Barometer shows producer sentiment holds steady

Latest sentiment index marks the lowest barometer reading since July of 2020.

August 6, 2021

4 Min Read
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The Purdue University/CME Group Ag Economy Barometer leveled off after two months of sharp declines, down just 3 points to a reading of 134 in July. Both producers' sentiment regarding current and future conditions also dropped. The Index of Current Conditions was down 6 points 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. 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.

"This month's sentiment index marks the lowest barometer reading since July of 2020 and actually marks a return to sentiment readings observed from much of 2017 through 2019, when annual average barometer readings ranged from 131 to 133," said James Mintert, the barometer's principal investigator and director of Purdue University's Center for Commercial Agriculture. "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."

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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 point out that these expectations are markedly higher than the rate of 1.8% per year that input prices rose over the last decade," said Mintert. 

Farmers remain optimistic about farmland values, although recent value increases could make 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, Mintert suggests 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.

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. In July, more respondents reported lease rates being offered that were greater than $1,000 per acre than on the June survey. However, Mintert noted that more information is needed, as the number of respondents reporting lease rates remains quite low and the rates are variable.

Finally, this month’s survey included a question to learn more about ag producers’ reaction to the Executive Order issued in early July by President Biden. The order, which addresses several aspects of agricultural production and marketing, is entitled Executive Order on Promoting Competition in the American Economy and we asked producers for their perspective on the order. Nearly a fourth of respondents indicated that they did not think the order was needed while 8% of respondents said they agreed with the need for the order. However, the vast majority of respondents (69%) said they needed more information about the order to respond to the question.

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