September 3, 2024 • 20 mins
The August Purdue University/CME Group Ag Economy Barometer dropped 13 points from July to a reading of 100, echoing levels seen from fall 2015 to winter 2016 during the early stages of a significant downturn in the U.S. farm economy. The Index of Current Conditions also dropped 17 points to 83, while the Index of Future Expectations decreased by 11 points to 108. Weakening farm income prospects weighed on farmers’ sentiment as the outlook for a bountiful fall harvest was more than offset by declining crop prices. This month’s survey was conducted from Aug. 12-16, 2024.
The Ag Economy Barometer sentiment index is calculated each month from 400 U.S. agricultural producers’ responses to a telephone survey. Purdue ag economists James Mintert and Michael Langemeier share some insight into the results of the August 2024 Ag Economy Barometer survey. The full report is available at https://purdue.ag/agbarometer.
Podcast provided by Purdue University's Center for Commercial Agriculture. For more economic information and insights on the Ag Economy Barometer, visit us at http://purdue.edu/commercialag.
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Episode Transcript
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James Mintert (00:06):
Welcome to Purdue Commercial AgCast,
the Purdue UniversityCenter for Commercial
Agriculture's podcastfeaturing farm management
news and information.
I'm your host today,James Mintert, director
of the Purdue Center forCommercial Agriculture.
And joining me todayis my colleague, Dr.
Michael Langemeierwho's a professor of ag
economics here at Purdue,and also the associate
director of the Center forCommercial Agriculture.
(00:26):
We're going to review theresults from the August
2024 Purdue University-CMEGroup Ag Economy Barometer
survey of farmers fromacross the nation.
Each month we survey 400farmers across the U.S.
to learn more abouttheir perspectives
on the ag economy.
This month's Ag Barometersurvey was conducted
from the 12th throughthe 16th of August.
(00:47):
And Michael the barometerfell 13 points this month and
that left the index down Ithink 15 points compared to
last August and actually frommy perspective, you know,
this is sort of a correctionbecause last month I think we
were both surprised the factthat the index actually rose.
Now we've come back toearth, I guess is kind
of how I look at it.
(01:07):
And with that reading of 100,that strikes me as sort of
significant because if wethink about how the barometer
is constructed, the firstsix months of data that we
collected, which was thefourth quarter of 2015 and the
first quarter of 2016, is thebase period for the barometer.
And if you average the valuesover that time frame, you come
(01:30):
up with an index value of 100.
So that kind of tellsme farmers are thinking
that things are a littlebit similar in terms of
financial conditions andoverall conditions as they
were in late '15, 2016.
Which you and I rememberwell because that was
the early days of adownturn for the U.S.
farm economy, right?
Michael Langemeier (01:48):
Yes, it, it, it's a little bit of deja
vu going on here and, and, andcertainly it does remind me
of that period '14 into '15when prices were declining.
And you were still dealingwith some relatively high
break even prices, uh, in '14.
James Mintert (02:02):
So if you look at the Index of Current
Conditions and the Index ofFuture Expectations, they
also dropped pretty sharply.
Current conditions, I thinkfell 17 points compared to
last month, was 25 pointslower than a year ago.
Future ExpectationIndex, I think, down 11
points compared to July.
And I think also down 11points compared to a year ago.
(02:24):
So again, I think bothof those were kind of in
correction mode because bothof those increased last month.
Michael Langemeier (02:29):
Yeah, and that 83, just to put that in
perspective, there's maybebeen a few times, um, you
know, since 2016, you know,back in '14 and '15, there
was quite a few months wherethe index was this low, but
since '16, there's only beenlike 3 or 4 times where the
index has been this low.
And this is the secondtime in 2024, uh, where the
index has been this low.
I think the othertime was April.
(02:51):
And so we're in prettylow index territory here.
And one of the thingsI want the listener to,
to, to keep in mind here,uh, when this index is
low or relatively low.
That also means that the,the financial performance
index and the short term landprice index are also low.
They're very closely related,uh, the Index of Current
(03:12):
Conditions, FinancialPerformance Index, and
the Short Term Land Index.
James Mintert (03:16):
Yeah, and to be clear, they're, those are
based on different questions,but what you're saying is
they're highly correlated.
Yes.
Because we've looked atthat over the course of,
we've been collecting datanow since the fall of 2015.
And you know, if you thinkabout it, Those previous
lows on that CurrentCondition Index, you know,
a couple of those wereduring the COVID area era.
And from our perspective, thisis much different when you go
(03:39):
back, uh, to 2015-2016, thatwas about weakness in the U.S.
farm economy.
The COVID era was aboutthis tremendous amount
of uncertainty, not justabout the farm economy,
but about everything.
And so I think the comparisonfor us is really thinking
about 2015-2016 and whetheror not this is a harbinger
(04:00):
of what's ahead withrespect to a multi year
downturn because when youlook at that 2015-2016 era
and move forward acrossroughly four years, that
was a significant downturn.
Uh, we saw, uh, forexample, a downturn in land,
farmland prices, right?
Michael Langemeier (04:16):
Both cash rents and land values
were, were down, uh, from'14 to '19 and, and so yeah,
the, the natural questionto ask here is this going
to be another one of those,five-six year periods where
we're seeing, we're going tosee some fairly low returns.
James Mintert (04:28):
And I think our survey responses are telling
us that people, at leastsome people in the survey...
Michael Langemeier: Are worried about it. (04:32):
undefined
James Mintert (04:33):
are concerned about it.
We've been asking thisquestion about what are
your biggest concerns fromyour farming operation
going back, I think, tothe beginning of last year.
And we are seeing a change.
It's a multi month change, butthe thing that's happened here
is more people are pointingto lower crop and livestock
prices as their top concern.
This month, that waschosen by 30 percent of
(04:53):
the people in the survey.
The top concern continuesto be high input costs,
but that really hasn'tchanged over time.
It was chosen by 33%.
The relationship betweenthat lower crop and livestock
prices and higher inputcosts, that's the narrowest
that gap has been sincewe've been collecting data.
I mean, forexample, a year ago.
(05:14):
Only 20 percent of thepeople in the survey chose
lower crop and livestockprices as their top concern.
This month it's up to 30%,almost eclipsing, uh, coming
very close to eclipsingthat higher input cost.
Michael Langemeier (05:26):
And this question does a really
good job of, of helpingexplain why that Index of
Current Conditions is so low.
When we had high inputcosts for quite a while,
coming out of '22, uh, wehad stronger crop prices.
They weren't great necessarilyin '23, but they were
stronger than they are today.
Uh, now we're seeingboth of those concerns.
Obviously, that's adouble edged sword.
(05:48):
You've got low net returnsbecause of low prices
and high input costs.
Uh, on this chart, the,the, uh, interest rates, has
declined a little bit, and Ithink what's going on there,
we had a question related tointerest rates this month,
is, is I think producersare seeing that we could see
some cuts, uh, in the nearterm with interest rates.
They're still relativelyhigh compared to what they
were 3 -4 years ago, butthere is hope in sight.
James Mintert (06:11):
Yeah, if I remember right, Michael, I
think, uh, a little over two-thirds of the people in the
survey said they look forinterest rates to decline over
the course of the next year.
And that's reflected here.
I think 17 percent of thepeople said rising interest
rates is still a concern,but a year ago it was at 24%.
So, we are seeinga shift there.
Fewer people worried aboutthe interest rate environment.
More people worried aboutprices for what they sell.
(06:34):
Uh, and a continuingor ongoing concern
about high input costs.
You mentioned thisearlier, Michael.
The, you kind of gave a leadin here, the Farm Financial
Performance Index down sharplythis month to a reading of 72.
That's down from81 last month.
And it also means thatindex is down 14 points
compared to a year ago.
(06:55):
And if you look at it,that's one of the weakest
readings we've got onthe chart for that Farm
Financial Performance Index.
Right?
Michael Langemeier (07:02):
I think this is the reason
it's been historically, wedidn't ask this question
too much before 2021.
And so we don't have as longa history on this question
as we have on some of them.
So I think this is thelow end on this question.
What makes this questionrather difficult to
interpret compared to someother questions is we're
always comparing '24 to'23, you know, '23 to '22.
(07:25):
And so it's always a,a pairwise comparison,
but nevertheless, thisis a very low reading.
Telling us that they'revery worried about '24,
uh, you know, beingsubstantially lower, uh,
net returns than '23.
And if we remember right, U.S.
net farm income was down,was down quite a bit in '23.
James Mintert (07:42):
Yeah, although by historical
standards It was still high.
Yes, '23 was not a bad yearby historical standards.
I think that gets lost inthe shuffle sometime, but
people are clearly expectinga much worse year in '24.
And I think we're pickingup evidence that they're
worried about what '25 isgoing to look like, right?
Farm Capital InvestmentIndex down 7 points compared
(08:03):
to a month ago, 6 pointslower than a year ago.
It's a reading of 31.
That reading is tied for theall time lowest investment
index reading we've had.
We've had that readingof 31 several times.
We've never gone below that.
But um, I'm not going tosay that's as low as it
can get, but it's certainlypretty negative, right?
Michael Langemeier (08:21):
Yeah, certainly, and one of the
things we have to keep inmind when we're looking at
this particular questionis approximately 20 percent
of the surveys is beef cowproducers or cattle producers.
They're looking at some fairlygood times right now, and so
there is an element, thereis a group that are surveyed,
that are looking at fairlystrong returns compared
to the other 80 percent.
(08:42):
And, and I, we don't knowthis for a fact, but I think
that's helping this indexstay a little higher than it
would be, would be otherwise.
James Mintert (08:48):
Yeah, that's a good point, uh...
Michael Langemeier: And that's, It's pretty (08:50):
undefined
sobering when you startto think about that.
James Mintert (08:53):
We have a tendency I think sometimes
to talk about all theresults relative to what's
going on in the corn andsoybean complex because
a majority of respondentsevery month do have a corn
or soybean enterprise.
But you're right, we dohave some distinctions
there, especially onthe beef cow side.
When we do the follow upand ask people who say
it's a bad time for makinginvestments, we ask them why.
(09:14):
More respondents thismonth are pointing to
high cost as a reason tohold back on investments.
I think this month thatwas chosen by 39 percent of
the people in the survey.
Last month that was 36.
The month before that,back in June, it was 26%.
So we've got a bit of atrend going on there and we
are picking up more peoplesaying that it's a concern
(09:35):
or about the uncertaintyabout farm profitability.
I think this month thatwas chosen by 24 percent of
the people in the survey.
Last month it was 19 percent.
The month beforethat it was 18%.
You go back toMay, it was 16%.
So people clearly, as weprogress through '24, are
more and more worried aboutfarm profitability, and
(09:55):
that's one of the reasonsthey're thinking about
holding back on investments.
Michael Langemeier (09:58):
Yeah, that's very true, and when
you look at, we'll look atthe, uh, possible responses
here, there is a couple ofthose where we could see some,
we could see some relief,a little bit of relief from
interest rates, for example.
If interest rates declinea little bit, they're still
relatively high, but thatshould help a little bit.
Also, uh, there's noreason, uh, no reason to
(10:19):
suggest that farm machineryand new construction has
to continue to increase.
Uh, you know, if it, if it,if it's, if it's stabilized a
little bit, maybe even comesdown a little bit, maybe
that will help a little bit.
And so I don't want to betoo pessimistic here, but
because there is a coupleof factors here that,
that look like they're,they're switching a little
bit, uh, to more positive.
James Mintert (10:40):
Yeah, I don't.
I don't...
Michael Langemeier: Probably reading too much (10:41):
undefined
into the tea leaves there.
James Mintert (10:43):
Yeah, I don't think I agree with you.
I think, uh, and I think themachinery companies are kind
of expressing that as well.
Michael Langemeier: Yeah, yeah. (10:50):
undefined
It is bad.
It is bad.
James Mintert (10:52):
The buildup of inventories is pretty large.
So we do ask people whothink it's a good time to
make large investments.
What, what the reason forthat is, and I guess the
first thing I want to pointout is only 11 percent
of respondents said it'sa good time to invest.
We haven't been askingthis question that long.
I think it is tied forthe lowest percentage
(11:12):
that's ever recorded that.
Um, and, but among those whothink it's a good time to
invest high dealer inventorieswas cited as the top reason.
And, and you can certainlysee that whether you're
looking at the AEM, AgEquipment Manufacturers,
data or just looking atwhat's going on in dealer
lots around the Midwest.
Michael Langemeier (11:29):
Now I'm going to use my other
economic hand, and thereis a factor here that I'm a
little bit pessimistic about.
And if we go back toFebruary, we asked the
farm growth question.
And every time we askthat, we ask that every
February, there's about50 percent of the farms
that are going to grow.
When you look at this, only9 percent say that this
(11:49):
is a good time to investbecause they're expanding.
That tells me that there's alot of people can expand with
very little new machinery.
James Mintert (12:00):
Yeah, which would imply they
simply don't need to makea capital investment.
Michael Langemeier (12:02):
They simply don't need to make
a capital investment.
James Mintert: Yeah, good point. (12:04):
undefined
Uh, the farmland outlookthis month did shift.
We saw a downturn in both theShort -Term and the Long -Term
Farmland Expectation Indexes.
Short term index readingat 105 was down 13 points
below a month ago, 21 pointslower than a year ago.
(12:24):
Again, last month's risein this index was, I
think, a bit of an anomaly.
Uh, but if you look at it,it's a continuation of the
weakening in expectationsfor farmland values.
And then when you look at theraw responses, that, that was
probably the most interestingthing here, Michael.
Uh, 24 percent of thepeople, in the surveys
(12:45):
that said that they thinkfarmland values could go
down in the next 12 months.
Um, that's a jump of 11points compared to last month.
Last month it wasat 13 percent of the
respondents, this month 24.
Michael Langemeier (12:58):
And a bunch of those, bunch of
those responses switchedfrom about the same to
lower farmland prices.
And so that kind of tellsme that the winds are
changing here a little bit.
James Mintert (13:09):
Could be a reflection of tightening of
working capital, for example.
Michael Langemeier: Yes, definitely. (13:13):
undefined
James Mintert (13:15):
That's been one of the reasons why we
think farmland values havebeen as strong as they
have been, is the fact thatworking capital was quite
ample on many, many farms.
With the tightening of returnsin 2024, I think when people
do the year end calculations,they're going to discover
they've used up some ofthat working capital, right?
Michael Langemeier: I think so, yeah. (13:33):
undefined
James Mintert (13:34):
Long term index was down as well.
Uh, third month in a row thatlong term index was down.
It was only down four pointscompared to July, but that
did leave the index down ninepoints compared to a year ago.
And to me, I think thebigger thing there is
the fact that it's downthree months in a row.
That's kind of unusualwith this long term index.
Michael Langemeier: And it's pretty big. (13:52):
undefined
Uh, if you, if you go backto April, if I'm looking
at the chart, right, it wasabout 160, uh, you know, 158,
159, 160, and now it's 142.
That's a pretty large drop.
James Mintert (14:04):
Yeah, and we've been this low before,
but it's been a while.
If you go back toearly 2023, we saw some
readings down below 140.
Uh, but it is a shift, andagain, I think the three month
pattern here is probably,uh, the bigger significance,
because it's, you know,historically, the long
term index is always morepositive than the, than the,
uh, uh, short term index.
(14:25):
And even when you lookedat the raw responses here,
we saw an uptick in thepercentage of people who
say they think farmlandvalues could fall, not only
over the next 12 months,but over the next 5 years.
Let's see, I think that wentto 14 percent this month,
up from 11 percent in July.
I think the highest that'sever been was at 19%, and
that was back in early 2023.
(14:48):
You and I were talkingabout that before we
started recording.
You know, one of the thingswe think was going on there
was people realized priceswere starting to soften, but
break evens were not comingdown very fast and people
were very worried about that.
I think this could belonger term than that.
Michael Langemeier (15:02):
I definitely think so.
James Mintert (15:05):
And of course, we keep asking people,
what's the, if you thinkfarmland values are going to
go up, why do you think so?
Well, they continue topoint to the same thing.
They continue to point tonon-farm investor demand.
But underneath that, I thinkone of the things that's
interesting, we've askedthis question now five
months in a row, and there'sa significant portion of
people who think that what'sgoing on with respect to
(15:25):
using farmland to generaterenewable energy, uh, is going
to support farmland values.
These last two months,that's been at 6 percent
of the people who thinkfarmland is going to go up.
We had a couple of monthsthere in May and June when it
was between 10 and 12 percent.
First time we asked itback in, I think, April
was at maybe 8 percent.
So we've got a kind of arange there between 6 and
(15:46):
maybe 12 percent of thepeople in the survey who
think value is going to goup, think it's because of
what's taking place withrespect to energy production.
What's your take on that?
Michael Langemeier (15:56):
I think that's very real, and it's
one of the, you know, there'sa mix here of positive
and negative factors.
It's certainly one of thepositive factors, with, along
with perhaps non farm investordemand and, and inflation.
Uh, you look at cash flowsand interest rates and
some other fundamentals,they're, they're negative
right now, uh, with respectto the farmland market.
James Mintert: Yeah, good point. (16:15):
undefined
So, our kind of our wrapup question this month,
Michael, is, uh, whatdo you expect to see for
cash rents on farmland?
And this only went topeople who produce crops.
So people who raise corn,soybeans, wheat, and cotton,
uh, received this question.
And we've asked ittwo months in a row.
So I've got more confidencein the results now, because
(16:36):
we got very, very similarresults two months in a row.
This month, 70 percent ofthe people in the survey
said that they think cashrents will stay about the
same in 2025 versus 2024.
Last month, it was 72%.
Um, we did pick up a fewmore people who said that
they think we could seesome lower cash rents
(16:57):
on this month's survey.
This month it was 16%.
A month ago it was 13%.
But, you know, I think you gotto look at these results and
say, on average, people thinkwe're going to see cash rents
probably pretty flat in 2025.
Michael Langemeier (17:09):
Yeah, I'm glad we asked this
a second time, because Iwas wondering if the July
results were not what wewould expect, meaning that
I thought perhaps there'd bemore people that thought cash
rents were going to be lower.
Well, we talkedabout this before.
It does take, it does taketwo or three years in a
row of low net returns forcash rents to come down.
Cash rents are very sticky.
(17:31):
They don't move near asmuch as net return to land.
And so what this tells me isthere's going to be, start
some tough conversationsin the fall of '24 for
'25 cash rents, but therecould be even tougher
negotiations in the fall of2025 for 2026 cash rents.
James Mintert (17:48):
Yeah, looking at these results and looking
at the research that you'vedone over the years on the
relationship between netreturns to land and cash rent,
my best guess is we're notgoing to see much movement
in cash rent for 2025.
But we will see somesignificant downward pressure
in '25 for the '26 cropyear if '25 unfolds the
(18:09):
way it looks now, right?
Michael Langemeier (18:10):
Something has to give and, uh, uh,
you know, and I've talkedabout this before, but if you
look at the costs that arerelatively high now compared
to what they were in 2014, ifwe're, if we think we might
be repeating that, that, that,uh, that 2014 to 2019 period,
one of those is cash rent.
Uh, the other ones arerelated to interest rates.
We're getting somerelief in interest rates.
(18:32):
And so, it's just one of thecosts that, uh, that we're,
that, that's probably goingto have to change a little
bit if we, if we stay in thislow net return environment.
James Mintert (18:41):
And, you know, at the risk of relying
on economic theory for abit here, Michael, I think,
you know, we would kind ofexpect that because theory
would suggest that the inputfactor with the most inelastic
supply is going to be theone that actually absorbs
the biggest change or shock.
And we've seen thatin the past, I think
we'll see it again.
Michael Langemeier (19:00):
And that, we're gonna, we're
gonna see, we're gonna seesome of the same thing we
talked about with machinery.
People are gonna holdoff buying machinery for
some of the same reasons.
They have some flexibilitywhen they buy that, and
the same is true with land.
James Mintert (19:12):
So that wraps up the highlights
for this month's survey.
You can get the full reporton our website, which is
purdue.edu/agbarometer.
And of course, you'rewelcome to listen to
our podcast anytime.
We cover not only thistopic, with respect to the
Ag Economy Barometer but avariety of farm management
related topics on the podcastPurdue Commercial AgCast.
It's available in all themajor podcast providers
(19:34):
and at our website.
You can watch it and listento it on our website or
you can do it with yourfavorite podcast provider.
If you do that, you'llwant to search for Purdue
Commercial Ag Cast to findthe podcast on any of the
major podcast providers.
And so with that, I wantto thank my colleague, Dr.
Michael Langemeierfor joining us today.
And on behalf of theCenter for Commercial
Agriculture, I'm Jim Mintert.
(19:54):
Thanks for joining us.
Welcome to Purdue Commercial AgCast,
the Purdue UniversityCenter for Commercial
Agriculture's podcastfeaturing farm management
news and information.
I'm your host today,James Mintert, director
of the Purdue Center forCommercial Agriculture.
And joining me todayis my colleague, Dr.
Michael Langemeierwho's a professor of ag
economics here at Purdue,and also the associate
director of the Center forCommercial Agriculture.
(00:26):
We're going to review theresults from the August
2024 Purdue University-CMEGroup Ag Economy Barometer
survey of farmers fromacross the nation.
Each month we survey 400farmers across the U.S.
to learn more abouttheir perspectives
on the ag economy.
This month's Ag Barometersurvey was conducted
from the 12th throughthe 16th of August.
(00:47):
And Michael the barometerfell 13 points this month and
that left the index down Ithink 15 points compared to
last August and actually frommy perspective, you know,
this is sort of a correctionbecause last month I think we
were both surprised the factthat the index actually rose.
Now we've come back toearth, I guess is kind
of how I look at it.
(01:07):
And with that reading of 100,that strikes me as sort of
significant because if wethink about how the barometer
is constructed, the firstsix months of data that we
collected, which was thefourth quarter of 2015 and the
first quarter of 2016, is thebase period for the barometer.
And if you average the valuesover that time frame, you come
(01:30):
up with an index value of 100.
So that kind of tellsme farmers are thinking
that things are a littlebit similar in terms of
financial conditions andoverall conditions as they
were in late '15, 2016.
Which you and I rememberwell because that was
the early days of adownturn for the U.S.
farm economy, right?
Michael Langemeier (01:48):
Yes, it, it, it's a little bit of deja
vu going on here and, and, andcertainly it does remind me
of that period '14 into '15when prices were declining.
And you were still dealingwith some relatively high
break even prices, uh, in '14.
James Mintert (02:02):
So if you look at the Index of Current
Conditions and the Index ofFuture Expectations, they
also dropped pretty sharply.
Current conditions, I thinkfell 17 points compared to
last month, was 25 pointslower than a year ago.
Future ExpectationIndex, I think, down 11
points compared to July.
And I think also down 11points compared to a year ago.
(02:24):
So again, I think bothof those were kind of in
correction mode because bothof those increased last month.
Michael Langemeier (02:29):
Yeah, and that 83, just to put that in
perspective, there's maybebeen a few times, um, you
know, since 2016, you know,back in '14 and '15, there
was quite a few months wherethe index was this low, but
since '16, there's only beenlike 3 or 4 times where the
index has been this low.
And this is the secondtime in 2024, uh, where the
index has been this low.
I think the othertime was April.
(02:51):
And so we're in prettylow index territory here.
And one of the thingsI want the listener to,
to, to keep in mind here,uh, when this index is
low or relatively low.
That also means that the,the financial performance
index and the short term landprice index are also low.
They're very closely related,uh, the Index of Current
(03:12):
Conditions, FinancialPerformance Index, and
the Short Term Land Index.
James Mintert (03:16):
Yeah, and to be clear, they're, those are
based on different questions,but what you're saying is
they're highly correlated.
Yes.
Because we've looked atthat over the course of,
we've been collecting datanow since the fall of 2015.
And you know, if you thinkabout it, Those previous
lows on that CurrentCondition Index, you know,
a couple of those wereduring the COVID area era.
And from our perspective, thisis much different when you go
(03:39):
back, uh, to 2015-2016, thatwas about weakness in the U.S.
farm economy.
The COVID era was aboutthis tremendous amount
of uncertainty, not justabout the farm economy,
but about everything.
And so I think the comparisonfor us is really thinking
about 2015-2016 and whetheror not this is a harbinger
(04:00):
of what's ahead withrespect to a multi year
downturn because when youlook at that 2015-2016 era
and move forward acrossroughly four years, that
was a significant downturn.
Uh, we saw, uh, forexample, a downturn in land,
farmland prices, right?
Michael Langemeier (04:16):
Both cash rents and land values
were, were down, uh, from'14 to '19 and, and so yeah,
the, the natural questionto ask here is this going
to be another one of those,five-six year periods where
we're seeing, we're going tosee some fairly low returns.
James Mintert (04:28):
And I think our survey responses are telling
us that people, at leastsome people in the survey...
Michael Langemeier: Are worried about it. (04:32):
undefined
James Mintert (04:33):
are concerned about it.
We've been asking thisquestion about what are
your biggest concerns fromyour farming operation
going back, I think, tothe beginning of last year.
And we are seeing a change.
It's a multi month change, butthe thing that's happened here
is more people are pointingto lower crop and livestock
prices as their top concern.
This month, that waschosen by 30 percent of
(04:53):
the people in the survey.
The top concern continuesto be high input costs,
but that really hasn'tchanged over time.
It was chosen by 33%.
The relationship betweenthat lower crop and livestock
prices and higher inputcosts, that's the narrowest
that gap has been sincewe've been collecting data.
I mean, forexample, a year ago.
(05:14):
Only 20 percent of thepeople in the survey chose
lower crop and livestockprices as their top concern.
This month it's up to 30%,almost eclipsing, uh, coming
very close to eclipsingthat higher input cost.
Michael Langemeier (05:26):
And this question does a really
good job of, of helpingexplain why that Index of
Current Conditions is so low.
When we had high inputcosts for quite a while,
coming out of '22, uh, wehad stronger crop prices.
They weren't great necessarilyin '23, but they were
stronger than they are today.
Uh, now we're seeingboth of those concerns.
Obviously, that's adouble edged sword.
(05:48):
You've got low net returnsbecause of low prices
and high input costs.
Uh, on this chart, the,the, uh, interest rates, has
declined a little bit, and Ithink what's going on there,
we had a question related tointerest rates this month,
is, is I think producersare seeing that we could see
some cuts, uh, in the nearterm with interest rates.
They're still relativelyhigh compared to what they
were 3 -4 years ago, butthere is hope in sight.
James Mintert (06:11):
Yeah, if I remember right, Michael, I
think, uh, a little over two-thirds of the people in the
survey said they look forinterest rates to decline over
the course of the next year.
And that's reflected here.
I think 17 percent of thepeople said rising interest
rates is still a concern,but a year ago it was at 24%.
So, we are seeinga shift there.
Fewer people worried aboutthe interest rate environment.
More people worried aboutprices for what they sell.
(06:34):
Uh, and a continuingor ongoing concern
about high input costs.
You mentioned thisearlier, Michael.
The, you kind of gave a leadin here, the Farm Financial
Performance Index down sharplythis month to a reading of 72.
That's down from81 last month.
And it also means thatindex is down 14 points
compared to a year ago.
(06:55):
And if you look at it,that's one of the weakest
readings we've got onthe chart for that Farm
Financial Performance Index.
Right?
Michael Langemeier (07:02):
I think this is the reason
it's been historically, wedidn't ask this question
too much before 2021.
And so we don't have as longa history on this question
as we have on some of them.
So I think this is thelow end on this question.
What makes this questionrather difficult to
interpret compared to someother questions is we're
always comparing '24 to'23, you know, '23 to '22.
(07:25):
And so it's always a,a pairwise comparison,
but nevertheless, thisis a very low reading.
Telling us that they'revery worried about '24,
uh, you know, beingsubstantially lower, uh,
net returns than '23.
And if we remember right, U.S.
net farm income was down,was down quite a bit in '23.
James Mintert (07:42):
Yeah, although by historical
standards It was still high.
Yes, '23 was not a bad yearby historical standards.
I think that gets lost inthe shuffle sometime, but
people are clearly expectinga much worse year in '24.
And I think we're pickingup evidence that they're
worried about what '25 isgoing to look like, right?
Farm Capital InvestmentIndex down 7 points compared
(08:03):
to a month ago, 6 pointslower than a year ago.
It's a reading of 31.
That reading is tied for theall time lowest investment
index reading we've had.
We've had that readingof 31 several times.
We've never gone below that.
But um, I'm not going tosay that's as low as it
can get, but it's certainlypretty negative, right?
Michael Langemeier (08:21):
Yeah, certainly, and one of the
things we have to keep inmind when we're looking at
this particular questionis approximately 20 percent
of the surveys is beef cowproducers or cattle producers.
They're looking at some fairlygood times right now, and so
there is an element, thereis a group that are surveyed,
that are looking at fairlystrong returns compared
to the other 80 percent.
(08:42):
And, and I, we don't knowthis for a fact, but I think
that's helping this indexstay a little higher than it
would be, would be otherwise.
James Mintert (08:48):
Yeah, that's a good point, uh...
Michael Langemeier: And that's, It's pretty (08:50):
undefined
sobering when you startto think about that.
James Mintert (08:53):
We have a tendency I think sometimes
to talk about all theresults relative to what's
going on in the corn andsoybean complex because
a majority of respondentsevery month do have a corn
or soybean enterprise.
But you're right, we dohave some distinctions
there, especially onthe beef cow side.
When we do the follow upand ask people who say
it's a bad time for makinginvestments, we ask them why.
(09:14):
More respondents thismonth are pointing to
high cost as a reason tohold back on investments.
I think this month thatwas chosen by 39 percent of
the people in the survey.
Last month that was 36.
The month before that,back in June, it was 26%.
So we've got a bit of atrend going on there and we
are picking up more peoplesaying that it's a concern
(09:35):
or about the uncertaintyabout farm profitability.
I think this month thatwas chosen by 24 percent of
the people in the survey.
Last month it was 19 percent.
The month beforethat it was 18%.
You go back toMay, it was 16%.
So people clearly, as weprogress through '24, are
more and more worried aboutfarm profitability, and
(09:55):
that's one of the reasonsthey're thinking about
holding back on investments.
Michael Langemeier (09:58):
Yeah, that's very true, and when
you look at, we'll look atthe, uh, possible responses
here, there is a couple ofthose where we could see some,
we could see some relief,a little bit of relief from
interest rates, for example.
If interest rates declinea little bit, they're still
relatively high, but thatshould help a little bit.
Also, uh, there's noreason, uh, no reason to
(10:19):
suggest that farm machineryand new construction has
to continue to increase.
Uh, you know, if it, if it,if it's, if it's stabilized a
little bit, maybe even comesdown a little bit, maybe
that will help a little bit.
And so I don't want to betoo pessimistic here, but
because there is a coupleof factors here that,
that look like they're,they're switching a little
bit, uh, to more positive.
James Mintert (10:40):
Yeah, I don't.
I don't...
Michael Langemeier: Probably reading too much (10:41):
undefined
into the tea leaves there.
James Mintert (10:43):
Yeah, I don't think I agree with you.
I think, uh, and I think themachinery companies are kind
of expressing that as well.
Michael Langemeier: Yeah, yeah. (10:50):
undefined
It is bad.
It is bad.
James Mintert (10:52):
The buildup of inventories is pretty large.
So we do ask people whothink it's a good time to
make large investments.
What, what the reason forthat is, and I guess the
first thing I want to pointout is only 11 percent
of respondents said it'sa good time to invest.
We haven't been askingthis question that long.
I think it is tied forthe lowest percentage
(11:12):
that's ever recorded that.
Um, and, but among those whothink it's a good time to
invest high dealer inventorieswas cited as the top reason.
And, and you can certainlysee that whether you're
looking at the AEM, AgEquipment Manufacturers,
data or just looking atwhat's going on in dealer
lots around the Midwest.
Michael Langemeier (11:29):
Now I'm going to use my other
economic hand, and thereis a factor here that I'm a
little bit pessimistic about.
And if we go back toFebruary, we asked the
farm growth question.
And every time we askthat, we ask that every
February, there's about50 percent of the farms
that are going to grow.
When you look at this, only9 percent say that this
(11:49):
is a good time to investbecause they're expanding.
That tells me that there's alot of people can expand with
very little new machinery.
James Mintert (12:00):
Yeah, which would imply they
simply don't need to makea capital investment.
Michael Langemeier (12:02):
They simply don't need to make
a capital investment.
James Mintert: Yeah, good point. (12:04):
undefined
Uh, the farmland outlookthis month did shift.
We saw a downturn in both theShort -Term and the Long -Term
Farmland Expectation Indexes.
Short term index readingat 105 was down 13 points
below a month ago, 21 pointslower than a year ago.
(12:24):
Again, last month's risein this index was, I
think, a bit of an anomaly.
Uh, but if you look at it,it's a continuation of the
weakening in expectationsfor farmland values.
And then when you look at theraw responses, that, that was
probably the most interestingthing here, Michael.
Uh, 24 percent of thepeople, in the surveys
(12:45):
that said that they thinkfarmland values could go
down in the next 12 months.
Um, that's a jump of 11points compared to last month.
Last month it wasat 13 percent of the
respondents, this month 24.
Michael Langemeier (12:58):
And a bunch of those, bunch of
those responses switchedfrom about the same to
lower farmland prices.
And so that kind of tellsme that the winds are
changing here a little bit.
James Mintert (13:09):
Could be a reflection of tightening of
working capital, for example.
Michael Langemeier: Yes, definitely. (13:13):
undefined
James Mintert (13:15):
That's been one of the reasons why we
think farmland values havebeen as strong as they
have been, is the fact thatworking capital was quite
ample on many, many farms.
With the tightening of returnsin 2024, I think when people
do the year end calculations,they're going to discover
they've used up some ofthat working capital, right?
Michael Langemeier: I think so, yeah. (13:33):
undefined
James Mintert (13:34):
Long term index was down as well.
Uh, third month in a row thatlong term index was down.
It was only down four pointscompared to July, but that
did leave the index down ninepoints compared to a year ago.
And to me, I think thebigger thing there is
the fact that it's downthree months in a row.
That's kind of unusualwith this long term index.
Michael Langemeier: And it's pretty big. (13:52):
undefined
Uh, if you, if you go backto April, if I'm looking
at the chart, right, it wasabout 160, uh, you know, 158,
159, 160, and now it's 142.
That's a pretty large drop.
James Mintert (14:04):
Yeah, and we've been this low before,
but it's been a while.
If you go back toearly 2023, we saw some
readings down below 140.
Uh, but it is a shift, andagain, I think the three month
pattern here is probably,uh, the bigger significance,
because it's, you know,historically, the long
term index is always morepositive than the, than the,
uh, uh, short term index.
(14:25):
And even when you lookedat the raw responses here,
we saw an uptick in thepercentage of people who
say they think farmlandvalues could fall, not only
over the next 12 months,but over the next 5 years.
Let's see, I think that wentto 14 percent this month,
up from 11 percent in July.
I think the highest that'sever been was at 19%, and
that was back in early 2023.
(14:48):
You and I were talkingabout that before we
started recording.
You know, one of the thingswe think was going on there
was people realized priceswere starting to soften, but
break evens were not comingdown very fast and people
were very worried about that.
I think this could belonger term than that.
Michael Langemeier (15:02):
I definitely think so.
James Mintert (15:05):
And of course, we keep asking people,
what's the, if you thinkfarmland values are going to
go up, why do you think so?
Well, they continue topoint to the same thing.
They continue to point tonon-farm investor demand.
But underneath that, I thinkone of the things that's
interesting, we've askedthis question now five
months in a row, and there'sa significant portion of
people who think that what'sgoing on with respect to
(15:25):
using farmland to generaterenewable energy, uh, is going
to support farmland values.
These last two months,that's been at 6 percent
of the people who thinkfarmland is going to go up.
We had a couple of monthsthere in May and June when it
was between 10 and 12 percent.
First time we asked itback in, I think, April
was at maybe 8 percent.
So we've got a kind of arange there between 6 and
(15:46):
maybe 12 percent of thepeople in the survey who
think value is going to goup, think it's because of
what's taking place withrespect to energy production.
What's your take on that?
Michael Langemeier (15:56):
I think that's very real, and it's
one of the, you know, there'sa mix here of positive
and negative factors.
It's certainly one of thepositive factors, with, along
with perhaps non farm investordemand and, and inflation.
Uh, you look at cash flowsand interest rates and
some other fundamentals,they're, they're negative
right now, uh, with respectto the farmland market.
James Mintert: Yeah, good point. (16:15):
undefined
So, our kind of our wrapup question this month,
Michael, is, uh, whatdo you expect to see for
cash rents on farmland?
And this only went topeople who produce crops.
So people who raise corn,soybeans, wheat, and cotton,
uh, received this question.
And we've asked ittwo months in a row.
So I've got more confidencein the results now, because
(16:36):
we got very, very similarresults two months in a row.
This month, 70 percent ofthe people in the survey
said that they think cashrents will stay about the
same in 2025 versus 2024.
Last month, it was 72%.
Um, we did pick up a fewmore people who said that
they think we could seesome lower cash rents
(16:57):
on this month's survey.
This month it was 16%.
A month ago it was 13%.
But, you know, I think you gotto look at these results and
say, on average, people thinkwe're going to see cash rents
probably pretty flat in 2025.
Michael Langemeier (17:09):
Yeah, I'm glad we asked this
a second time, because Iwas wondering if the July
results were not what wewould expect, meaning that
I thought perhaps there'd bemore people that thought cash
rents were going to be lower.
Well, we talkedabout this before.
It does take, it does taketwo or three years in a
row of low net returns forcash rents to come down.
Cash rents are very sticky.
(17:31):
They don't move near asmuch as net return to land.
And so what this tells me isthere's going to be, start
some tough conversationsin the fall of '24 for
'25 cash rents, but therecould be even tougher
negotiations in the fall of2025 for 2026 cash rents.
James Mintert (17:48):
Yeah, looking at these results and looking
at the research that you'vedone over the years on the
relationship between netreturns to land and cash rent,
my best guess is we're notgoing to see much movement
in cash rent for 2025.
But we will see somesignificant downward pressure
in '25 for the '26 cropyear if '25 unfolds the
(18:09):
way it looks now, right?
Michael Langemeier (18:10):
Something has to give and, uh, uh,
you know, and I've talkedabout this before, but if you
look at the costs that arerelatively high now compared
to what they were in 2014, ifwe're, if we think we might
be repeating that, that, that,uh, that 2014 to 2019 period,
one of those is cash rent.
Uh, the other ones arerelated to interest rates.
We're getting somerelief in interest rates.
(18:32):
And so, it's just one of thecosts that, uh, that we're,
that, that's probably goingto have to change a little
bit if we, if we stay in thislow net return environment.
James Mintert (18:41):
And, you know, at the risk of relying
on economic theory for abit here, Michael, I think,
you know, we would kind ofexpect that because theory
would suggest that the inputfactor with the most inelastic
supply is going to be theone that actually absorbs
the biggest change or shock.
And we've seen thatin the past, I think
we'll see it again.
Michael Langemeier (19:00):
And that, we're gonna, we're
gonna see, we're gonna seesome of the same thing we
talked about with machinery.
People are gonna holdoff buying machinery for
some of the same reasons.
They have some flexibilitywhen they buy that, and
the same is true with land.
James Mintert (19:12):
So that wraps up the highlights
for this month's survey.
You can get the full reporton our website, which is
purdue.edu/agbarometer.
And of course, you'rewelcome to listen to
our podcast anytime.
We cover not only thistopic, with respect to the
Ag Economy Barometer but avariety of farm management
related topics on the podcastPurdue Commercial AgCast.
It's available in all themajor podcast providers
(19:34):
and at our website.
You can watch it and listento it on our website or
you can do it with yourfavorite podcast provider.
If you do that, you'llwant to search for Purdue
Commercial Ag Cast to findthe podcast on any of the
major podcast providers.
And so with that, I wantto thank my colleague, Dr.
Michael Langemeierfor joining us today.
And on behalf of theCenter for Commercial
Agriculture, I'm Jim Mintert.
(19:54):
Thanks for joining us.
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