Farmer Sentiment Weakens in February

The Purdue University/CME Group Ag Economy Barometer dipped 5 points to a reading of 125 in February. Farmers’ perspectives regarding both current conditions on their farms and their 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. 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.

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 5 years. Since peaking in 2020, when just over 70% of respondents said they expected exports to increase in the upcoming 5 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 suggests 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 one 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 one 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 5 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 5 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 5 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 that 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 the lease rates they are willing to pay.