Higher production costs remain a concern in ag sector

High production costs and uncertainty about future economic conditions continue to weigh down the ag sector’s sentiment about the state of the industry.

The latest Purdue University/CME Group Ag Economy Barometer fell 2 points from May to 97 in June.

Producers’ expectations for the future also weakened. The Index of Future Expectations fell 5 points to 96, marking the lowest level for the index since October 2016.

Meanwhile, producers were slightly more optimistic regarding current conditions; the Index of Current Conditions improved 5 points 99, researchers said. The Ag Economy Barometer is calculated each month from 400 U.S. agricultural producers’ responses to a telephone survey, which was conducted between June 13 and June 17.

Researchers said rising input costs and uncertainty about the future continue to weigh on farmer sentiment. Many producers remain concerned about the ongoing escalation in production costs as well as commodity price volatility, which could lead to a production cost/income squeeze in 2023.

The Farm Financial Performance Index which reflects income expectations for the current year, improved 2 points to 83 in June, yet remains at one of the index’s lowest readings over the past two years.

When asked about expectations for their farm’s financial condition in June 2023 compared to June 2022, 51% of survey respondents said they expect their farms to be worse off financially a year from now. This is the most negative response received to this question since data collection began in 2015.

For the second month in a row, the Farm Capital Investment Index held at a record low of 35, as producers continue to say now is not a good time to make large investments in their farm operation. Supply chain issues continue to frustrate farmers. In May and June, 50% of producers said that tight machinery inventories were impacting their farm machinery purchase plans.

The top concerns for producers in the upcoming year continue to be input prices (43%), followed by input availability (21%), government policies (18%), and lower output prices (17%). Looking ahead to 2023, a majority of farmers expect to see another round of large input cost increases with 63% of producers expecting higher costs in 2023, on top of the large increases experienced in 2022.


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