The Purdue University/CME Group Ag Economy Barometer recorded a slight drop in producer sentiment in October, down 3 points to a reading of 121. The modest drop was part of a three-month slide for the index primarily due to producers' weakened perceptions for both current and future conditions in the production agriculture sector. The Index of Current Conditions was down 5 points to a reading of 140, while the Index of Future Expectations fell 2 points to a reading of 114.
Recent weakness in farmer sentiment appears to be driven by a wide variety of issues, with concerns about input price increases topping the list. Rapid run-ups in input prices, especially fertilizer for crop production, are giving rise to concerns among producers about their operating margins being impacted. Livestock producers are also concerned about a cost-price squeeze, especially in the pork and dairy sectors.
Producer's view of their farms' financial situation was less optimistic in October compared to September. The Farm Financial Performance Index declined 6 points to 104 in October. Over half (51%) of producers in the survey said they expect input prices to rise 8% or more in the upcoming year, and one-third of producers said they expect those prices to rise by 12% or more. While the dramatic rise in fertilizer prices that's taken place in recent months is a key factor, rising input costs also extend to other inputs such as seed, pesticides, and machinery repairs and ownership costs.
The percentage of corn and soybean producers expecting higher farmland rental rates in 2022 compared to 2021 dipped to 43%, down 7 points from September, with more respondents expecting rates to remain unchanged in the coming year.
Producers remain bullish on farmland values. The Long-Term Farmland Value Expectations Index set a new record high this month with a reading of 161, 2 points higher than a month earlier, while the short-term index rose 1 point to 156.
Tight machinery inventories continue to hold back producers' machinery investment plans. Nearly four out of ten respondents said their purchase intentions were impacted by low farm machinery inventory levels. Even so, the Farm Capital Investment Index improved modestly in October, up 3 points to a reading of 46.
Weaker construction plans among producers this month also weighed on the investment index as the percentage of producers planning to increase building and grain bin construction on their farms fell to 10% in October, compared to 13% in September.
EDITOR’S TAKE:
Everyone seems to be more concerned about inflation and rising costs these days, including farmers/ranchers. That concern for farmers comes as they apply fall fertilizer and start their preparations for the spring planting season. The biggest issue is not the actual supply of most products farmers need for their operations, but more so the logistical nightmare of not being able to unload ships, find enough trucks and truckers, and simply get things delivered where they are needed. This is even more evident if we focus on plans to purchase machinery and buildings – they are unavailable today. It is encouraging to note that farmers/ranchers remain very bullish about the value of farmland. At the same time, they see cash rents turning lower or remaining stable.
The answer is obvious – unclog the supply chains and let the economy grow organically as we believe it can. One thing for sure, farmers will still be looking to lower their 2021 tax burden by purchasing new equipment and trucks – even if they have to pre-pay!
