High Input Costs, Rising Interest Rates Continue to Concern Farmers, Says Purdue Survey
Farmers continue to be concerned about high input costs, the risk of declining output prices, and rising interest rates according to the latest survey of U.S. farmers from Purdue’s Center for Commercial Agriculture.
The same survey says that the percentage of producers who expect to see U.S. agricultural exports rise over the long term has been declining for some time and reached a new low this month. Although both the long-term and short-term farmland value indices remain in positive territory, the percentage of producers who expect farmland values to fall in the upcoming year has been rising, reaching a life-of-survey peak in February. In the two most recent barometer surveys approximately 10% of farms reported having solar leasing discussions with companies and, in February, nearly half of them said they were offered an annual lease rate of over $1,000 per acre.
Overall, the Purdue University/CME Group Ag Economy Barometer dipped five points to a reading of 125 in February. Farmers’ perspectives regarding both current conditions on their farms and expectations for the future also weakened. The Index of Current Conditions fell 2 points to 134 and the Index of Future Expectations declined 6 points to 121. The Ag Economy Barometer is calculated each month from 400 U.S. agricultural producers’ responses to a telephone survey. This month’s survey was conducted February 13-17.
“Increased concern over the risk of falling output prices, rising interest rates and uncertainty over the future growth of U.S. agricultural exports is weighing on producers’ minds,” said James Mintert, the barometer’s principal investigator and director of Purdue’s Center for Commercial Agriculture.
Producers’ expectations for their farms’ financial performance in 2023 compared to 2022 weakened in February. The Farm Financial Performance Index declined 7 points to a reading of 86. Farmers continue to point to concerns about higher input costs (38% of respondents), rising interest rates (24% of respondents) and lower output prices (18% of respondents) as their biggest concern for the year ahead.
Agricultural exports have been a key source of growth for U.S. agriculture for decades. Beginning in 2019, the Ag Economy Barometer survey routinely included a question asking producers about their expectations for agricultural exports in the upcoming five years. Since peaking in 2020, when just over 70% of respondents said they expected exports to increase in the upcoming five years, the percentage of farmers looking for exports to grow over time has drifted lower. In February just 33% of survey respondents said they expect exports to increase, which leads Mintert to suggest that a lack of confidence in future agricultural export growth is contributing to weakened sentiment among producers.
Despite strong farm income, the February reading of the Farm Capital Investment Index changed little, rising 1 point to a reading of 43. This month 72% of producers said it is a “bad time” to make large investments in their farming operation, while just 15% reported it is a “good time” to make such investments. The disparity between producers’ responses to the question and actual farm equipment sales continues to be focused on costs. Of those who said now is a “bad time” to make large investments, 45% of respondents said it was because of an increase in prices for farm machinery and new construction, while 27% of respondents said it was because of “rising interest rates.”
Producers’ expectations for short-term and long-term farmland values fell in February but remain positive. The Short-Term Farmland Value Index declined 1 point to 119 while the Long-Term Farmland Value Index dropped 5 points to 137. Although both indices remain above 100, indicating a positive outlook on farmland values, the percentage of producers who said they expect values to decline over the next five years reached 19% this month, the highest percentage since this question was first routinely included in barometer surveys in 2019. Still, over half (56%) of respondents expect values five years from now to be higher than today. This month just 33% of respondents said they expect values to rise in the next 12 months, while 14% said they expect values to weaken.
Each February, the barometer survey includes a question focused on farm growth, asking respondents about the annual growth rate they expect for their farm over the next five years. This year 49% of respondents said their farm either had “No plans to grow” (33%) or “Plan to exit or retire” (16%). Of those respondents who expect their farms to grow, 19% expect it to grow by “Less than 5% annually,” and 22% said they expect it to grow by “5% to 10% annually.”
Leasing of farmland for solar energy production is a hot topic in many parts of the U.S. Since the spring of 2021, the barometer survey has periodically included questions about the discussions farmers are having with solar companies. In both the January and February 2023 surveys, just over 10% of respondents said they had discussed a solar lease with a company. Of those who indicated they had been in discussions, nearly half (48%) of respondents said they were offered a lease rate above $1,000 per acre, up from a low of 27% and a high of 35% in previous surveys. This month’s survey findings suggest companies have started to increase lease rates they are willing to pay.
Click HERE to read the FULL Ag Economy Barometer report from Purdue’s Center for Commercial Agriculture.