Farmers’ Sentiment Rises Amid Surging Commodity Prices: Study

A farmer harvests soybeans in Owings, Md., on Oct. 19, 2018. Mark Wilson/Getty Images

Farmers are optimistic about the state of the U.S. agricultural economy moving forward, a new study has found.

The Purdue University/CME Group Ag Economy Barometer climbed by nine points in December 2021 to a reading of 125, marking only the second time that the monthly snapshot of farmer sentiment has risen since May. The Index of Current Conditions rose by 18 points to 146, and the Index of Future Expectations edged up four points to a total of 114.

The past year was a terrific time for the agricultural commodities market, with wheat and corn prices rallying by double digits. These sharp gains supported the financial performance of farmers in 2021, highlighted in the Farm Financial Performance Index, which jumped by seven points to a seven-month high of 113.

Although global supply chain disruptions have severely affected the agricultural sector, farmers’ capital investment endeavors remained intact to finish 2021. The Farm Capital Investment Index tacked on 10 points, to a reading of 49. While this was down by 47 percent from the same time in 2020, fewer producers stated that they intend to reduce their machinery acquisitions in the upcoming year.

Farmers John Duffy (L) and Roger Murphy load soybeans from a grain bin onto a truck in Dwight, Ill., on June 13, 2018. Scott Olson/Getty Images

Forty-five percent of the telephone survey participants noted that low farm machinery inventory levels have contributed to their purchase plans.

“Excellent crop yields this fall, combined with strong crop prices, provided many producers with their most positive cash flow in recent years. That combination helps explain the year-end rise in the financial index as well as the barometer overall,” James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture, said in a statement.

Still, U.S. farmers are worried about ballooning production costs and available supplies.

The survey revealed that 47 percent of farmers listed higher costs as a chief concern, followed by environmental policy and COVID-19. More than half (57 percent) anticipate growing input prices over the next 12 months.

In addition, 39 percent of farmers reported challenges in securing crop inputs from their suppliers for the 2022 season, including fertilizer, herbicides, farm machinery parts, and insecticides.

“Although much of the attention on increasing input costs has focused on this year’s dramatic rise in fertilizer prices, virtually all other input costs ranging from farm machinery to seed and fuel are on the upswing as well,” the survey reads.

But what are some of the broader trends and developments farmers should monitor in 2022?

From Chinese Imports to Fertilizer Prices

In a special presentation shared with The Epoch Times, Al Kluis, a marketing advisor and managing director for Kluis Commodity Advisors, identified four main factors to watch in 2022: South American weather, China’s purchasing plan in 2022, U.S. planted acres, and U.S. weather in the key growing season.

Throughout the pandemic, Chinese food consumption has remained strong, according to Kluis. This could benefit U.S. farmers, as Beijing is the world’s largest customer of U.S. soybeans and the second-largest importer of U.S. wheat.

“China has only 7 percent of the world’s arable land, but 20 percent of the world’s population. There is a serious scarcity of water to significantly increase crop production in China,” he said. “China is a natural resource-scarce economy that will likely always rely on imports of food and fuel, especially as the middle class grows.”

Despite the Chinese being a major importer of U.S. agriculture, the United States represents just one-sixth of all agricultural imports into China, leaving room for growth, Kluis said.

Global fertilizer prices have soared to all-time highs over the past year, buoyed by rallying natural gas prices and escalating worldwide demand. The Green Markets North American Fertilizer Price Index skyrocketed by 165 percent in 2021. Urea rose by roughly 60 percent, liquid nitrogen jumped by about 40 percent, and potash prices picked up by 5 percent.

A Chinese farmer sprays pesticide in a wheat field in Chiping County in Liaocheng, Shandong Province, China, in March. STR/AFP/Getty Images

Market analysts anticipate that fertilizer prices will climb higher in 2022 amid tightening supplies, stoking concerns about surging food prices. The International Fertilizer Association (IFA) Public Summary Medium-Term Fertilizer Outlook 2021–2025 estimates that global nitrogen fertilizer demand will strengthen in 2022.

These rising prices could negatively affect planting and production efforts, according to the American Farm Bureau.

“Given all these factors, fertilizer prices are expected to remain high through springtime, which may compel some farmers to shift planted acres away from corn to commodities that use fertilizer at a lower rate, like soybeans or wheat,” the farm bureau wrote.

“With the price of ammonia about 85% correlated with the price of corn, farmers must consider whether the increased cost of fertilizer and other inputs can be recovered by cash receipts from crop revenues in order to break even. There are also expectations retailers will have to turn customers away because they will not be able to deliver fertilizer products on time, increasing the need for supply chain and infrastructure improvements.”

This comes after the U.N. Food and Agriculture Organization (FAO) reported that world food prices surged by 28 percent in 2021 to a decade high.

“While normally high prices are expected to give way to increased production, the high cost of inputs, ongoing global pandemic, and ever more uncertain climatic conditions leave little room for optimism about a return to more stable market conditions even in 2022,” FAO senior economist Abdolreza Abbassian said in a statement.

In the first trading week of 2022, how are agricultural commodities performing so far?

March wheat futures are down by 3.5 percent to $7.42 per bushel, March soybean futures are up by about 2.7 percent to $13.75, and March corn futures have jumped by 1 percent to $5.97.