Stronger 2022 income predictions have led to improved producer sentiment in December. The Purdue University-CME Group Ag Economy Barometer Index reading of 126 rose 24 points higher in December than the prior month, according to 400 U.S. agricultural producers’ responses to a monthly telephone survey. This month’s survey was conducted from Dec. 5 through 9, 2022.
Although U.S. farmers were more positive regarding both the current situation as well as their expectations for the future, by far the biggest improvement was in their assessment of current conditions. The Current Conditions Index rose 37 points to 135 in December while the Future Expectations Index rose 18 points from November to 122.
According to the survey, the improvement in current sentiment was motivated by producers’ stronger perception of current financial conditions on their farms. The Farm Financial Performance Index climbed 18 points above the prior month’s reading to reach 109, the first time the index rose above 100 in 2020. Respondents indicated that the Financial Performance Index this month was driven by a sharp increase in the percentage of producers who expect better performance than last year which jumped from 23 to 35 percent of respondents. Meanwhile, the percentage expecting weaker performance fell from 32 to 26 percent.
The change in perception among producers regarding their farms’ financial situation could be attributable to producers taking time to estimate their farms’ 2022 income following the completion of the fall harvest. This month’s improved assessment of farm financial conditions is consistent with U.S. Department of Agriculture’s forecast for strong net farm income in 2022.
The Farm Capital Investment Index climbed 9 points this month to 40 which was the highest reading for the index since February. Despite the improvement the index was still 9 points lower than a year earlier. Respondents still indicated that high prices of farm machinery and new construction were halting some purchase decisions, while rising interest rates are increasingly a concern when considering making large investments.
Despite the improvement in farmers’ perception of their financial situation, both the short-term and long-term farmland value indices continued to drift lower in December. The short-term index fell 5 points to 124 while the long-term index declined from 144 to 140.
Looking to the year ahead, the December survey asked producers to compare their expectations for their farm’s financial performance in 2023 to that of 2022. Producers indicated they expect financial performance in 2023 to fall below this year. Responses to the question about 2023 provide a financial performance index value that is 18 points lower than for responses from the question asking producers to compare 2022 to 2021. Rising costs and narrowing margins are key reasons for the lower index in 2023.
Concerns about costs continue to be top of mind for producers’ when asked to look ahead to the upcoming year. For example, nearly half of the crop producers in this month’s survey said they expect farmland cash rental rates in 2023 to rise above the prior year. And in a related question, 45 percent of producers cited higher input costs as their top concern in 2023 followed by rising interest rates, and lower crop or livestock prices.