According to the Purdue University/CME Group Ag Economy Barometer, the outlook for U.S. farmers improved in March. The index rose to 114, which is 3 points higher than February. However, the Index of Current Conditions fell by 2 points to 101, while the Index of Future Expectations increased to 120, up by 5 points from February. The difference between the current and future indices was mainly due to farmers’ perception of a financial downturn that occurred in the past year, paired with expectations of improvement over the next 12 months. The survey was conducted between March 11-15, 2024.
“Producers’ expectations for interest rate changes have shifted, which could help explain why producers look for financial conditions to improve,” said James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture.
According to recent surveys, 48% of respondents predict a decline in the U.S. prime interest rate in the next year, which is an increase from 35% in December. On the other hand, just 32% foresee an increase compared to 43% last month. Only 20% of the respondents identified the risk of rising interest rates as a primary concern, which is a decrease from the 24% recorded in December 2023.
Producers are mostly concerned about high input costs, with 36% of respondents expressing worry. However, the Farm Capital Investment Index has increased by 7 points this month, which indicates growing optimism among producers about making large investments. Some producers who pointed to strong cash flows on their farms and higher dealer inventories for farm machinery feel that it is a good time for a large investment.
Despite the optimism, some producers are still hesitant to invest due to concerns about high costs for machinery and construction and high interest rates.
Producers displayed a more optimistic short-term outlook on farmland values in March, with the Short-Term Farmland Values Index rising to 124, a 9-point increase from the previous month. This month, 38% of producers expect farmland values to increase in the coming year, compared to 31% in January and February.
“Factors contributing to this optimism included non-farm investor demand, inflation expectations and strong cash flows. An improved interest rate outlook might have been a factor as well, although producers didn’t point to that explicitly in this month’s survey,” said Mintert.
According to the latest survey, more farmers (24%) believe that farmland prices will rise due to inflation expectations compared to last month (18%). There was also a slight increase in producers citing strong cash flows (8% in March versus 6% in February) as a reason, and a modest decline in the number of producers who mentioned non-farm investor demand as a major factor influencing the farmland market. However, despite this decline, 57% of producers still consider non-farm investor demand the primary reason for their bullish outlook on farmland values.
The survey also revealed that interest in using farmland for carbon sequestration or solar energy production is on the rise. Nearly one out of five respondents (18%) said they or their landowners had been approached about Carbon Capture Utilization and Storage (CCUS) on their farmland. Additionally, 12% of this month’s respondents said they had discussions with companies interested in leasing farmland for a solar energy project in the last six months, compared to 10% in February. When it comes to long-term farmland lease rates offered by solar energy companies, 54% of respondents this month said they were offered $1,000 or more per acre, while just over one-fourth (27%) were offered $1,250 or more per acre.
The March survey also revealed that many farmers are concerned about potential government policy changes affecting their farms following this year’s elections. 43% of respondents anticipate more restrictive regulations for agriculture. Additionally, four out of ten (39%) producers expect taxes impacting agriculture to rise.