Economic Tidbits

Producer Outlook Dims

The latest Purdue University-CME Group Ag Economy Barometer indicates producers are increasingly pessimistic about the farm economy. The April index dropped to 99, a 15-point decline from March and the lowest reading in almost two years (Figure 1). The nationwide survey of 400 agricultural producers showed producer sentiment deteriorated for both current economic conditions (12 months into future) and future conditions (5 years into future). The index of current conditions registered 83, down 18 points from the previous month, and the index of future expectations registered a 106, down 14 points.

FIGURE 1. AG ECONOMY BAROMETER

Most farmers in the survey expected their farms’ financial conditions to worsen in 2024. Lower crop prices and sticky costs are the biggest factors for the dimming income expectations. The sentiments are consistent with the USDA Economic Research Service most recent forecast of U.S. net farm income, down 25 percent from last year. The latest agricultural credit survey by the Kansas City Federal Reserve Bank District tells a similar tale. Sixty percent of commercial bankers surveyed said farm income was less this year compared to a year ago, the highest since early 2020. The responses were even more telling for Nebraska—70 percent of Nebraska bankers reported lower farm income. Federal Reserve Bank economists think Nebraska’s greater reliance on crop revenues compared to other states is the primary reason for the more dismal outlook.

FIGURE 2. FARM INCOME BY STATE

Source: Thinner Crop Profits and Tighter Credit Conditions, Nate Kauffman and Ty Kreitman, Kansas City Federal Reserve Bank, May 9, 2024

Good incomes in 2021 and 2022 left producers with ample working capital entering last year. But that may not be the case this year. A Northeast Nebraska banker commented in the survey, “A large majority of our farm borrowers had good working capital to absorb the losses that occurred in 2023, but the 2024 year will be the deciding factor of how many of our borrowers end up with negative working capital at the end of the year.” Not only is 2024 shaping up to be tough financially, but prices for futures contracts are not offering much encouragement for 2025. As tough as it might be, some lenders are encouraging producers to lock in prices for a part of their 2025 production to manage future uncertainty. No doubt, producers’ management skills will be tested. 

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