Farm capital investment at 8-year low

Farm capital investment declined in April, tying an eight-year low, as rising interest rates and prices continue to deter farm investment. 

In addition, the Farm Capital Investment Index reached one of its lowest points since the Great Recession in April, landing at 31, James Mintert, professor of agricultural economics and director at the Center for Commercial Agriculture at Purdue University, which publishes the report, told Equipment Finance News.   

“Farm capital investment is weak,” he said. “It’s been this weak before, but clearly people are telling us it’s not a great time to make large investments.” 

One caveat is that the Farm Capital Investment Index typically maintains a low value, especially compared to the other indices, because most farmers rarely want to make farm capital investments, Mintert said.  

“We were getting some of those kinds of responses, even when farm equipment sales were very good,” he said.

Agriculture downturn

Meanwhile, the agriculture economy’s downturn amid higher interest rates and prices continues the difficulties of the industry, agricultural equipment dealer H&R Agri-Power President Steve Hunt said earlier this month during a presentation at the Equipment Finance Connect 2024 event in Nashville. 

“Agriculture is going to be up and down, you’re going to ride that wave continually,” he said. “You got to be smart enough to react to that market, and make sure your business is in check, but ag is in a downturn.” 

While the possibility of lower interest rates remains, there’s a balance to the equipment market that must be maintained, Hunt said. 

“Interest rates are higher than they were, and they are starting to come down, but there’s a balance,” he said. The pressure of interest rates “is coming for sure because of that inventory buildup, and that’s what’s happening today.” 

Still, inventory buildup does create a means for some farmers to return to the equipment, with higher dealer inventories being the largest reason some farmers believe now is a good time to make a large investment, according to the Center for Commercial Agriculture. 

Farm financial performance drops in April 

Farm financial performance continued to deteriorate in April, as the index landed at 76, down 7 points month over month and 17 points year over year. The decline occurred mostly due to crop prices failing to meet producers’ expectations through the first four months of 2024, the Center for Commercial Agriculture’s Mintert said. 

“Grain producers and people producing fall crops carried over some large inventories from 2023 harvest into 2024, expecting prices to improve,” he said. But the reality was, if you look at a price chart for corn or soybeans, in particular, those charts peaked in around Thanksgiving time.  

“Then we’ve seen very weak markets for those key commodities here in the first quarter and spilling over into the early part of the second quarter of 2024.” 

Commodities prices did pick up in May, so there’s the possibility for improved optimism next month, but the current market harkens back to the beginnings of the Great Recession and the agricultural downturn of 2016, Mintert said. 

“Agriculture, especially crop agriculture, had a very positive environment from about 2007 to 2013, as 2014 was a transition year,” he said. “By the time we got to 2015 and 2016, we were in the midst of a significant downturn that lasted several years.” 

Farmer sentiment caution flag

While farmer sentiment began to improve both before and during the pandemic, current sentiment returned to a level similar to 2016 in April, Mintert said. In 2016, farm net income declined for the third consecutive year, according to the U.S. Department of Agriculture. 

“With sentiment this month back, essentially, to where it was in that 2015-2016 era, that gives you some perspective, in terms of what farmers are thinking about,” he said. “They’re looking at this as a pretty weak period, or significantly weak period, relative to what we’ve had the last several years.” 

Farmer sentiment in April 2024 also stands out, as it is only 3 points higher than April 2020, which was the first index value to come out after the pandemic started, Mintert said. 

“Everybody was concerned about what does this mean for the demand for virtually everything, including what it meant for what was taking place in the food arena, and what that might mean for agricultural commodities,” he said. “We don’t know yet if it’s significant, but it’s certainly a caution flag with respect to the level of negativity that existed among the folks that we were serving in April.”