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Interest rates contribute to increased uneasiness for farmers

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The Purdue University-CME Group Ag Economy Barometer index declined 5 points to 112 from September which was 5 points lower than a month earlier. Weaker sentiment regarding current conditions was the primary driver of this month’s decline in the barometer — Current Conditions Index declined to 109, 9 points lower than in August. The Index of Future Expectations also weakened slightly, declining 3 points from a month earlier to a reading of 113. Compared to a year earlier, the barometer this month was 10 percent lower while producers’ assessment of current conditions was down 22%.

»Related: Op-ed: American farmland’s ability to weather the economic storms

These results stand in contrast with future expectations in September which was only 2 percent weaker than a year ago. The Purdue University-CME Group Ag Economy Barometer sentiment index is calculated each month from 400 U.S. agricultural producers’ responses to a telephone survey. This month’s survey was conducted from September 19-23, 2022, a week or more following USDA’s September Crop Production and World Agricultural Supply and Demand Estimates (WASDE).

Image by Purdue University-CME Group

Higher input costs are still the number one concern among survey respondents with the shift in U.S. monetary policy rising to the forefront as an issue among U.S. producers. This month 44 percent of respondents chose “higher input costs” as their number one concern, down from 53 percent last month.

Second on the list of producers’ concerns for the upcoming year was “rising interest rates”, chosen by 23 percent of respondents, up from 14 percent in August. Third on the list of concerns was the “availability of inputs” chosen by 14 percent of producers in the survey. The percentage of producers with concerns about input availability has been relatively stable over the last 3 months, ranging from a low of 12 percent to a high of 15 percent suggesting this issue is not going away.

Interestingly, the percentage of producers choosing “lower crop and/or livestock prices” as one of their biggest concerns declined over the summer. In July 19 percent of respondents chose it as one of their biggest concerns while just 8 percent of producers chose it in this month’s survey.

The Farm Capital Investment Index declined to a record low of 31 in September as producers continue to indicate that they do not view this as a “good time” to make large investments in their farming operations. Despite that negative perspective, the percentage of producers who plan to reduce their farm machinery purchases declined again this month, down 2 points compared to responses in August.

Since peaking in March at 62 percent, the share of producers who plan to reduce their machinery purchases compared to a year earlier has been declining, dipping to 47 percent this month. Producers’ plans for farm building purchases tell a similar story, declining from a high of 68 percent who planned to reduce their building and grain bin purchases back in March to 56 percent who felt that way in the September survey. Once again, a follow-up question was posed to farmers who reported this being a “bad time” to make large investments to learn why they felt that way.

For the third month in a row, producers overwhelmingly said it was primarily because of the increase in prices for farm machinery and new construction. However, interest rates are starting to become a factor influencing producers’ decision-making. Throughout the summer the percentage of farmers who chose “rising interest rates” as a primary reason for thinking it’s a bad time to make large investments rose from 14 percent in August to 21 percent in September.

cash crops
Cover cropping (Image by USDA)

Fewer producers this month said they expect either no change in crop input prices or expect input prices to decline in 2023 compared to 2022 than in recent surveys, while more producers expect an input price rise that matches up more closely with the rate of inflation. In April, 18 percent of respondents expected input prices in 2023 to decline, whereas this month just one out of ten producers said they look for prices to fall up to 10 percent below 2022’s level. 

This month’s survey included a series of questions about cover crop usage as a follow-up to the same questions posed in 2021. Nearly six out of 10 respondents said they currently plant cover crops on a portion of their farmland while approximately one out of four producers said they have never planted a cover crop. 

Reasons cited by producers for planting cover crops are varied, but “improve soil health” at 37 percent of respondents and “improve erosion control” at 33 percent of respondents were the top two reasons cited by cover crop users. Just 5 percent of cover crop users indicated “carbon sequestration” was a motivation for planting cover crops. 

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