Farmer Sentiment Steady in July

The Purdue University/CME Group Ag Economy Barometer leveled off after two months of declines, down just 3 points to a reading of 134 in July. Both producers' sentiment regarding current and future conditions also dropped slightly. The Index of Current Conditions was down 6 points to a reading of 143, primarily as a result of somewhat weaker principal crop prices. The Index of Future Expectations was down just 2 points to a reading of 130.

Producers' sentiment regarding their farms' financial condition was more optimistic when prices for corn, soybeans and wheat were surging last fall, winter, and early spring. Still, recent sentiment readings suggest farmers remain cautiously optimistic about financial conditions on their farms. In fact, there was a modest improvement in the Farm Financial Performance Index, which asks producers about expectations for their farm's financial performance this year compared to last year. The index improved 3 points from last month to a reading of 99 and remains 43% higher than in July 2020 when the index stood at 69.

The Farm Capital Investment Index moved lower in July to a reading of 50, down just 4 points compared to June. Weakness in the investment index was primarily attributable to the ongoing decline in plans for farm building and grain bin purchases in the upcoming year. Two-thirds of July’s respondents said their construction plans were lower than a year earlier, compared to 61% who said that in June. The shift in construction plans was attributable to a drop-off in the percentage of farmers who planned to keep their purchases about the same as last year. Plans for farm machinery purchases were somewhat weaker in July than in June as producers were a bit more inclined to say they would reduce their machinery purchases instead of holding them constant with a year earlier. Meanwhile, the percentage of producers planning to increase purchases was unchanged.

Producers were also asked about their expectations for farm input prices. Just over half (51%) of the producers in the July survey expect input prices to rise 4% or more over the next year, 30% expect costs to rise 8% or more, and nearly one out of five (18%) expect input prices to rise by 12% or more. It is important to note that these expectations are markedly higher than the rate of 1.8% per year that input prices rose over the last decade.

Farmers remain optimistic about farmland values. The Short-Term Farmland Values Expectations Index weakened slightly this month to a reading of 142, down 6 points from June, and the long-term index declined to a reading of 151, down only 4 points from a month earlier. Both indices remain near all-time highs. However, recent declines in the farmland indices could be a reflection of the rapid increase in farmland values over the last year, leading producers to be cautious about the likelihood of further price increases. In both cases, however, the indices remain near their all-time highs, indicating farmers remain relatively bullish about farmland values.

Finally, this month’s survey included a question to learn more about agricultural producers’ reactions to the Executive Order issued in early July by President Biden. The order, which addresses several aspects of agricultural production and marketing, is entitled Executive Order on Promoting Competition in the American Economy and we asked producers for their perspective on the order. Nearly a fourth of respondents indicated that they did not think the order was needed, while 8% of respondents said they agreed with the need for the order. However, the vast majority of respondents (69%) said they needed more information about the order to respond to the question.

EDITOR’S TAKE:

Producers remain concerned that farm input prices are likely to rise much more sharply in the coming year than in the recent past. Nearly half of corn/soybean farmers expect farmland cash rental rates to rise, potentially squeezing profit margins.  In other words, farmers are concerned about inflation eating into their profit margins, especially with now steady commodity prices. The good news in the July report was continued optimism about farmland values and their intentions to continue purchasing equipment. Sure, they can hold off on that new tool shed, but not the equipment. And the farmland values support their balance sheet which is important to their overall financial strength.

All in all, it was a good report. Some caution over inflation and government overreach, but otherwise full steam ahead! As a CAD member, it is worth noting that farmers and ranchers will likely be some of your best customer prospects in the weeks and months to come. Now is the time to double down on your CAD status and communicate with those farmers/ranchers in your area! Be sure to emphasize and promote AgPack!