Producer sentiment improved sharply in December on strong year-end income estimates. The Purdue University-CME Group Ag Economy Barometer Index ended the year at 126, the highest reading of the year and 24 points higher than November.

Farmers were more optimistic about both their current situation and expectations for the future. The Current Conditions Index jumped 37 points to a reading of 135, while the Future Expectations Index increased 18 points to a reading of 122.

James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture, says the stronger Current Conditions Index could be attributed to producers estimating their 2022 farm income following harvest.

USDA estimates strong 2022 income

The Ag Economy Barometer reading aligns well with USDA’s numbers. According to the department’s Farm Financial Forecast released in December, 2022 net farm income is going to reach its highest level since 1973 amid soaring commodity prices.

Related: USDA: Farm income soars to new heights in 2022

Dairy, corn, soybean, and wheat prices are expected to provide the biggest boost to larger cash receipts.

Farmland value shift

Despite the improvement in farm finances, the short-term and long-term farmland value indices continued lower in December. The short-term index fell 5 points to 124 while the long-term index declined from 144 to 140.

Although both farmland indices remain positive, it’s clear that sentiment among producers about farmland values has shifted.

Compared to a year ago, the percentage of respondents who expect to see farmland values decline in the upcoming year increased slightly from 6% to 15% while the percentage expecting to see values rise declined from 59% to 39%.

2023 outlook

Farmers remain optimistic about the year ahead, but most agree 2023 will not bring as much financial success as 2022.

When asked to compare expectations for their farm’s finances for 2022 and 2023, farmer’s expect lower incomes in 2023 due to rising costs and narrowing margins.

Nearly half (47%) of crop producers say they expect farmland cash rental rates in 2023 to rise. In a related question, 45% of producers cited higher input costs as their top concern in 2023 followed by rising interest rates (22% of respondents) and lower crop or livestock prices (13% of respondents).

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 December 5-9, 2022.