Following a two-month decline and a year of weak sentiment, the Purdue University/CME Group Ag Economy Barometer closed out the year on a more positive note, rallying 24 points in December to a reading of 126. U.S. farmers were more optimistic about both their current situation and expectations for the future. The Current Conditions Index jumped 37 points to a reading of 135, while the Future Expectations Index increased 18 points to a reading of 122. The Ag Economy Barometer is calculated each month from 400 U.S. agricultural producers' responses to a telephone survey. This month's survey was conducted from December 5-9.

"The improvement in current sentiment was motivated by producers' stronger perception of current financial conditions on their farms and could be attributed to producers taking time to estimate their farms' 2022 income following the completion of the fall harvest," said James Mintert, the barometer's principal investigator and director of Purdue University's Center for Commercial Agriculture.

The Farm Financial Performance Index climbed 18 points to a reading of 109 in December. Notably, this was the only time in 2022 that the index was above 100. The turnaround was driven by a sharp increase in the percentage of producers who expect better performance than last year, which jumped from 23% to 35% of respondents, and is consistent with USDA's forecast for strong net farm income in 2022.

The Farm Capital Investment Index climbed 9 points this month to 40, the highest reading for the index since February; yet, it remains 9 points lower than a year earlier. Among the nearly three-quarters of respondents who said it was a bad time for large investments, the most commonly cited reason was high prices for farm machinery and new construction (41%) followed by rising interest rates (28%).

Despite the improvement in farmers' perception of their financial situation, both the short-term and long-term farmland value indices continued to drift lower in December. The short-term index fell 5 points to 124 while the long-term index declined 4 points to 140. When examined over the course of the last year it's clear that sentiment among producers about farmland values has shifted. For example, compared to a year ago, the percentage of respondents who expect to see farmland values decline in the upcoming year increased from 6% to 15%, while the percentage expecting to see values rise declined from 59% to 39%. Among producers who expect farmland values to rise over the next 5 years, just over three-fourths of them said that a combination of non-farm investor demand and inflation are the main reasons they expect to see values rise.