Farmer Sentiment Improves as Interest Rate Expectations Shift

U.S. farmers’ outlook improved in March as the Purdue University/CME Group Ag Economy Barometer index increased to 114, marking a 3-point rise from February. The Index of Future Expectations climbed to 120, up by 5 points from February. A slight disparity between current and future indexes was primarily influenced by farmers’ perceptions of a financial downturn taking place in the past year, coupled with some expectations for improvement over the next 12 months.

“Producers’ expectations for interest rate changes have shifted, which could help explain why producers look for financial conditions to improve,” said James Mintert, the barometer’s principal investigator and Director of Purdue University’s Center for Commercial Agriculture.

In the March survey, 48% of respondents said they expect a decline in the U.S. prime interest rate over the next year, up from 35% in December. Just one-third (32%) foresee an increase, compared to 43% last month. Only 20% of respondents this month identified the risk of rising interest rates as a primary concern, a decrease from the 24% recorded December 2023. High input costs continue to be producers’ No. 1 concern, with 36% of respondents expressing worry.

The Farm Capital Investment Index increased by 7 points this month, indicating growing optimism among producers about making large investments. Producers who said it is a good time for a large investment rose 11% from the start of the year. This optimism is fueled by producers who pointed to strong cash flows on their farms, coupled with higher dealer inventories for farm machinery.

Producers displayed a more optimistic short-term outlook on farmland values in March, with the Short-Term Farmland Values Index rising to 124, a 9-point increase from the previous month. This month, 38% of producers expect farmland values to increase in the coming year, compared to 31% in January and February.

“Factors contributing to this optimism included non-farm investor demand, inflation expectations and strong cash flows. An improved interest rate outlook might have been a factor as well, although producers didn’t point to that explicitly in this month’s survey,” Mintert said.

Interest in using farmland for carbon sequestration or solar energy production appears to be increasing. In this month’s survey, nearly 1 out of 5 respondents (18%) said they or their landowners had been approached about carbon capture utilization and storage on their farmland. Additionally, 12% of this month’s respondents said they had discussions with companies interested in leasing farmland for a solar energy project in the last six months, compared to 10% in February. When it comes to long-term farmland lease rates offered by solar energy companies, 54% of respondents this month said they were offered $1,000 or more per acre, while just over one-fourth (27%) were offered $1,250 or more per acre.

The March barometer also revealed that some farmers are concerned about potential government policy changes affecting their farms following this year’s elections. They are particularly concerned about regulatory, climate and tax policies.

EDITOR’S TAKE:    

The uptick in optimism appears to permeate the attitude of many farmers included in this most recent survey. Several things stood out to me, a number of references to strong cash flow; expectations for lower interest rates; and expectations for increased land values. Add all these things together and farmers are expressing a belief that now is a good time for large capital investments. That can mean buildings, equipment and machinery, as well as, yes – you guessed it, trucks. Although they continue to express some concern over input costs, they appear to be ready to loosen the purse strings. That opens the door for you as a CAD member to advertise your inventory on AgTruckTrader.com®; inform them about lowering those input/operating costs by using AgPack®; financing at competitive rates with CADFI; and protecting their investment with the latest product in your arsenal – CAD Protect! What a powerful combination to help you help your customers.