Fear of Cost-Prize Squeeze Weakens Farmers’ Moods

Farmer sentiment weakened in October for the third consecutive month, according to the Ag Economy Barometer, which is based on research conducted by Purdue University and the CME Group.

The overall barometer reading declined by three points from September to October and landed at 121, leaving the index down nearly one-third since its springtime peak.

The Index of Current Conditions declined five points while the Index of Future Expectations fell by two.

The Farm Financial Performance Index declined six points to 104 in October. Rapid run-ups in input prices, especially fertilizer for crop production, are causing concerns among producers’ about diminishing operating margins. Livestock producers are also concerned about a cost-price squeeze.

The Farm Capital Investment Index rose three points in October—an improvement that still leaves it 50 percent lower than the very optimistic level that existed at the start of 2021.

Notably, tight machinery inventories continue to hold back producers’ machinery investment plans. Nearly four out of 10 respondents said their machinery purchase plans were impacted by low farm machinery inventory levels. The small upward shift this month was primarily attributable to fewer producers saying they planned to reduce their machinery purchases compared to a year earlier.

Rising input costs are on most producers’ minds. In October, 51 percent of producers surveyed said they expect input prices to rise 8 percent or more in the upcoming year, and one-third of producers said they expect those prices to rise by 12 percent or more.

The dramatic rise in fertilizer prices that’s taken place in recent months is a key factor in concerns about rising input costs. For example, USDA data from Illinois indicates that nitrogen (NH3) prices in October were up 130 percent compared to a year earlier and up over 40 percent compared to last spring while potash and phosphate prices experienced similar price increases.

Concerns about rising input costs extend to seed, pesticides, and machinery repairs, and ownership costs.

Data from the Ag Economy Barometer is based on responses from 400 farmers.