Growing pains: Farmers thinking twice before expanding operation

WEST LAFAYETTE, Ind. — While farms are becoming fewer, larger and more productive on average, the long-term future of farming is increasingly uncertain as development pressures, rising land costs and an aging producer population reshape the landscape.

The result is a changing agricultural economy that looks very different depending where you stand.

Results from the Purdue-CME Group Ag Economy Barometer show a clear divide among producers, said Joana Colussi, research assistant professor in the Department of Agricultural Economics at Purdue University.

About 63% of survey respondents said that they don’t expect their farm operation to grow over the next five years, while 37% said that they do expect their operation to expand.

“Producers who expect their farms to grow generally reported a stronger sentiment than those who don’t expect to grow,” Colussi said.

For example, the Farm Capital Investment Index was higher among growth-oriented farmers. This index measures whether producers think now is a good time or a bad time to make large investments, such as machinery and buildings.

“Even though both groups remained cautious, producers who expect to expand were somewhat more positive about making capital investments,” Colussi said. “We see a similar result when looking at the financial performance expectations.”

The Financial Performance Index was lower among farmers that don’t expect to grow, suggesting that these producers were more concerned about their farm’s financial outlook over the next 12 months.

Input costs were another important factor. High input costs were the top concern for both groups, but they were especially important among farmers that don’t expect to grow.

“This implies that elevated production costs may be limiting producers’ willingness or ability to expand,” Colussi said.

“When margins are narrow and costs remain high, producers may be less likely to take on additional acres, invest in new equipment, or explore other growth opportunities.”

Growth, Debt And Opportunity

Risk attitudes also differed between the two groups. Producers who don’t expect their farms to grow were more likely to describe themselves as risk-averse.

“That’s important because growth often requires taking on some level of risks, whether by using debt, renting additional land, buying machinery, hiring labor, or making changes in the business,” Colussi said.

“By contrast, producers who expect to grow appeared somewhat more willing to manage risk as they look for long-term opportunities.”

The survey also found differences in goals and outlook.

“Farm transition was one important goal for both groups, but producers expecting growth were more likely to focus on long-term sustainability rather than short-term profit,” Colussi said.

“They were also more likely to say they see opportunities to expand in the next five years and were more optimistic about the direction of U.S. agriculture.”

One interesting result is that the two groups did not differ much when asked whether they have low per-unit costs compared to their most efficient competitors. About 60% of respondents in both groups agreed or strongly agreed with that statement.

“That indicates that perceived cost position alone does not fully explain growth expectations,” the research assistant professor said.

“Instead, growth decisions appear to reflect a broader mix of financial performance, investment confidence, risk tolerance, input cost concerns and expectations about future opportunities.”

The decision to grow is not just about farm size, Colussi said. It is also about confidence, financial capacity, risk management and whether producers see enough opportunity to justify expansion, she explained.

“In the current environment, many producers remain cautious. High input costs, lower margins and uncertainty about the future are putting pressure on growth expectations,” she said.

“At the same time, a smaller but important group of farmers continues to see opportunities to expand, especially when they have stronger financial expectations and a long-term strategy focus.”