Inflation, Exports and Rising Input Costs Concern Farmers

The Purdue University/CME Group Ag Economy Barometer dipped 5 points in February. Farmers’ perspectives regarding both current conditions on their farms and their expectations for the future also weakened. The Index of Current Conditions fell 2 points and the Index of Future Expectations declined 6 points. Increased concern over the risk of falling output prices, rising interest rates, and uncertainty over the future growth of U.S. agricultural exports is weighing on producers’ minds.

Producers’ expectations for their farms’ financial performance in 2023 compared to 2022 weakened in February. The Farm Financial Performance Index declined 7 points to a reading of 86. Farmers continue to point to concerns about higher input costs (38% of respondents), rising interest rates (24% of respondents), and lower output prices (18% of respondents) as their biggest concern for the year ahead.

Agricultural exports have been a key source of growth for U.S. agriculture for decades. Beginning in 2019, the Ag Economy Barometer survey routinely included a question asking producers about their expectations for agricultural exports in the upcoming 5 years. Since peaking in 2020, when just over 70% of respondents said they expected exports to increase in the upcoming 5 years, the percentage of farmers looking for exports to grow over time has drifted lower. In February, just 33% of survey respondents said they expect exports to increase, which suggests that a lack of confidence in future agricultural export growth is contributing to weakened sentiment among producers.

Because of strong farm income, the February reading of the Farm Capital Investment Index changed little, rising one point. The disparity between producers’ responses to the question and actual farm equipment sales continues to be focused on costs. Of those who said now is a “bad time” to make large investments, 45% of respondents said it was because of an increase in prices for farm machinery and new construction, while 27% of respondents said it was because of “rising interest rates.”

Producers’ expectations for short-term and long-term farmland values remain positive. The Short-Term Farmland Value Index declined one point to 119 while the Long-Term Farmland Value Index dropped 5 points to 137. Although both indices remain above 100, indicating a positive outlook on farmland values, the percentage of producers who said they expect values to decline over the next 5 years reached 19% this month. Still, over half (56%) of respondents expect values 5 years from now to be higher than today.

Each February, the barometer survey includes a question focused on farm growth, asking respondents about the annual growth rate they expect for their farm over the next 5 years. This year 49% of respondents said they had “no plans to grow” (33%) or “plan to exit or retire” (16%). Of those respondents who expect their farms to grow, 19% expect it to grow by “less than 5% annually” and 22% said they expect it to grow by “5 to 10% annually.”

EDITOR’S TAKE:

This report suggests “status quo” regarding how farmers view things currently. And although they continue to voice concerns over input costs, market fluctuations and rising interest rates, farmers still expect a pretty good year overall. They also expect land values to increase over the long haul, which will improve their balance sheet even further. All in all, a good report. Farmers are typically a little more reserved with their opinions just before planting and calving season then, assuming the weather and prices are cooperative, become more optimistic as the year progresses. A good reason to maintain your presence with AgTruckTrader.com and AgPack® throughout the year. Both of these tools are designed to assist you in making sales and growing or maintaining your margins. Want to know more about how these tools can help improve your sales, parts and service income – reach out to a member of our CAD team!