U.S. farmers’ sentiment changed very little in December compared to the preceding month. The Purdue University-CME Group Ag Economy Barometer recorded a reading of 114. The Current Conditions Index for December was 112, while the Future Expectations Index was 115.
In December, farmers perceived continued improvement in their farms’ financial performance as the Farm Financial Performance Index rose by 2 points compared to a month earlier. Since late summer, the index has climbed 11 points and was 21 points higher than in May when the index reached its low point for the year. December’s improvement in the financial performance index coincided with USDA’s upward revision in late November of their forecast for 2023 net farm income. Although USDA still forecasts a drop in net farm income from 2022’s record high level, the November estimate for 2023’s inflation-adjusted net farm income was $10 billion higher than the forecast USDA issued on August 31.
The Farm Capital Investment Index was virtually unchanged in December, one point above the previous month. Respondents who said that now is a good time to make large investments in their farm operation pointed to “higher dealer inventories” and “strong cash flows” as key factors to support this perspective. The percentage of producers in December citing “higher dealer inventories” as a primary reason to invest was more than double the percentage who felt that way in July.
High input costs continue to be the primary source of concern for U.S. farmers. However, over the course of the year, there was a marked shift regarding producers’ apprehensions. In January 2023, only 16% of farmers in the barometer survey pointed to the risk of “lower crop and/or livestock prices” as one of their biggest concerns. This changed as 2023 unfolded, and by December, just over one-fourth of respondents (26%) said the risk of lower prices for crops and livestock was a big concern. The other major concern for the upcoming year cited by producers was “rising interest rates,” chosen this month by 24% of survey respondents.
The December survey queried farmers regarding their expectations for both consumer inflation and prime interest rates in the upcoming year. Producers’ inflation expectations have moderated since December 2022. A year ago, 50% of the producers anticipated consumer inflation in the upcoming year to be 6% or higher, with just 13% indicating they expected inflation to be less than 3%. Those results sharply contrast with responses received this December. In this year’s survey, 13% of producers said they expect inflation in the upcoming year to be 6% or higher with 70% of respondents looking for inflation in 2024 to be less than 4%. Concerning interest rates, about one-third (34%) of respondents said they look for interest rates to decline in the upcoming year, with an additional 22% expecting the prime rate to remain unchanged in the upcoming year.
EDITOR’S TAKE:
Although farmers/ranchers are expressing some concern over lower prices for their output, overall, they remain optimistic about prospects in 2024. Two important indicators are the willingness to make large investments and lower cost of inputs. If we assume an average weather year in 2024 and a price rally or two during the year, farmers/ranchers should be able to forward contract at attractive returns. Expectations for another very good year for net farm income should remain high. That should portend a good year for truck sales. Between trying to reduce their 2023 tax burden and a sizable 2024 expected income, the future remains bright for farmers/ranchers. Make sure you have your inventory up-to-date on AgTruckTrader.com.
