Farmer sentiment strengthened again in January as the Purdue University/CME Group Ag Economy Barometer increased to 130, four points above the ending 2022 reading.

The modest January rise can be attributed to better expectations for the future as the Future Expectations Index rose 5 points. “Although producers were a bit more optimistic about the future this month, they again reported expectations for tighter margins in 2023 than in 2022,” says James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture.

Less operating debt

In January, 22% of respondents said they expect to have a larger 2023 farm operating loan compared to 2022, down from 27% last year. Among respondents who expect to have a larger operating loan, 80% indicated it was due to increased input costs, while only 5% said it was due to carrying over unpaid operating debt.

“The sharp decline in the percentage of producers expecting to carry over unpaid operating debt is important,” says Mintert. “It supports the idea that the vast majority of producers are entering 2023 in a strong financial position despite the rise in production costs.”

The percentage of respondents who attribute their need for a larger loan to unpaid operating debt has fallen sharply since the question was first posed in January 2020. At that time, over one-third of producers who anticipated needing a larger loan said it was because of unpaid operating debt. That percentage fell to 20% in 2021 and to 13% in 2022 before declining again to just 5% in 2023.

Investment hesitation continues

The Farm Capital Investment Index was up 2 points this month to 42 but remains 7% lower than last year. Just over 7 out of 10 survey respondents said they think now is a bad time to make large investments in their farm operations.

Among respondents who felt now is a bad time, 39% said high prices for machinery and new construction, 25% said rising interest rates, and 12% said uncertainty about farm profitability was the primary reason.

Interest rates are becoming a bigger concern for farmers. As recently as November, just 19% percent of farmers in the monthly barometer survey chose rising interest rates as a key factor impacting their perspective on investments.

This month’s survey included questions about leasing farmland for carbon sequestration. Interest in carbon contracts has been relatively consistent since questions were first posed to farmers at the start of 2021.

Despite producers’ ongoing interest in carbon contracts, responses show few have signed a contract. Just 1% of survey respondents in January reported that they had signed a carbon contract.

The Purdue University-CME Group Ag Economy Barometer sentiment index is calculated each month from 400 U.S. agricultural producers’ responses to a telephone survey. This month’s survey was conducted from January 16-20, 2023.

Source: Purdue University-CME Group Ag Economy Barometer