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Minding Ag's Business: Brighter Financial Outlook Boosts Interest in New Equipment

Katie Micik Dehlinger
By  Katie Micik Dehlinger , Farm Business Editor
Farmers expect higher corn and soybean prices will lead to a sunnier year for farm finances, according to a recent survey. With distress on the decline, more are looking toward making the most of current conditions by making new investments. (Photo by Don Graham, CC BY-SA 2.0)

Nearly a third of farmers expect their business to perform better financially in the upcoming year, according to a survey for the recent Purdue University/CME Group Ag Economy Barometer.

I often find interesting tidbits in the additional questions Jim Mintert and the team at Purdue's Center for Commercial Agriculture ask while assembling their index. The overall barometer numbers and methodology are similar to DTN's Agricultural Confidence Index, with each asking farmers about current conditions and future expectations, so I won't recap the top line numbers here. I will say they both show farmers feel good about current prices, yet are concerned about the year ahead. You can find the latest results of the DTN Agriculture Confidence Index here: https://www.dtnpf.com/…

OPERATING LOANS

While farmers are hopeful for better financial conditions for the crop ahead, 17% of the 400 respondents to Purdue's survey said they expect their operating loan to increase this year; of those, nearly 20% said that increase is due to carrying over unpaid operating debt from the previous year.

"This implies that 3%-4% of those surveyed are suffering financial stress; however, that is down from 5%-6% of farms identified as suffering financial stress one year ago," the index's creators said in a news release.

Another contributor to larger operating loans this year may be rising prices for inputs like seed and fertilizer. DTN tracks retail fertilizer prices each week and prices of all eight major fertilizers have moved higher in recent months. MAP and DAP are 33% and 20% more expensive than at the same time last year, respectively. Nitrogen fertilizers are also on the move, with urea prices jumping 10% in the past month. You can read more in this week's Retail Fertilizer Trends column here: https://www.dtnpf.com/…

Overall, however, Purdue's survey fits with what the Federal Reserve Bank of Kansas City said earlier this month. Demand for new operating loans is declining, while the average loan size is increasing. You can find more on that survey here: https://www.dtnpf.com/…

CAPITAL INVESTMENTS

Purdue's survey also found 15% of respondents plan to increase their machinery purchases over last year. The survey's Farm Capital Investment Index tipped the scales at 93, more than double what it was last January, indicating farmers attitudes toward large purchases have changed dramatically over the course of a year.

During this year's DTN Ag Summit, we asked attendees what one thing they plan to buy for the farm this year other than inputs. The open-ended question showed that combines, tractors, equipment and machinery are at the top of farmers' shopping lists. Others mentioned tile, grain bins, a pickup truck and land.

Land's another market that's expected to climb, or at least hold steady, amidst these higher crop prices. Forty three percent of the farmers who took Purdue's survey say they expect higher farmland values in the next 12 months.

"This is by far and away the most optimistic short-run perspective farmers have provided regarding farmland values during the life of the barometer survey," the report's authors wrote. The results are also optimistic over a 5-year time horizon, with 64% seeing higher prices by 2026.

Katie Dehlinger can be reached at: katie.dehlinger@dtn.com

Follow her on Twitter @KatieD_DTN

Katie Dehlinger