 43% in October. This marks the highest percentage of producers reporting that they expect rental rates in 2022 to rise since the May 2021 survey.

Both interest and awareness of leasing farmland for solar energy projects is on the rise (see last week’s AIR article on solar power). In November, 11% of all respondents reported having a discussion with a company or companies about leasing farmland for solar energy production; however, reported lease rates continue to vary widely. A total of 25% of producers who reported having discussions with a solar leasing company said they were offered less than $500 per acre, while 34% of producers said they were offered a lease rate of $1,000 or more per acre.

EDITOR’S TAKE:

It is clear that farmers, like many others these days, are concerned about inflation and how it is driving up the cost for many of the inputs they need. What isn’t clear is how long the threat of rising inflation will continue. Also unclear is what yields and prices will be in the months ahead. One thing is for sure, farmers have had a very good year overall in 2021! Even by their own admission, the Financial Performance Index within the Ag Barometer rose in the most recent survey. This improved financial performance is continuing to drive land prices up across the country. Plus, 2022 will likely see additional income opportunities from solar rental fees, conservation improvement payments or even carbon credits.

As has been noted many times in the AIR, while farmers are experiencing more concern, they still have money from one of the best years ever. And, many will be looking for new or high-quality used trucks along with other purchases that will improve their operations going forward. CAD members are in a perfect position to help farmers with their truck purchases. With no extra cost to you or your customer, they can take advantage of thousands of dollars in exclusive rebates and discounts through AgPack. That, my friend, is a winning combination. 

But being a CAD dealer is more than just the initial sale of the truck, it's also about improving your fixed ops revenue.  Farmers and ranchers are looking to work with dealers that understand their business and align their service offering to meet their needs.  For every 1 truck a farmer buys they, on average, have 2 more that need regular service and repairs.  The lifetime value of an Ag customer is tremendous.