Farmer sentiment weakens as production cost concerns mount

Rhea-AI Summary

The Purdue University/CME Group Ag Economy Barometer declined by 5 points in November 2021, reaching a reading of 116, reflecting farmers' pessimism about the agricultural economy. Both the Index of Current Conditions and Index of Future Expectations hit their lowest levels of 2021. Rising production costs, particularly for inputs like fertilizer and fuel, are a major concern, with 43% of farmers expecting input prices to rise by over 16%. Despite these issues, the Farm Financial Performance Index rose slightly to 106, driven by strong crop yields and wheat prices, along with optimistic farmland value expectations.

Positive

• Farm Financial Performance Index rose 2 points to 106, 10% above its June low.
• Producers optimistic about farmland values, with indices near peak levels.
• 52% of corn/soybean producers expect cash rental rates to rise in 2022.

Negative

• Ag Economy Barometer dropped 5 points to 116, lowest for 2021.
• Index of Current Conditions declined 7 points to 128.
• Index of Future Expectations fell 4 points to 110, 30% lower than November 2020.
• Farm Capital Investment Index dropped 7 points to 39, lowest since April 2020.
• 44% of producers' machinery purchase plans affected by low inventory.
• 82% expect more restrictive environmental regulations, 74% foresee higher estate taxes.

WEST LAFAYETTE, Ind. and CHICAGO, Dec. 7, 2021 /PRNewswire/ -- The Purdue University/CME Group Ag Economy Barometer slipped 5 points in November to a reading of 116 as producers continue to be pessimistic about both the current and future outlook of the agricultural economy. The Index of Current Conditions declined 7 points in November to a reading of 128 and the Index of Future Expectations fell 4 points to 110. November marked the lowest reading of 2021 for all three measures of producer sentiment and comparing year-over-year, the barometer is 30% lower than in November of 2020. 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 November 15-19, 2021.

"Farmers are facing sharp rises in production costs coinciding with fluctuating crop and livestock prices, the prospect of changing environmental and tax policy, uncertainty over COVID-19, as well as a host of other issues, all of which are negatively impacting farmer sentiment," said James Mintert, the barometer's principal investigator and director of Purdue University's Center for Commercial Agriculture.

Rising production costs, including those for fertilizer, farm machinery, seed and fuel, are of increasing concern to farmers. For example, in November 43% of survey respondents said they expect farm input prices to rise by more than 16% in the upcoming year. This compares with the actual average rate of farm input price inflation over the past decade of less than 2%.

Supply chain problems could be responsible for a drop in the Farm Capital Investment Index. The index declined 7 points to a reading of 39, the lowest reading since April of 2020. In November, 44% of producers said their farm machinery purchase plans were impacted by low farm machinery inventories. When asked what their biggest concerns are for their farming operation in the upcoming year, nearly half (47%) of survey respondents chose higher input costs.

Unlike the broader sentiment measures, the Farm Financial Performance Index rose 2 points to 106 in November, 10% above its low reading in June of 2021. "Compared to late spring, strong crop yields for fall harvested crops and strength in wheat prices helped push 2021 crop revenue and profitability estimates up, compared to one year ago," said Mintert.

Producers remain very optimistic about farmland values over both the next twelve months and the next five years, as both the short-term and long-term farmland value expectations indices remain near their peaks.

Mintert suggests, "Strong cash flows from crops in 2021, low interest rates and, possibly, rising concerns about inflation continue to propel farmland values higher."

Somewhat surprisingly, given the concerns about rising input costs, 52% of corn/soybean producers expect cash rental rates to rise in 2022, compared to 43% in October. This marks the highest percentage of producers reporting that they expect rental rates in 2022 to rise since the May 2021 survey.

Both interest and awareness of leasing farmland for solar energy projects is on the rise. In November, 11% all respondents reported having a discussion with a company or companies about leasing farmland for solar energy production; however, reported lease rates continue to vary widely. In November, 25% of producers who reported having discussions with a solar leasing company said they were offered less than $500 per acre, while 34% of producers said they were offered a lease rate of $1,000 or more per acre.

Concerns over governmental policy and regulations remain elevated among farmers. On the November 2021 survey, 82% of respondents said they expect more restrictive environmental regulations, 74% expect higher estate taxes, and 77% expect higher income taxes in the years ahead. These percentages compare to results from the October 2020 survey when just 41% of producers expected more restrictive environmental regulations and 35% expected higher estate taxes over the next five years.

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  

Related websites:

Purdue University Center for Commercial Agriculture: http://purdue.edu/commercialag

CME Group: http://www.cmegroup.com/

Photo Caption: Farmer sentiment weakens as production cost concerns mount. (Purdue/CME Group Ag Economy Barometer/James Mintert). https://www.purdue.edu/uns/images/2021/ag-barometer1121OG.jpg 

CME-G

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SOURCE CME Group

FAQ

What is the current status of the CME Group Ag Economy Barometer?

The CME Group Ag Economy Barometer declined to 116 in November 2021, representing a 5-point drop.

How have production costs affected farmers according to the CME Group report?

Farmers are concerned about rising production costs, with 43% expecting prices to increase by over 16% in the coming year.

What is the outlook for farmland values in 2022 as per the CME report?

Producers remain optimistic about farmland values, with both short-term and long-term expectations near historic highs.

What are the key findings of the Farm Capital Investment Index?

The Farm Capital Investment Index fell to 39, the lowest since April 2020, indicating reduced investment plans due to supply chain issues.

What concerns do farmers have regarding government policies?

Many farmers (82%) expect more restrictive environmental regulations, with significant concerns over higher estate and income taxes.