Ag economy index rises in March on optimism for future conditions

The Purdue University/CME Group Ag Economy Barometer index rose in March, reflecting an improved outlook by farmers and producers on the economy.

The index increased by 3 points in March to 114, with the score for Current Conditions down 2 points to 101, but the Index of Future Expectations up 5 points to 120. The disparity between current and future indexes was primarily influenced by farmers’ perceptions of a financial downturn taking place in the past year, coupled with some expectations for improvement over the next 12 months.

“Producers’ expectations for interest rate changes have shifted, which could help explain why producers look for financial conditions to improve,” James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture, said.

Among other results, the survey said that 48 percent of respondents expect a decline in the U.S. prime interest rate over the next year, up from 35 percent in December. Only about 32 percent foresee an increase, compared to 43 percent last month. Further, only 20 percent of respondents identified the risk of rising interest rates as a primary concern, a decrease from 24 percent in December. High input costs continue to be producers’ No. 1 concern, with 36 percent of respondents expressing worry.

Also, the Farm Capital Investment Index increased by 7 points this month, indicating growing optimism among producers about making large investments. The optimism is fueled by producers who pointed to strong cash flows on their farms, coupled with higher dealer inventories for farm machinery.

Additionally, producers had 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. Overall, 38 percent of producers expect farmland values to increase in the coming year, compared to 31 percent 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,” Mintert said.

Further, more farmers this month, 24 percent, said they believe farmland prices will go up because of inflation expectations compared to last month when the figure was 18 percent.

In addition, interest in using farmland for carbon sequestration or solar energy production appears to be increasing. About 18 percent said they or their landowners had been approached about carbon capture utilization and storage on their farmland, while 12 percent said they had discussions with companies interested in leasing farmland for a solar energy project in the last six months. This is up from 10 percent in February.

Finally, the barometer revealed that many farmers are concerned about potential government policy changes affecting their farms following this year’s elections. Some 43 percent of respondents anticipate more restrictive regulations for agriculture, while 39 percent of producers expect taxes impacting agriculture to rise.

The survey was conducted from March 11-15.

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