After a two-month decline, the Purdue University/CME Group Ag Economy Barometer closed out a year of weak sentiment on a higher note, skyrocketing 24 points to a reading of 126 in December, according to a release.
Farmers across the country were more optimistic about their current situation, as well as their expectations for the future. The Current Conditions Index saw a significant increase at a reading of 135, 37 points up from the previous month. The Future Expectations Index rose 18 points, coming in at a reading of 122.
“The improvement in current sentiment was motivated by producers’ stronger perception of current financial conditions on their farms and could be attributed to producers taking time to estimate their farms’ 2022 income following the completion of the fall harvest,” said James Mintert, director of Purdue University’s Center for Commercial Agriculture and the barometer’s principal investigator.
The Farm Financial Performance Index increased to a reading of 109, 18 points higher than November’s reading and the only time in 2022 that it exceeded 100. This turnaround was prompted by a sharp increase in producers who anticipate better performance than last year. The percentage of respondents that expect enhanced performance climbed from 23% to 35%, aligning with USDA’s forecast for solid net farm income in 2022.
The Farm Capital Investment Index rose to 40, increasing nine points compared to the previous month, making it the highest reading for the index since February. Despite the positive reading, the index still remains nine points below the previous year’s numbers. Nearly three-quarters of participants said it was a poor time for large investments, with high prices for farm machinery and new construction making up 41% and rising interest rates close behind at 28%.
While farmers’ views of their financial situations did improve, the short- and long-term farmland value indices drifted lower once again in December. The short-term index decreased to 124, five points below the previous month’s reading. The long-term index fell to 140, four points lower than in November. An analysis of the last year proves that sentiment among producers regarding farmland values has shifted. Participants who predict a decline in farmland values in the upcoming year rose from 6% in 2021 to a reading of 15%, while respondents who expected to see values rise fell from 59% to 39%. Out of the producers who predict farmland values will increase over the next five years, three-fourths shared that both nonfarm investor demand and inflation are the two main reasons they believe values will rise.
With the new year on the horizon, December’s survey prompted producers to compare expectations for their 2023 financial performance on farm to 2022. Respondents indicated they predict a lower financial performance than in 2022, citing increasing costs and narrowing margins as main reasons.
Cost concerns remain top of mind for producers. Close to half of crop producers said they predict farmland cash rental rates this year to surpass the previous year. Other main concerns for 2023 are higher input costs, rising interest rates and decreased crop or livestock prices.
For the full Ag Economy Barometer report, click here.
