High input costs, rising interest rates continue to weigh on farmer sentiment

Survey also explored respondents’ interest in carbon capture.

July 3, 2024

2 Min Read
Purdue/CME Group Ag Economy Barometer/James Mintert

Farmer sentiment drifted downward in June as the Purdue University/CME Group Ag Economy Barometer reading of 105 was three points lower than a month earlier. The overall decline in sentiment was due to a five-point drop in the Index of Future Expectations, which fell to 112, while the June Current Conditions Index increased to 90, one point higher than the May index. High input costs, the risk of lower prices for their products, and rising interest rates continue to weigh on farmer sentiment. This month’s Ag Economy Barometer survey was conducted from June 17-21.

“The impact of rising interest rates on their farm operations has become a bigger concern for producers in recent months,” said James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture. “Interest rate risk and high breakeven levels combined with concerns that crop and livestock prices could weaken are holding back producer sentiment and making producers cautious about making large investments.”

This month’s Farm Capital Investment Index declined by three points to a reading of 32, just one point above its historical low. More producers indicated this month that it is not a favorable time for large investments compared to May, while the percentage of producers who viewed it as a good time remained the same.

The Short-Term Farmland Value Expectations Index remained steady at 115 for June. However, there was a notable shift in producers’ longer-term outlook on farmland values, with the Long-Term Farmland Values Index dropping to 152, down seven points from May. Fewer producers expect that farmland values will increase over the next five years, coinciding with a rise in those anticipating values holding steady. Among those expecting a long-term increase in farmland values, 57% attributed their confidence to nonfarm investor demand, while 16% cited inflation as a driving factor. June marked the third consecutive month to include “Energy Production” as a potential driver of farmland values, with 10% of optimistic respondents pointing to energy production as a key driver of farmland values.

This month’s survey also explored respondents’ interest in carbon capture and storage projects introduced by ethanol plants. Eight percent of respondents reported being approached about such projects, with the majority (93%) noting they received payment offers for less than $25 per acre and only 8% receiving offers exceeding $50 per acre. Additionally, 16% of respondents reported discussions taking place within the last six months about leasing farmland for solar energy production, a slight decline from April and May survey responses. However, lease rates continued an upward trend, with 69% of respondents being offered long-term rates of $1,000 per acre or higher, compared to 27% in June 2021. Notably, 27% of respondents received offers of $1,500 per acre or more, with 58% of leases including an annual escalator clause, typically between 2% and 3% per year.

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