Solar-lease interest increasing - AgUpdate

Solar-lease interest increasing

Farmer sentiment recovered somewhat in May following a sharp decrease in April. The May reading of the Purdue University-CME Group Ag Economy Barometer came in at 108, an increase of 9 points compared to April. Both the barometer’s sub-indices increased as well, with the biggest improvement coming from the Index of Future Expectations; it climbed 11 points to 117. The Current Conditions Index increased 6 points.

Strengthening crop prices were a factor in this month’s sentiment improvement. For example Eastern Corn Belt cash corn prices in mid-May were 6 percent to 7 percent better than when the April survey was conducted.

Cash soybean prices improved by 2 percent to 3 percent compared to the same period. The improvement in prices coincided with good corn- and soybean-planting progress as the U.S. Department of Agriculture reported the planting pace in mid-May matched the five-year average. This month’s Ag Economy Barometer survey was conducted May 13-17, 2024.

The Farm Financial Performance Index climbed to 82, an increase of 6 points compared to April. The index is based on a question that asks producers to compare their farm’s expected financial performance to the previous year. Despite this month’s improvement in the index, it remained 15 points less than at the end of 2023 – indicating producers still expect 2024 to be a more-challenging year financially than 2023.

Producer outlook regarding capital investments improved in May, but producers maintained a cautious attitude toward investments; the Farm Capital Investment Index came in at a reading of 35. Although the 4-point increase pulled the index off its all-time-worst reading of 31, this month’s survey still indicated that 77 percent of respondents feel it’s a bad time to make large investments; just 12 percent of respondents said it’s a good time to invest.

Interest rates and relatively inflated prices for farm machinery and new construction were the two primary reasons cited for this being a bad time to make large investments. Among those producers who think it’s a good time to invest, almost half said they believed because of large inventories at machinery dealers.

Producer perspective regarding farmland values changed little in May compared to a month earlier; the Short-Term Farmland Value Expectations Index increased just 3 points. Reviewing producer short-term farmland-value outlook during the past several months and comparing it to results from fall 2023 reveals a weaker outlook among producers in 2024 than in fall 2023. During the first five months of 2024, the index averaged 116 compared to an average of 124 during October-December 2023; that’s a decline of 6 percent.

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Producers who expect values to increase during the next year consistently point to non-farm investor demand and inflation as the biggest two reasons for their optimistic outlook regarding farmland. In both the April and May surveys, the question’s response categories were expanded to include energy production from wind and solar installations. Interestingly 12 percent of the bullish respondents in May pointed to energy production as a key reason for their outlook, an increase from 8 percent in the April survey.

Partly in response to tax credits included in the Inflation Reduction Act, interest among ethanol plants to pursue Carbon Capture and Storage projects has been increasing. To learn more about Carbon Capture and Storage projects, this month’s survey asked respondents if they or one of their landowners had been approached about a possible Carbon Capture and Storage project from an ethanol plant.

Seven percent of respondents said they had been in contact about a Carbon Capture and Storage project. Payment rates reported per acre varied widely, ranging from less than $26 per acre to more than $50 per acre. Future surveys will focus on obtaining more information about Carbon Capture and Storage projects.

Interest in leasing farmland for solar-energy production continues to increase. In both the April and May surveys about 20 percent of survey respondents, an increase from just 12 percent in March, said they have in the past six months discussed leasing farmland for solar-energy production.

Like April’s survey results, more than half of respondents said they were offered a long-term lease rate of $1,000 per acre or more; 27 percent said they were offered more than $1,250 per acre. Combining results from both the April and May barometer surveys, about 30 percent of respondents who have discussed leasing with a company have signed a solar-energy lease on farmland they control.

Wrapping Up

Farmer sentiment improved in May following a sharp decline in April. Increases in crop prices provided producers with a somewhat-more-optimistic financial outlook, which helped boost producer sentiment. Although sentiment and financial-performance expectations improved in May compared to April, they both remain weak from a longer-term perspective.

There was a small increase in May in the Short-Term Farmland Value Expectation Index, but sentiment about farmland values in 2024 remains weaker than in fall 2023. Interest in leasing farmland for solar-energy production continues to increase; one out of five survey respondents reported in just the past six months discussing a solar-energy lease with a company.

Visit ag.purdue.edu for more information.

James Mintert

Michael Langemeier

James Mintert and Michael Langemeier are agricultural economists with Purdue University. Each month the Ag Economy Barometer from the Purdue University-Center for Commercial Agriculture surveys 400 U.S. agricultural producers to discern attitudes and sentiments regarding the status of the U.S. farm economy. Each quarter 100 agribusiness leaders are surveyed to provide additional insight into the health of the agricultural economy. Visit ag.purdue.edu for more information.