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Farmers Cautiously Optimistic About Future of Their Farms, Ag Barometer Finds

August 3, 2021 by TWN Staff

America’s farmers are feeling the sobering pinch of weakened principal crop prices, but nevertheless remain cautiously optimistic about the financial conditions of their farms, a just- released industry barometer has found.

According to the Purdue University/CME Group Ag Economy Barometer farmer sentiment leveled off in July after two months of sharp declines.

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 July 19-23, 2021.

The responses are reported in the form of separate indexes, one looking at Ag producer sentiment regarding current and future conditions.

The Index of Current Conditions was down 6 points in July, dropping to a reading of 143, primarily as a result of weakened principal crop prices. The Index of Future Expectations was down 2 points to a reading of 130.

This month’s sentiment index marked the lowest barometer reading since July of 2020 and actually marked a return to sentiment readings observed from much of 2017 through 2019, when annual average barometer readings ranged from 131 to 133. 

Producers’ sentiment regarding their farms’ financial condition was more optimistic when prices for corn, soybeans and wheat were surging last fall, winter, and early spring. Still, recent sentiment readings suggest farmers remain cautiously optimistic about financial conditions on their farms, the survey said.

There was a modest improvement in the Farm Financial Performance Index, which asks producers about expectations for their farm’s financial performance this year compared to last year. The index improved 3 points from last month to a reading of 99 and remains 43% higher than in July 2020 when the index stood at 69.

The Farm Capital Investment Index declined for the fourth consecutive month down 4 points to a reading of 50. Weakness in the investment index was primarily attributable to more producers indicating they plan to reduce their farm building and grain bin purchases in the upcoming year.

Two-thirds of July’s respondents said their construction plans were lower than a year earlier, compared to 61% who indicated that in June. Plans for farm machinery purchases were also somewhat weaker, with a shift of more respondents planning to reduce their machinery purchases compared to last year instead of holding them constant.

Producers were also asked about their expectations for farm input prices. Just over half (51%) of the producers in the July survey expect input prices to rise 4% or more over the next year, 30% expect costs to rise 8% or more, and nearly one out of five (18%) expect input prices to rise by 12% or more. It is important to note that these expectations are markedly higher than the rate of 1.8% per year that input prices rose over the last decade.

Farmers remain optimistic about farmland values, although recent value increases could be making some producers more cautious about where land values are headed in the next one to five years. The Short-Term Farmland Values Expectations Index weakened this month to a reading of 142, down 6 points from June and the long-term index weakened to a reading of 151, down 4 points from a month earlier.

While both indices remain near all-time highs, recent declines in the farmland indices could be more of a reflection of the rapid increase in farmland values over the last year, leading producers to be cautious about the likelihood of further price increases. 

For example, Purdue University’s annual Farmland Values and Cash Rent Survey, conducted in June 2021 and published in late July, indicated that Indiana cropland values rose 12 to 14%, depending on land quality, compared to the June 2020 survey results.

Finally, both the June and July barometer surveys included questions on leasing farmland for solar energy production. The percentage of all respondents who have engaged in solar energy leasing discussions ranged from 6% (July survey) to 9% (June survey). 

New to the July survey, producers were also asked if either they or one of their landlords had signed a solar leasing contract, with 4% indicating an agreement had been signed. In a follow up question on both surveys, producers were asked about the lease rates being offered by solar leasing companies. 

Keeping in mind that the number of respondents reporting lease rates was quite small, a comparison of the June and July results suggests there might be a trend towards solar lease rates rising. 

For example, in July more respondents reported lease rates greater than $1,000 per acre and fewer reported being offered lease rates of less than $500 per acre than on the June survey.

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