Farmers may be getting a little more optimistic about interest rates. Or at least that’s what the Purdue University-CME Group Ag Economy Barometer results for April may indicate.
After a two-month decline, the barometer increased six points to a reading of 123, including an increase in the Index of Current Conditions and the Index of Future Expectations. More producers this month expected prime interest rates to hold steady or decline during the next 12 months, while interest in the upcoming Farm Bill was measured by respondents’ answers to questions regarding the legislation.
When asked to look ahead one year, more producers said they expect to be better off financially than now, with fewer respondents expecting conditions to worsen compared to both a month earlier and one year earlier. This month’s survey was conducted from April 10-14, 2023.’
April’s Farm Financial Performance Index rose seven points to 93 to match January’s reading. According to Perdue’s report, the prime interest rate charged by U.S. commercial banks increased from 7.75 percent in January to 8 percent in late March. A shift in farmers’ expectations regarding future Federal Reserve Board interest rate policy could be one reason the financial performance index improved this month.
Compared to earlier in the year, fewer producers expect interest rates to rise over the next year, and more producers think rates are likely to hold steady or decline. This month 34 percent of respondents said they expect the U.S. prime interest rate to remain unchanged or decline over the next year compared to 25 percent of producers who felt that way in February.
At the same time, two-thirds of producers expect interest rates to keep rising, compared to 75 percent of respondents who felt that way in February. The biggest shift was among respondents expecting rates to rise 1 to 2 percent in the next year, which declined to 37 percent of respondents in April vs. 43 percent of respondents in February.
The Farm Capital Investment Index held steady in April, changing by just a rise of one point. Seventy percent of respondents still think it’s a bad time to make large investments due to prices and interest rates. However, in a reversal from last month, more respondents chose rising equipment and construction costs over rising interest rates as a top reason for this being a poor time for large investments.
Policy discussions, including the Farm Bill, are heating up, and this month’s survey addresses producer perspectives on the legislation.
Opinions on the likelihood of a new Farm Bill’s passage before the end of the year are divided. Four out of 10 producers think that passage of a new Farm Bill this year is either very likely or at least somewhat likely. But on the other side, 29 percent of producers think the Bill’s passage is either very unlikely or somewhat unlikely.
The survey queried corn and soybean producers regarding what they consider to be the most important aspect of a new Farm Bill to them. Forty percent of respondents chose crop insurance as the most important Farm Bill title, followed by commodity programs and conservation titles. The research and extension and renewable energy funding titles were each chosen by 8 percent of respondents as a top priority.
Leasing farmland for solar energy production continues to be a hot topic in some parts of the U.S. In this month’s survey, 15 percent of respondents said that they had actively engaged in discussions with companies about leasing farmland for solar energy production in the last six months.
Following up with just those producers who had been discussing solar leasing with a company revealed an upward shift in the long-term lease rates offered to lease farmland, with nearly half of the respondents indicating that lease rates of $1,000 or more per acre were discussed.
In particular, 25 percent of respondents said that, following the development and construction period, the lease rate they were offered was $1,250 or more per acre. In contrast, 22 percent of respondents said the lease rate ranged from $1,000 to $1,250 per acre. On the other end, 32 percent of respondents said they were offered lease rates of less than $500 per acre. Fewer producers reported receiving offers ranging from $500 to $1,000 per acre than in previous surveys.
