Slightly higher producer morale – a measure of the agricultural economy

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Slightly higher producer morale – a measure of the agricultural economy

06 August 2022

High input costs and low prices are among the most important concerns

Purdue University’s Agricultural Economics Barometer/CME Group Ag rose 6 points in July to a reading of 103. Producers were somewhat more optimistic about current and future economic conditions on their farms than in June.

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The Current Conditions Index rose by 10 points to a reading of 109 and the Future Expectations Index rose by 4 points to a reading of 100. Although all three indices rose this month, they are still 23-24% lower than the previous year. The Ag economy metric is calculated each month from the responses of 400 US agricultural producers to a telephone survey. This month’s survey was conducted between July 11-15.

“Although we saw a slight pickup in sentiment this month, there is still a tremendous amount of uncertainty in the agricultural economy,” said James Minter, principal investigator on the barometer and director of the Center for Commercial Agriculture at Purdue University. “Commodity prices, including wheat, corn and soybeans, declined during the month and producers remain concerned about higher input prices and input availability.”

In this month’s survey, farm operators expressed concerns about several key issues affecting their work, including: high input prices (42% of respondents), low crop prices (19% of respondents), and high interest rates (17% of respondents). participants), and availability. of the inputs (15% of the respondents).

The farm’s financial performance index, which mainly reflects income expectations for the current year, improved 5 points to a reading of 88 in June. However, this month, 49% of respondents said they expect their farm to be worse off financially a year from now, compared to 51% who felt that way in June. This is a significantly more pessimistic view than the producers gave a year ago when only 30% of respondents said they expect their financial situation to deteriorate in the next year.

Producers are still unsure of their expectations for crop input prices over the next 12 months. In July, 18% of crop producers said they expected input prices for 2023 crops to fall between 1 and 10% compared to 2022 prices, compared to 12% who felt that way in June. Meanwhile, 26% of respondents in July said they expected 2023 prices to rise by 10% or more, compared to 38% who expected crop input prices to rise by that size in June.

The rise in input costs has prompted some producers to re-evaluate their crop plans for the coming year. In this month’s survey, nearly one in four (24%) of crop producers said that as a result of rising input costs, they plan to change their farm’s crop mix in 2023. In a follow-up question, more than half (53%) of Participants who said they plan to change their mix will increase the percentage of their farmland devoted to soybeans. In a separate set of questions, 26% of producers who told us they planted winter wheat last year said they plan to increase their wheat acreage this fall.

The Agricultural Capital Investment Index remained near a record low, up one point to a reading of 36 in July. To shed light on why, respondents who said now is a bad time for big investments were asked the main reason they felt that way. Of these, 44% cited “increased prices of farm machinery and new construction,” 15% said “uncertainty about farm profitability,” and 14% chose “high interest rates” as the main reason they now consider a bad time. For big investments. Somewhat surprisingly, only 7% of respondents chose “traders’ tight stock of agricultural machinery” as the main reason for responding negatively to the investment question.

Producers’ views on farmland values ​​were mixed this month as the short-term farmland value index fell 9 points to 127, while the long-term index rose 9 points to 150. The short-term index fell 20% from its peak reading in 2021, while the index Long-term is only 6% lower than last year’s peak. In the short term, there was a shift away from expectations that farmland values ​​would rise, with more producers in July expecting values ​​to remain roughly the same. The long-term change is due to more participants this month expecting values ​​to rise with fewer expecting a decrease over the next five years.

“Short- and long-term farmland indices don’t always move in tandem, but the magnitude of the difference this month between short and long-term indices is unusual,” Mintert said. “Producers who expect values ​​to rise over the next five years continue to say that demand from non-farm investors and inflation are the main reasons to expect values ​​to rise.”

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