Farmer Sentiment Drifts Lower, Rising Interest Rates Contribute to Uneasiness

The Purdue University-CME Group Ag Economy Barometer index drifted slightly lower to a reading of 112 in September which was 5 points lower than a month earlier. The decline in farmer sentiment was primarily the result of producers’ weaker perception of current conditions as the Current Conditions Index declined to 109, 9 points lower than in August. The Index of Future Expectations also weakened slightly, declining 3 points from a month earlier to a reading of 113. Compared to a year earlier, the barometer this month was 10% lower.

Higher input costs are still the number one concern among survey respondents with the shift in U.S. monetary policy rising to the forefront as an issue among U.S. producers. A total of 44% of respondents chose “higher input costs” as their number one concern, down from 53% last month. Second on the list of producers’ concerns for the upcoming year was “rising interest rates”, chosen by 23% of respondents, up from 14% in August. Third on the list of concerns was “availability of inputs” chosen by 14% of producers in the survey. The percentage of producers with concerns about input availability has been relatively stable over the last 3 months, ranging from a low of 12% to a high of 15% suggesting this issue is not going away. Interestingly, the percentage of producers choosing “lower crop and/or livestock prices” as one of their biggest concerns declined over the summer. In July 19% of respondents chose it as one of their biggest concerns while just 8% of producers chose it in September’s survey.

The Farm Financial Performance Index was unchanged from a month earlier at 99. Compared to earlier this year, producers clearly feel better about their farm’s financial performance. Back in May, 38% of respondents said they expected their farm’s financial performance in 2022 to be worse than in 2021. That percentage has now declined to 29%, while the percentage expecting better performance rose from 19% in May to 28% in this survey. Uncertainty surrounding input costs and availability was partly responsible for the negative perspective held last spring by many producers. As the year unfolded, however, producers’ worst fears regarding input cost rises and poor input availability did not materialize providing much more certainty to their farm’s financial outlook and contributing to their improved perspective on farm financial performance. 

The percentage of producers who plan to reduce their farm machinery purchases declined again in September, down 2 points compared to responses in August. Since peaking in March at 62 percent, the share of producers who plan to reduce their machinery purchases compared to a year earlier has been declining, dipping to the current 47%. Producers’ plans for farm building purchases tell a similar story, declining from a high of 68% who planned to reduce their building and grain bin purchases back in March to 56% who felt that way in the September survey. Those farmers who feel it is a bad time to make large capital investments were asked why, and for the third month in a row they overwhelmingly said it was primarily because of increased prices. However, interest rates are starting to become a factor influencing producers’ decision making. Throughout the summer, the percentage of farmers who chose “rising interest rates” as a primary reason for thinking it’s a bad time to make large investments rose from 14% in August to 21% in September.

Fewer producers in this survey said they expect either no change in crop input prices or expect input prices to decline in 2023 compared to 2022. More producers expect an input price rise that matches up more closely with the rate of inflation. In April, 18% of respondents expected input prices in 2023 to decline, in September just one out of ten producers said they look for prices to fall up to 10% below 2022’s level. Over the same time frame, the percentage expecting no change in prices for 2023 declined from 28% to 19%. The largest share (38%) of producers in September’s survey expect input prices to rise from 1% up to 9%, compared to 18% who felt that way in April. And nearly a fourth of producers in the survey said they expect input prices to rise from 10% up to 19%, compared to just 15% of producers who expected input prices to rise that much back in April. Interestingly, in April one out of five producers looked for 2023 input prices to rise by 20% or more, whereas in September just 9% of survey respondents said they expect an input price rise of that magnitude.

September’s Short-Term Farmland Value Expectations Index fell 5 points to 123 while the long-term index fell 7 points to 139. In a follow-up question posed to respondents who expect farmland values to rise over the next 5 years, over 60% of respondents said that the main reason they expect values to rise is non-farm investor demand, up from 45 to 51% who thought that was the main driver back in January and February. At the same time, fewer respondents in September said they expect low interest rates to support farmland values than in the past. In January and February, 6% to 9% of respondents who said they expect values to rise cited “low interest rates” as the main reason. In the September survey, just 1% of respondents pointed to low interest rates as the principal reason they expect farmland values to rise.

Editor’s Take:

It is not unreasonable to think that farmers are concerned about inflation and rising interest rates. These topics are on the minds of all consumers throughout the economy. However, it should be noted that this survey measures sentiment and expectations and often the worst fears do not materialize. A case in point, the farmer’s expectations of lower farm income this year is unlikely to be a reality when all is said and done. Instead, this will more likely be one of the best years ever for net farm income. And the decline in the number of farmers saying now may not be a good time to make capital investments will quickly fade into the past as the tax collector comes knocking. And remember the RFD-TV survey that indicated farmers are going to purchase a lot of trucks this fall – that is a more likely scenario. Put your inventory on AgTruckTrader.com and also let farmers/ranchers know about AgPack. That way you help them with their tax problem and also overcome their concerns about rising input costs. Use the tools the CAD program provides to your advantage and make it a win-win!