Farmer sentiment was slightly lower in October as the Purdue University/CME Group Ag Economy Barometer dropped to a reading of 102. Both of the barometer’s sub-indices also declined this month.
Concern over rising interest rates grew once again in October and added to the unease amongst producers worried about its impact on their farm operations. Additionally, challenging shipping conditions throughout the Mississippi river valley have hampered exports recently and the corresponding widespread weakening of corn and soybean basis levels (the difference between local cash prices and prices for a futures contract on the Chicago Board of Trade) could be contributing to heightened unease about financial performance.
Producers’ concerns about their farm’s financial performance were one of the primary drivers of weakening sentiment in October. The Farm Financial Performance Index was a distillation of producers’ concerns about high input costs combined with weaker commodity prices. Looking ahead to next year, over 40% of producers viewed high input costs as their top concern, followed by 21% who chose rising interest rates, 13% who chose lower output prices, and 13% who chose input availability.
After dipping last month, the Farm Capital Investment Index improved 7 points this month. Those producers who viewed this as a bad time for large investments revealed that increasing prices for farm machinery and new construction (40% of respondents) was the primary reason for their concerns, followed by rising interest rates (20%) and uncertainty about farm profitability (17%).
Producers’ expectations for short and long-term farmland values also rose this month. The Short-Term Farmland Value Expectation Index rose 10 points to a reading of 133 while the Long-Term Farmland Value Index rose 5 points to 144. Strength in both indices comes on the heels of reports from farmland auctions around the Corn Belt that land values are setting new record highs again this fall.
Farm policy discussions are underway as Congress prepares for debate on a new Farm Bill in 2023. As a result, several farm policy related questions were included in this month’s barometer survey and posed to crop producers. Crop producers were asked which two policies or programs would be most important to their farm in the upcoming five years. More than one-third (36%) of crop producers chose interest rate policy as the most important policy issue for their farming operation, followed by crop insurance program (27%), environmental policy (16%), conservation policy (11%) and climate policy (10%).
EDITOR’S TAKE:
This month’s mixed results reflect the fact that farmers are looking at the combined impact of higher interest rates and higher input costs might have on their margins in 2023. At the same time, they are also seeing the potential for higher land prices to prop up their balance sheet even further. Plus, we already know that harvest is going better than expected in many areas with great yields and prices that are already locked in through futures trades earlier this year or forward price contracts with the local elevator. Farmers, like anyone else in the current economic environment, if asked if they are concerned about the future, would likely say yes. However, the reality is, at least for the foreseeable future, they are doing just fine – thank you. And with harvest coming to an end soon, now is the perfect time to entice them into your dealership for parts, service and that new or AgPack® qualified used truck they will be needing.
