Euphoria fades as farmers fret over inflation, rising costs

America’s large-scale farmers and ranchers expect rampant inflation and sharply higher costs in the year ahead, said a Purdue University poll on Tuesday. The monthly Ag Economy Barometer said farmer confidence was at its lowest level in a year despite high commodity prices and large federal payments.

The barometer soared to a record reading of 183 last October with China back as an export customer and grain prices on the rise. The April reading, with spring planting underway and prospects for a large fall harvest, was 178, the second highest. Now the barometer has slumped to 134, the lowest since last July’s reading of 118.

Nearly one in five producers polled by Purdue expected an annual U.S. inflation rate of 8% or higher. Half said it would be at least 4%. A similar portion, 56%, said farm inputs, such as fuel, seed, fertilizer, and livestock feed, will cost at least 4% more during the next 12 months; three in 10 said the increases will exceed 8%.

“Producers remain concerned that farm input prices are likely to rise much more sharply in the coming year than in the recent past and nearly half of corn/soybean farmers expect farmland rental cash rates to rise, potentially squeezing profit margins,” wrote economists James Mintert and Michael Langemeier, who oversee the barometer.

Prices are 5.4% higher than a year ago, according to the Labor Department’s latest CPI report, covering June. Some forecasters see an inflation rate of 2.3% or 2.6% in 2022. Other analysts say inflation could be much higher as cash-flush Americans bid against each other while manufacturers struggle with parts and labor shortages. But Federal Reserve chairman Jerome Powell has said he views the higher inflation rate as transitory and expects the price rises to moderate.

The majority of farmers chose high rates for inflation and input costs although Purdue’s questions included the 10-year average – 1.5% annually for inflation and 1.8% for inputs. In February, the USDA forecast an increase of 2.5% in production expenses this year. Farm income would be a strong $111.4 billion this year, 20% above the 10-year average, it said.

Although grain prices remain strong, drought has dimmed somewhat the outlook for the corn and soybean harvests. Cattle producers say slaughter bids for their stock are too low considering the high price for beef in the supermarket. Farmers have expressed concern about the potential for adverse changes in tax policy under President Biden, such as elimination of a tax break that makes it easier to pass assets to heirs. Wildfires, drought, and floods have prompted lawmakers to propose more than $7 billion in disaster aid to cover losses this year and in 2020.

“Higher commodity prices will add billions of dollars of new revenue” to estimates of farm income this year, said Pat Westhoff of the FAPRI think tank at the University of Missouri. Government payments also will be larger than expected early this year. “The downside, of course, is that production expenses will probably increase as well.” For example, higher corn prices mean higher feed costs for livestock producers.

In the latest survey, conducted from July 19-23, twice as many producers reported difficulty in hiring farm labor as did last summer. Some 52% of respondents said they normally hire people to work on their operations.

The Ag Economy Barometer is based on a telephone survey of 400 operators with production worth at least $500,000 a year. USDA data say the largest 7.4% of U.S. farms top $500,000 in annual sales.

The latest Ag Economy Barometer is available here.