Farmers Growing More Optimistic as Inflation Expectations Subside

WEST LAFAYETTE, Ind. — America’s farmers are feeling a bit more optimistic about the year ahead due to their expectation that inflation will continue to subside, according to a new report from Purdue University.

The Purdue University/CME Group Ag Economy Barometer is a monthly measure of producer sentiment in the agricultural sector.

During a nationwide survey conducted Dec. 4-8, farmers reported a general improvement of their farm’s financial performance, pushing the Farm Financial Performance Index up 2 points compared to November’s results.

Since late summer the index has climbed 11 points, and at the end of the year was 21 points above the low point for 2023, which occurred in May.

The researchers noted that the shift in farmers’ perception of financial performance during the fall quarter corresponds with the U.S. Department of Agriculture’s more optimistic 2023 farm income outlook released in late November which was $10 billion higher than their previous forecast.

That report forecast that median total farm household income would increase to $99,802 in 2023, a nominal increase of 4.6% between 2022 and 2023.

The Agriculture Department report broke its good news down further, based on the fact most farms receive income both from farm and off-farm sources.

Median farm income earned by farm households was forecast to increase in 2023 to -$550 from -$849 in 2022. Many farm households primarily rely on off-farm income: median off-farm income in 2023 is forecast at $84,745, an increase of 4.5% (1.1% after inflation) from $81,108 in 2022.

“Since farm and off-farm income are not distributed identically for every farm, median total income will generally not equal the sum of median off-farm and median farm income,” the Agriculture Department noted.

Returning to the Purdue University/CME Group analysis, the Farm Capital Investment Index component of the study came in with a reading of 43, only one point above November’s, but it marked a 13-point increase compared to the same period last year.

Respondents endorsing the notion that now is a favorable time for substantial investments in their farm operation cited “higher dealer inventories” and “strong cash flows” as key factors supporting this perspective.

While the percentage of respondents selecting “strong cash flows” as a rationale for investment rebounded from the previous month, it remained less popular than in July and August.

Conversely, in December, the percentage of producers citing “higher dealer inventories” as a primary motivation for investment was more than double the proportion expressing a similar sentiment in July.

High input costs continue to be the primary source of concern for U.S. farmers, the Purdue/CME Group study found.

However, over the course of the past year, there was a marked shift regarding producers’ apprehensions, the researchers said.

In January, only 16% of farmers in the barometer survey pointed to the risk of “lower crop and/or livestock prices” as one of their biggest concerns.

This changed as 2023 unfolded, and by December, just over a quarter of respondents (26%) said the risk of lower prices for crops and livestock was a big concern.

The researchers also asked farmers about their expectations for both consumer inflation and prime interest rates in 2024.

They found that overall, farmers’ expectations in regard to consumer inflation have moderated since late 2022.

A year ago, 50% of the producers anticipated consumer inflation in the upcoming year to be 6% or higher, with just 13% indicating they expected inflation to be less than 3%. 

Those results sharply contrast with responses received last month.

In December, 13% of farmers said they expect inflation in the upcoming year to be 6% or higher with 70% of respondents looking for inflation in 2024 to be less than 4%.

Regarding interest rates, about one-third (34%) of respondents said they look for interest rates to decline in the upcoming year, with an additional 22% expecting the prime rate to remain unchanged over the course of 2024.

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