The Purdue University/CME Group Ag Economy Barometer dropped in May to a reading of 99. Agricultural producers' perceptions regarding current conditions on their farms, as well as their future expectations, both weakened as well. The Index of Current Conditions dipped to a reading of 94 and the Index of Future Expectations fell to a reading of 101. Despite strong commodity prices, this month's weakness in producers' sentiment appears to be driven by the rapid rise in production costs and uncertainty about where input prices are headed.
The Farm Financial Performance Index also declined 14 points to a reading of 81 in May. The percentage of producers who expect their farm's financial performance to worsen in 2022, compared to last year, rose from 29% in April to 38% in May.
The Farm Capital Investment Index drifted lower in May and is down 30 points from this same time last year. Half of the producers in this month's survey said their machinery purchase plans were impacted by low farm machinery inventory levels, up from 41% in the April survey, suggesting that supply chain issues are at least partly responsible for the ongoing weakness in the Capital Investment Index.
Higher input costs remain a top concern for producers with 44% of those surveyed choosing it as the biggest concern facing their farming operation in the coming year. Additionally, 57% of producers said they expect a 30% or more rise in prices paid for farm inputs in 2022 compared to prices paid last year. The May survey also asked producers about their expectations for input costs in 2023 compared to 2022 with nearly 39% of producers indicating they expect an additional cost increase of 10% or more in the coming year.
Lastly, farmers remain optimistic toward farmland values. The Short-Term Farmland Value Expectations Index, based upon producers' 12-month outlook, rose 1 point to a reading of 145. Meanwhile, the Long-Term Farmland Value Expectations Index, based upon producers' farmland outlook over the upcoming 5 years, rose 8 points in May to a reading of 149. In a follow-up question, respondents who expect farmland values to rise over the next 5 years were asked the main reason they expect values to rise. Over the past few months that this question has been posed, respondents have consistently chosen non-farm investor demand as the top reason, followed closely by inflation.
Editor’s Take:
Farmers, like most consumers today, are concerned about what they are paying for inputs they need to survive and prosper. Diesel fuel, fertilizer, feed, seed, equipment parts and maintenance expenses are all escalating and cutting margins. The good news – commodity prices, exports and farm incomes are all expected to flourish in 2022. Plus, as the survey concluded, farmland values are also expected to rise over both the short and longer term, which is great for a farmer’s balance sheet and financial stability. Don’t lose sight of the fact that farmers still want and need new or used trucks. They will need to defer some income this year versus giving it to Uncle Sam. Service and parts are top of mind for farmers/ranchers today. So, put your inventory on AgTruckTrader.com, communicate about your outstanding parts and service departments and let them know about your inflation fighting AgPack offers. That combination will make any farmer/rancher smile!
