Producer Sentiment Rises in July
Published: Friday, August 5, 2022
The Purdue University/CME Group Ag Economy Barometer farmer sentiment index rose 6 points in July to a reading of 103. Producers were somewhat more optimistic about both current and future economic conditions on their farms when compared to June. The Index of Current Conditions rose 10 points to a reading of 109, and the Index of Future Expectations rose 4 points to a reading of 100.
Although all three indices rose this month, they were still 23 percent to 24 percent lower than a year earlier. 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 July 11-15.
"Even though we saw a slight uptick in sentiment this month, there is still a tremendous amount of uncertainty in the agricultural economy," said James Mintert, the barometer's principal investigator and director of Purdue University's Center for Commercial Agriculture. "Key commodity prices, including wheat, corn and soybeans, all weakened during the month and producers remain concerned over rising input prices and input availability."
Farm operators in this month's survey voiced concerns about several key issues affecting their operation, including higher input prices (42 percent of respondents), lower crop prices (19 percent of respondents), rising interest rates (17 percent of respondents) and availability of inputs (15 percent of respondents).
The Farm Financial Performance Index, which is primarily reflective of income expectations for the current year, improved 5 points to a reading of 88 in June. However, this month, 49 percent of respondents said they expect their farm to be worse off financially a year from now, which compares to 51 percent who felt that way in June. This is a markedly more pessimistic outlook than producers provided a year ago when just 30 percent of respondents said they expect their financial condition to worsen in the upcoming year.
Producers remain uncertain over their expectations for crop input prices over the next 12 months. In July, 18 percent of crop producers said they expect 2023's crop input prices to decline between 1 percent and 10 percent when compared to 2022's prices, versus 12 percent who felt that way in June. Meanwhile, 26 percent of respondents in July said they expect 2023's prices to rise by 10 percent or more, compared to 38 percent who expected a crop input price rise of that magnitude in June.
The rise in input costs is leading some producers to reassess their cropping plans for the upcoming year. In this month's survey, nearly one out of four (24 percent) of crop producers said that as a result of the rise in input costs, they plan to change their farm's crop mix in 2023. In a follow-up question, over half (53 percent) of respondents who said they plan to change their mix will increase the percentage of their cropland devoted to soybeans. In a separate set of questions, 26 percent of producers who said they planted winter wheat last year indicated they plan to increase their wheat acreage this fall.
The Farm Capital Investment Index remains near its 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 large investments were asked for the primary reason they felt that way. Of those respondents, 44 percent indicated an "increase in prices for farm machinery and new construction," 15 percent said "uncertainty about farm profitability," and 14 percent chose "rising interest rates" as the primary reason they viewed now as a bad time for large investments. Somewhat surprisingly, only 7 percent of respondents chose "tight farm machinery inventories at dealers" as their primary reason for responding negatively to the investment question.
Producers' views on farmland values diverged this month as the Short-Term Farmland Value Index declined 9 points to 127, while the long-term index rose 9 points to 150. The short-term index is down 20 percent from its peak reading in 2021, while the long-term index is only 6 percent lower than the peak reached last year. Short-term, there was a shift away from expectations that farmland values will go higher, with more producers in July expecting values to remain about the same. The long-term change was attributable to more respondents this month expecting values to rise with fewer expecting a decline over the next five years.
"The short-run and long-term farmland indices don't always move in tandem, but the magnitude of this month's divergence between the short and long-term indices is unusual," Mintert said. "Producers who expect values to rise over the upcoming five years continue to say that nonfarm investor demand and inflation are the two primary reasons they expect values to rise."
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