Strengthening Financial Position Boosts Farmer Optimism

The Purdue University/CME Group Ag Economy Barometer rose for the second time since May, up 9 points to a reading of 125 in December. The Index of Current Conditions and the Index of Future Expectations also rose in December with stronger current conditions primarily responsible for the barometer's rise. The Index of Current Conditions rose 18 points to a reading of 146, while the Index of Future Expectations rose 4 points to a reading of 114.

December marked the second month in a row that farmers reported a stronger financial performance for their farms. The Farm Financial Performance Index rose 7 points to 113 in December, which is the index's highest reading since May and is 21% higher than readings obtained just before the pandemic's onset. Excellent crop yields this fall combined with strong crop prices provided many producers with their most positive cash flow in recent years. That combination helps explain the year-end rise in the financial index as well as the barometer.

Even as supply chain issues continue to hamper producers' capital investment plans, the Farm Capital Investment Index rose in December, up 10 points to a reading of 49. This marks the most positive value for the investment index since August. The investment index's improvement was primarily the result of fewer producers in December saying they planned to reduce their machinery purchases in the upcoming year, responding instead that they plan to hold their investments steady with the prior year. This month, 45% of survey participants said that low farm machinery inventory levels impacted their farm machinery purchase plan.

Farmers expressed concern about rising production costs and the availability of production inputs. When asked what their biggest concerns are for their farming operation in the upcoming year, 47% of respondents selected higher input cost from a list that included lower crop and/or livestock prices, environmental policy, farm policy, climate policy and COVID's impact. Over half (57%) of producers said they expect farm input prices in 2022 to rise by more than 20% from a year earlier and nearly four out of ten respondents said they expect input prices to rise by more than 30%.

The December survey also asked crop producers if they have had any difficulty purchasing crop inputs from their suppliers for the 2022 crop season. Nearly four out of ten (39%) of respondents said they've experienced some difficulties. In a follow-up question, producers who indicated that they were experiencing difficulties in making purchases were asked which crop inputs they've had trouble purchasing. Responses were varied which could be an indication of problems across the entire supply chain and included difficulties in purchasing fertilizer (31%), herbicides (28%), farm machinery parts (24%) and insecticides (17%).

Both the short-term and long-term farmland value indices declined slightly in December. The Short-Term Farmland Value Expectation Index declined 4 points to 153, while the long-term index declined 6 points to 152. Although both indices declined in December, they remain near their all-time highs. Producers who indicated they expect farmland values to rise over the next five years were asked a follow up question concerning the main reason they expect farmland values to rise. Responses indicated non-farm investor demand (61%), low interest rates (13%), and strong farm cash flows (11%) were their primary reasons for expecting values to rise.

EDITOR’S TAKE:

A very positive year-end report that also provides some valuable insight for 2022. As we have said many times and is confirmed by the December Ag Barometer report, farmers/ranchers have money! And, although they expect input costs to rise in the coming year, they plan to make capital expenditures for items like buildings - and especially equipment. This report also underscores just how financially viable farmers/ranchers are with the most positive cash flow they have seen in years. Plus, with farmland values expected to remain very positive over the coming years, they are expected to have a very solid balance sheet to boot.

We will say it again – when you look ahead in 2022 and all that is going on with the general economy and consumer fears over inflation and lower “real” wages – think about who your best customers will be as supplies of new vehicles are delivered to your lot. We believe the answer is very clear – it’s farmers and ranchers! Your CAD membership provides you with not only credibility with the ag community, it gives you a leg up over the non-CAD dealers out there. Add AgPack to the equation, with thousands of dollars in exclusive rebates and discounts, and you truly have a winning combination at your fingertips!