Despite expectations of inflation decreasing among U.S. farmers, overall producer sentiment changed little in December, according to the most recent report from Purdue University/CME Group’s Ag Economy Barometerand outlined in a Jan. 3 press release.
The Ag Economy Barometer’s December reading clocked at 114, a single point lower than November’s reading. The barometer is based on two key subindices — the Index of Current Conditions and the Index of Future Expectations — each of which also posted single point month-over-month declines between November and December, to 112 and 115 respectively.
Seventy percent of farmer respondents reported expecting inflation to be less than 4% in the coming year, a significant drop in interest rate expectations year-over-year. By way of comparison, 50% of respondents in the January 2023 survey period reported expecting interest rate increases of 6% or more.
Farmer respondents reported a continuing trend of improving farm financial performance, with the Farm Financial Performance Index up two points in December and 11 points overall since late summer. The Farm Financial Performance Index ended the year up 21 points above May 2023, its lowest point of the year.
“The shift in farmers’ perception of financial performance during the fall quarter corresponds with USDA’s (U.S. Department of Agriculture’s) more optimistic 2023 farm income outlook released in late November, which was $10 billion higher than their previous forecast,” said James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture, in the release.
The Farm Capital Investment Index reading increased one point over the month previous to 43, translating to a 13-point year-over-year increase. Those survey respondents who reported that they believed the timing was right to make substantial investments in their farm businesses chose “higher dealer inventories” and “strong cash flows” as the top factors influencing their perspective. Interestingly, the number of respondents who selected “strong cash flows” as their investment rational was lower than in July; conversely the number of respondents who selected “higher dealer inventories” increased markedly compared to July.
Concerns certainly remain, the farmer survey shows. Between January of 2023 and December, the number of farmers concerned about decreasing crop and livestock prices increased from 16% to 26%. Rising interest rates also continue to cause worry — almost one quarter (24%) of farmer respondents noted rising interest rates as a top concern heading into 2024. That said, 22% of respondents reported expecting no change in interest rates through 2024, and 34% of respondents said they expected a drop in interest rates over the coming year.
Changing expectations around interest rates could held explain a bump in farmers’ expectations in farmland’s long-term value, said Mintert. Compared to a year ago, the Long-Term Farmland Value Index increased 9 points year-over-year. However, short-term expectations aren’t so rosy. December’s Short-Term Farmland Value Index dropped 4 points to 121 compared to November. Compared year-over-year, the Short-Term Farmland Value Index dropped 3 points.
December’s Ag Economy Barometer survey was conducted from Dec. 4-8, 2023.
