Farmer Sentiment Weakens Slightly in January

The Purdue University/CME Group Ag Economy Barometer declined 6 points to a reading of 119 in January. The Index of Current Conditions fell 13 points to a reading of 133, while the Index of Future Expectations changed little in January, down 2 points to a reading of 112. Rising farm input costs and ongoing supply chain disruptions appear to be contributing to producers' weaker perception of current conditions.

The Farm Financial Performance Index fell in January to a reading of 83. The financial index is generated based upon producers' responses to whether they expect their farm's current financial performance to be better than, worse than or about the same as the previous year. In the December survey, producers were focused on comparing a very positive income year, 2021, to 2020, which really supported the index at year end. In the January survey producers were asked to compare 2022 to 2021. The drop in the financial performance index for January indicates producers expect a decline in income in 2022 compared to 2021.

The Farm Capital Investment Index also weakened very slightly in January, falling 4 points to a reading of 45. Supply chain issues continue to hamper farmers' investment plans as, for the third month in a row, over 40% of producers reported that low farm machinery inventories were holding back their purchase plans.

Supply chain concerns extend beyond farm machinery and farm building/grain bin construction plans. Disruptions in the supply chain for many farm inputs, coupled with strong demand, are pushing production costs higher. Fifty-seven percent of survey respondents in January said they expect farm input prices to rise by 20% or more in 2022 and 34% of producers said they expect prices to rise by 30% or more.

The disruptions extend not just to input pricing, but also input availability. In January, 28% of producers responding to the survey said they have had difficulty purchasing crop inputs from suppliers for the 2022 crop season. In a follow-up question posed to producers experiencing difficulty in procuring crop inputs, respondents reported difficulty in purchasing a broad spectrum of crop inputs including herbicides, insecticides, fertilizer, and farm machinery parts.

Prices for nitrogen fertilizer have skyrocketed over the last year. According to USDA, anhydrous ammonia (NH3) prices in Illinois during January 2022 were nearly triple what they were in January 2021. While a majority (57%) of corn producers said they intend to use the same nitrogen application rate in 2022 as in 2021; nearly four out of ten (37%) said they intend to reduce their nitrogen application rate compared to last year.

The rise in farm input costs was also the primary reason why many producers are expecting to have a larger operating loan in 2022. A total of 27% of respondents said they expect to have a larger operating loan in 2022 than a year earlier, 10 points higher than on last year's survey and 12 points higher than two years ago.

EDITOR’S TAKE:

Inflation concerns are affecting virtually every American today. Farmers/ranchers are working diligently to adjust to the new reality of higher input costs. Throughout history there have been spikes in the costs associated with raising crops or livestock and farmers/ranchers have proven to be very adept at changing to meet the current challenge. Today is no different, farmers will adjust to the new realities, uncertainty will eventually be replaced by greater certainty and farmer/rancher optimism will once again be on the rise. The main takeaway from this Ag Barometer report is that farmers are working hard to adjust to higher input costs.

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