Farmer Optimism Rises Amid Shifting Interest Rate Forecasts

U.S. farmers’ perspective on the future improved in March helping to push the Purdue University-CME Group Ag Economy Barometer up 3 points from February to a reading of 114. The Index of Current Conditions at 101 was 2 points below a month earlier while the Index of Future Expectations reached 120, 5 points higher than in February.

In March, producers exhibited a heightened sense of optimism regarding short-term farmland values, as indicated by the Short-Term Farmland Values Index climbing to 124, marking a 9-point increase from the previous month. Notably, 38% of producers anticipate an increase in farmland values over the next year, compared to 31% in January and February. Several factors contributed to this positive outlook, including demand from non-farm investors, inflation expectations, and stronger cash flows. While an improved interest rate outlook may have played a role, it wasn’t specifically noted by producers in this month’s survey.

More farmers this month (24%) cited inflation expectations, up from 18% in the previous month. Additionally, there was a slight uptick in producers attributing the increase to strong cash flows (8% in March versus 6% in February), while mentions of non-farm investor demand saw a modest decline. Nonetheless, a majority (57%) of producers still view non-farm investor demand as the primary reason for their bullish outlook on farmland values.

Interest in utilizing farmland for carbon sequestration or solar energy production seems to be on the rise. In the latest survey, approximately 1 out of 5 respondents (18%) reported being approached about carbon capture utilization and storage (CCUS) on their farmland, while 12% engaged in discussions with companies interested in leasing farmland for solar energy projects in the last six months, up from 10% in February. Regarding long-term farmland lease rates offered by solar energy companies, over half (54%) of respondents this month were offered $1,000 or more per acre, with just over a quarter (27%) being offered $1,250 or more per acre.

The March barometer survey included several questions focused on farmers’ policy expectations following the fall 2024 elections. Eighty percent of this month’s respondents said they are concerned that, following the fall 2024 elections, there will be government policy changes affecting their farms in the years ahead. Forty-three percent of respondents said they think regulations impacting agriculture will be more restrictive following the elections, while just 18% said they expect a less restrictive operating environment. Four out of ten producers (39%) said they think taxes impacting agriculture will rise following the fall election while half of respondents said they expect no change in agriculture’s tax environment.