Producer sentiment regarding current economic conditions of the agricultural economy dropped 12 points in December, according to the Purdue University/CME Group Ag Economy Barometer. The Index of Current Conditions registered a reading of 141, down from 153 in November. Meanwhile, the Index of Future Expectations remained strong, up 2 points in December, to a reading of 155.
The Ag Economy Barometer, which encompasses results from both indices and is based on a mid-month survey of 400 U.S. crop and livestock producers, dropped 3 points in December to a reading of 150, down from 153 in November.
“Agricultural producers in December were less optimistic about current economic conditions on their farms than a month earlier but remained optimistic about future economic conditions,” said James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture.
In the December survey, producers were asked whether their farm’s 2019 financial performance was better, as expected, or worse than their initial budget projections. Just over half (52 percent) stated that their initial projections matched their farm’s financial performance; 30 percent stated it was worse, and 19 percent stated it was better than expected.
“These results are indicative of the variability in economic conditions on U.S. farm operations, with some farms performing better than expected and others worse than expected,” Mintert said.
To better assess the level of financial stress among U.S. farms, producers were asked in both the November and December surveys whether they expected their farm’s 2020 operating loan to be larger, about the same, or smaller than in 2019. In a follow-up, those who expected a larger loan were asked why. Approximately 1 of 5 farmers on the two surveys indicated that they expect to have a larger operating loan in 2020 compared to 2019 and, of those, 3 of 10 indicated that the reason is unpaid operating debt from 2019. Carrying over unpaid operating debt from year to year is an indicator of financial stress, and these results suggest that about 6 percent of farms surveyed for the Ag Barometer in late 2019 were experiencing financial stress.
Most producers surveyed said they expect stable cash rental rates in 2020. From October through December, producers were asked whether they expect changes in rental rates in the coming year. More than three-quarters of survey respondents did not expect a change; between 8-9 percent expected a rise, and between 13-14 percent expected a decline.
Producers remained relatively optimistic that a resolution to the ongoing trade dispute with China will take place soon and that the outcome of the dispute will benefit U.S. agriculture. In December, 54 percent of respondents stated they expect a resolution soon. Although this is down from 57 percent in November, it was still the second most positive response to this question since last March. The percentage of producers who expect the outcome will ultimately favor U.S. agriculture dropped to 72 percent, down from 80 percent in November. Since this question was first posed in March 2019, over 70 percent of respondents have, on average, indicated they expect a favorable outcome to the trade dispute for U.S. agriculture.
Read the full December Ag Economy Barometer report. This month’s report also looks at producers’ views on future farmland values, both 1 and 5 years out, as well as whether they think now is a good time to make large capital expenditures on farm machinery and buildings. The site also offers additional resources – such as past reports, charts and survey methodology – and a form to sign up for monthly barometer email updates and webinars.
Each month, the Purdue Center for Commercial Agriculture provides a short video analysis of the barometer results.
Source: Purdue University/CME Group
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<p>The Ag Economy Barometer drifted sideways in December, to a reading of 150 compared to 153 in November. Although the barometer changed little in December, there was a shift in producers’ perspective regarding both their farms’ and the production ag sector’s economic health.</p>
<p>This month’s Ag Economy Barometer survey was conducted from December 9-13, 2019 and is based on responses from a nationwide survey of 400 agricultural producers.</p>
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<p>Producers expressed less confidence than a month earlier about current economic conditions as the Index of Current Conditions registered a reading of 141, a decline of 12 points compared to November’s index value of 153. In contrast, producers’ expectations for the future remained strong as the Index of Future Expectations rose slightly, to a reading of 155 compared to 153 a month earlier.</p>
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<p>The Farm Capital Investment Index changed little in December compared to November with an index reading of 72, up 1 point from a month earlier. December’s index value of 72 left the investment index at its highest value for 2019.</p>
<p>The investment index was quite volatile during 2019, ranging from a low of 37 in May before recovering to December’s peak value. December’s reading suggested that, despite the decline in the Index of Current Conditions, producer optimism was strong enough that farmers were more willing to consider making large capital expenditures on farm machinery and buildings than a year ago when the Farm Capital Investment Index stood at just 51.</p>
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<p>Farmers surveyed in December were somewhat less optimistic about the future direction of farmland values than indicated on November’s survey. The percentage of respondents who expect higher farmland values, both in the upcoming year and the next 5-years, declined in December compared to a month earlier.</p>
<p>Similarly, more respondents in December said they expect future farmland values to decline, both in the year ahead and 5-years ahead, than on the November survey. Reviewing responses to the two farmland value questions over the course of 2019 indicates that sentiment regarding the direction farmland values will take rebounded sharply from the very negative sentiment expressed in May, leaving expectations in December nearly unchanged from the beginning of 2019.</p>
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<p>Nearly 8 out of 10 producers in our surveys expect cash rental rates in the upcoming year to be unchanged from 2019. When asked about their cash rental rate expectations on three consecutive surveys (October through December 2019), 78 to 79 percent of respondents said they expected no change in rental rates in the year ahead. On the same set of surveys, just 8 to 9 percent said they expected rental rates to rise and 13 to 14 percent said they expected rates to decline.</p>
<p>This contrasts with fall 2018 when 69 to 70 percent of respondents expected no change in rates, 10 to 12 percent expected higher rental rates, and 17 to 21 percent of respondents expected rental rates to decline. Overall, farmers appear to be more confident that farmland cash rental rates will be stable than they were last year.</p>
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<p>Producers remained confident in December that the trade dispute with China will be settled soon. Although the percentage of producers indicating that they expect a quick resolution slipped slightly to 54 percent in December from 57 percent in November, the percentage of producers who believe it’s unlikely the dispute will be settled soon also fell from 38 percent to 34 percent, leaving overall sentiment regarding the dispute’s resolution virtually unchanged.</p>
<p>The percentage of producers who feel the dispute is likely to be resolved in a way that is ultimately beneficial to U.S. agriculture dipped in December to 72 percent from 80 percent in November. The percentage of producers expecting a favorable resolution has averaged 73 percent since we first posed this question in March 2019.</p>
<p>Except for a brief decline last May and June, the percentage of producers expecting a beneficial resolution to the trade dispute has consistently remained above 70 percent.</p>