Farmers were feeling the blues, but sentiment shifted in October

One sector that will be watching closely for an interest rate cut decision by the Federal Reserve is agriculture. Farmers and ranchers have been pretty down in the dumps lately, according to Purdue University’s monthly Ag Economy Barometer.

In August and September, lower income expectations and thin margins were weighing on ag producers. But a fresh reading out this week shows a rebound in farmer sentiment, from 88 to 115 on a 200-point scale, perhaps due in part to the Fed’s movement on rates. 

Farmers and ranchers typically take out loans every year to pay for things like seeds, fertilizer and livestock feed. And they might not see a return on that investment for months. 

Unlike in other sectors, “there’s this big delay that happens that, you know, Walmart doesn’t have when Walmart’s selling product every single day,” said Courtney Bir, a professor of agricultural finance at Oklahoma State University. 

Because of that wait, she said, the interest rate on farmers’ operating loans is really important. “There is such a lag between input costs and when you actually sell a crop or sell your livestock,” she said.

Michael Langemeier, who helps run Purdue’s ag survey, said the sector is deeply invested in machinery, buildings and land — all very capital-intensive. 

“And so when you see a decrease in interest rates, that’s certainly positive,” he said.

Langemeier said October’s rebound in farmer sentiment is steep and a bit of a head scratcher. But it might be in part because fewer farmers cited interest rates as a major concern. Plus, the likelihood of another Fed rate cut this week could have lifted their spirits, along with expectations around change in Washington. 

“We’ve seen this before. We saw this in 2016 and 2020,” Langemeier said.

The survey doesn’t ask farmers about their vote, he said, but it does often capture big swings in how farmers are feeling before and after elections.