For the first time in over a year, more farmers expect their farm to be in better financial shape a year from now than worse off. That’s a significant chance in the Purdue University/CME Group Ag Economy Barometer. Michael Langemeier of Purdue University said farmers are more optimistic but still not as willing to invest in their operations right now.
“The August Ag Economy Barometer increased again, moving from 126 in July to 135 in August. The Index of Future Expectations increased 11 points, while the Index of Current Conditions increased just one point. And when farmers were asked about their own financial situation a year from now, 28 percent said they expect to be better off financially. Twenty-four percent said they expect to be worse off, with the remainder saying about the same. That’s the first time since June of last year that the share expecting their financial situation to improve has exceeded the share expecting it to deteriorate. So, after a pretty long stretch of caution, we’re seeing some improvement in farmers’ expectations about where their businesses are headed.”
He talked about the disconnect between increasing optimism and hesitancy to make investments.
“The Farm Capital Investment Index went the other direction in August, dropping five points to 45. In other words, feeling better about their farm’s financial outlook doesn’t necessarily translate into being ready to buy a new combine or put up a new building, and that distinction is very important. There are still some pretty significant concerns weighing on producers. High input costs remain the biggest concern in the August survey, with 45 percent of respondents selecting that item as their biggest concern. Low crop and livestock prices and rising interest rates also remain concerns.”
There are other concerns keeping farmers cautious about investing for the future of their operations.
“There’s also another piece of the puzzle. The Short-Term Farmland Value Expectations Index increased eight points in August to 127. So, farmers are feeling somewhat better about their financial prospects. Land values are expected to remain relatively strong, but investment in machinery and buildings remains subdued. That’s a pretty cautious form of optimism. I think that’s the key takeaway from the August survey. Farmers are becoming more optimistic about the future, but they’re not necessarily ready to act on that optimism by making large capital investments, and given that high input costs remain the number one concern, that caution makes sense. The important thing to watch going forward is whether this improvement in financial expectations eventually shows up in capital investment.”