Farm sentiment remained steady in December as farmers maintained increased financial liquidity and conservatively managed equipment purchases.
Farmers headed into 2024 with a more strategic approach to purchasing and financing equipment due to improved finance conditions, Doug Loewen, regional manager of Midwestern equipment dealer group KanEquip, told Equipment Finance News. KanEquip has around $200 million in annual sales across its 14 locations in Kansas and Nebraska, Loewen said.
“Farmers are still very cash flush and have a very low leverage percentage, so we see a lot of them borrowing strategically,” he said. “They’re not needing a piece of equipment and having to borrow money because they have to have it. They’re buying and making decisions based on their farm needs or their tax needs.”
Much of the agricultural equipment purchased at yearend occurred due to Section 179 of the tax code, which allows for increased depreciation, Loewen said, noting that farmers are also benefiting from changes in the agricultural economy over the past 30 years.
“Back in the early- to mid-’90s, but especially in the early 2000s, a lot of the producers were borrowing and had 75% of the value of their equipment tied up in financing,” he said. “With crop insurance, the government subsidizing farming and COVID [relief] money, a lot of farmers paid off a lot of their loans during those times … and now a lot of them are borrowing strategically to get what they want or to take advantage of a buying situation.”
One way farmers are taking advantage of the buying situation is by using their financial position to pay off loans early and benefit from interest waiver incentives that provide them with six months of interest-free financing, Loewen said.
“A lot of [farmers] that are borrowing are taking advantage of an interest waiver versus just a lower rate of financing,” he said. “They’re expecting to pay off or pay a high percentage of their loan off in the first year to 18 months, so we can work in a six-month interest waiver.”
Capital investment conditions improve slightly
Still, the Purdue University–CME Group’s Ag Economy Barometer, which measures farm producer sentiment about current and future conditions, declined 12 points year over year and 1 point month over month to an index value of 114 points in December.
The Farm Capital Investment Index, produced by Purdue’s Center for Commercial Agriculture, tracks farmers’ willingness to make capital investments, increased 3 points YoY in December to 43, up 1 point sequentially.
While farm capital investment conditions improved slightly, some farmers remain conservative following the supply chain shortage and economic tightness over the previous year, Loewen said.
“There’s still some availability issues. The pipeline is not full of equipment yet [and] the customers have also become a bit more conservative,” he said, noting that some farmers continue to buy for reasons such as expansions, mergers and acquisitions.
Corn yield, beef prices elevate farm finances
The index, which gauges farmers’ farm finance sentiment compared with the previous year, landed at 97 points in December, its highest level for 2023, following steady increases since May. May marked a three-year low for farmer sentiment, Michael Langemeier, a professor of agricultural economics and associate director at the Center for Commercial Agriculture at Purdue University, told EFN.
“In the eastern Corn Belt, the crop yields were higher than we thought they were going to be, so the strong corn yields had a positive impact not only sentiment but also that farmer financial performance index,” he said. “The other thing that was important to that index was, even though beef prices declined in December, beef prices were relatively high later in 2023.”
According to Langemeier, 53% of survey respondents produce corn and soybeans, 70% produce either in some capacity and 15% to 20% are beef producers.
Ultimately the farm economy, much like the larger economy, is waiting for the next catalyst to shift the market, Langemeier said.
“We’re in that holding pattern as long as the fundamentals don’t change,” he said. “If something would fundamentally change in the world corn, soybean and some of the livestock markets, then we would get out of the holding pattern, but as long as the fundamentals remain very similar to what they currently are, we’re in that holding pattern.”
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