Farmer sentiment plummets as production costs skyrocket

Rhea-AI Summary

The Purdue University/CME Group Ag Economy Barometer fell to 99 in May, marking its lowest level since April 2020, driven by rising production costs and uncertain input prices. The Index of Current Conditions dropped 26 points to 94, while the Index of Future Expectations dropped 21 points to 101. Producer concerns are escalating, with 38% anticipating worse financial performance in 2022. The Farm Capital Investment Index fell to an all-time low as 78% deemed it a bad time for large investments. Despite concerns, farmland value expectations remain optimistic.

Positive

• Short-Term Farmland Value Expectations Index rose 1 point to 145.
• Long-Term Farmland Value Expectations Index increased 8 points to 149.

Negative

• Ag Economy Barometer dropped to 99, lowest since April 2020.
• Farm Financial Performance Index decreased 14 points to 81.
• Producers expecting worse financial performance rose from 29% to 38%.
• Farm Capital Investment Index reached an all-time low, down 30 points from last year.
• 44% of producers cited higher input costs as their biggest concern.

WEST LAFAYETTE, Ind. and CHICAGO, June 7, 2022 /PRNewswire/ -- The Purdue University/CME Group Ag Economy Barometer dropped to its lowest level since April 2020, down 22 points in May to a reading of 99. Agricultural producers' perceptions regarding current conditions on their farms, as well as their future expectations, both weakened this month. The Index of Current Conditions dipped 26 points to a reading of 94 and the Index of Future Expectations fell 21 points to a reading of 101. 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 between May 16-20.

"Despite strong commodity prices, this month's weakness in producers' sentiment appears to be driven by the rapid rise in production costs and uncertainty about where input prices are headed," said James Mintert, the barometer's principal investigator and director of Purdue University's Center for Commercial Agriculture. "That combination is leaving producers very concerned about their farms' financial performance."

The Farm Financial Performance Index declined 14 points to a reading of 81 in May. The percentage of producers who expect their farm's financial performance to worsen in 2022 compared to last year rose from 29% in April to 38% in May. Over the course of the last 13 months, the Farm Financial Performance Index has fallen 41% below its life of survey high of 138 set in April 2021.

The Farm Capital Investment Index drifted to an all-time low in May and is down 30 points from this same time last year. In the May survey, only 13% of respondents said this is a good time to make large investments in their operation, while 78% said they viewed it as a bad time to invest in things like machinery and buildings. Half of the producers in this month's survey said their machinery purchase plans were impacted by low farm machinery inventory levels, up from 41% in the April survey, suggesting that supply chain issues are at least partly responsible for the ongoing weakness in the capital investment index.

Higher input costs remain a top concern for producers with 44% of those surveyed choosing it as the biggest concern facing their farming operation in the coming year. Additionally, 57% of producers said they expect a 30% or more rise in prices paid for farm inputs in 2022 compared to prices paid last year. The May survey also asked producers about their expectations for input costs in 2023 compared to 2022 with nearly 39% of producers indicating they expect an additional cost increase of 10% or more in the coming year.

In response to a Biden administration policy proposal for a $10/acre wheat/double-crop soybean crop insurance subsidy, this month's survey asked respondents if the subsidy would encourage them to plant more wheat in fall 2022 than would otherwise be the case. Among producers who have employed a wheat/double-crop soybean rotation in the past, just over one in five (22%) said it would encourage them to plant more wheat. Among producers who have not followed a wheat/double-crop soybean rotation in the past, just one out of ten producers said the insurance subsidy would encourage them to plant more wheat this fall.

Lastly, farmers remain optimistic toward farmland values. The Short-Term Farmland Value Expectations Index, based upon producers' 12-month outlook, rose 1 point to a reading of 145. Meanwhile, the Long-Term Farmland Value Expectations Index, based upon producers' farmland outlook over the upcoming 5 years, rose 8 points in May to a reading of 149. In a follow-up question, respondents who expect farmland values to rise over the next 5 years were asked the main reason they expect values to rise. Over the past few months that this question has been posed, respondents have consistently chosen non-farm investor demand as the top reason, followed closely by inflation.

Read the full Ag Economy Barometer report at https://purdue.ag/agbarometer. The site also offers additional resources – such as past reports, charts and survey methodology – and a form to sign up for monthly barometer email updates and webinars.

Each month, the Purdue Center for Commercial Agriculture provides a short video analysis of the barometer results, available at https://purdue.ag/barometervideo. For even more information, check out the Purdue Commercial AgCast podcast. It includes a detailed breakdown of each month's barometer, in addition to a discussion of recent agricultural news that affects farmers. Available now at https://purdue.ag/agcast.

The Ag Economy Barometer, Index of Current Conditions and Index of Future Expectations are available on the Bloomberg Terminal under the following ticker symbols: AGECBARO, AGECCURC and AGECFTEX.

About the Purdue University Center for Commercial Agriculture
The Center for Commercial Agriculture was founded in 2011 to provide professional development and educational programs for farmers. Housed within Purdue University's Department of Agricultural Economics, the center's faculty and staff develop and execute research and educational programs that address the different needs of managing in today's business environment.

About CME Group
As the world's leading and most diverse derivatives marketplace, CME Group (www.cmegroup.com) enables clients to trade futures, options, cash and OTC markets, optimize portfolios, and analyze data – empowering market participants worldwide to efficiently manage risk and capture opportunities. CME Group exchanges offer the widest range of global benchmark products across all major asset classes based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals.  The company offers futures and options on futures trading through the CME Globex® platform, fixed income trading via BrokerTec and foreign exchange trading on the EBS platform.  In addition, it operates one of the world's leading central counterparty clearing providers, CME Clearing. 

CME Group, the Globe logo, CME, Chicago Mercantile Exchange, Globex, and, E-mini are trademarks of Chicago Mercantile Exchange Inc.  CBOT and Chicago Board of Trade are trademarks of Board of Trade of the City of Chicago, Inc.  NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange, Inc.  COMEX is a trademark of Commodity Exchange, Inc. BrokerTec and EBS are trademarks of BrokerTec Europe LTD and EBS Group LTD, respectively. Dow Jones, Dow Jones Industrial Average, S&P 500 and S&P are service and/or trademarks of Dow Jones Trademark Holdings LLC, Standard & Poor's Financial Services LLC and S&P/Dow Jones Indices LLC, as the case may be, and have been licensed for use by Chicago Mercantile Exchange Inc.  All other trademarks are the property of their respective owners.

Writer: Kami Goodwin, 765-494-6999, kami@purdue.edu   
Source: James Mintert, 765-494-7004, jmintert@purdue.edu  

CME-G

Related websites:
Purdue University Center for Commercial Agriculture: http://purdue.edu/commercialag
CME Group: http://www.cmegroup.com/

Photo Caption: Farmer sentiment plummets as production costs skyrocket. (Purdue/CME Group Ag Economy Barometer/James Mintert). https://www.purdue.edu/uns/images/2022/ag-barometer522LO.jpg

 

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SOURCE CME Group

FAQ

What is the current Ag Economy Barometer reading for CME Group as of May 2022?

The Ag Economy Barometer reading for May 2022 is at 99, the lowest since April 2020.

How much did the Farm Financial Performance Index decline in May 2022?

The Farm Financial Performance Index fell by 14 points to a reading of 81 in May 2022.

What percentage of producers expect worse financial performance in 2022 compared to last year?

In May 2022, 38% of producers expect their financial performance to worsen compared to the previous year.

What concerns do producers have regarding input costs for 2022?

44% of producers identify higher input costs as their biggest concern for the coming year, with many expecting a 30% rise.

How did the Farm Capital Investment Index perform in May 2022?

The Farm Capital Investment Index dropped to an all-time low, down 30 points compared to the same time last year.