Farmer sentiment improved modestly in December as the Ag Economy Barometer increased to a reading of 174, an increase of 7 points from November. December’s sentiment improvement still left the barometer 9 points less than in October. Both the barometer’s sub-indices, the Index of Current Conditions and the Index of Future Expectations, were more in December than in November – although the current-conditions improvement was three times the size of the future-expectations increase.
The Index of Current Conditions climbed 15 points to 202 whereas the Index of Future Expectations increased by just 5 points to a reading of 161. The farm-income boost provided by the ongoing rally in crop prices appears to be the driving force behind the improvement in the Current Conditions Index and the overall improvement in farmer sentiment. The Ag Economy Barometer is calculated each month from 400 U.S. agricultural-producer responses to a telephone survey. This month’s survey was conducted Dec. 7-11, 2020.
Producers were noticeably more inclined to think now is a good time to make large investments in their farming operations than in November. The Farm Capital Investment Index increased 13 points in December to a record 93. The comparison is even more dramatic when December’s reading is compared to earlier in the year. December’s investment-index reading was 28 points more than back in August, when the crop-price rally was just beginning in earnest, and is more than double the April reading of 38. When asked more specifically about their plans for farm-machinery purchases, the percentage of farmers expecting to increase their machinery purchases in the upcoming year increased 5 points to 15 percent in December, while the percentage expecting to reduce their purchases declined by the same amount.
The improvement in farmer sentiment was reflected in a noticeably more-bullish perspective regarding farmland values. In December producers were more optimistic that farmland values will increase during both short-term – 12 months – and longer-term – five years – than in November, and even more so when compared to farmland-value expectations from earlier in the year. The percentage of farmers expecting farmland values to increase during the next year increased to 35, an increase from 26 percent a month earlier. Producers were even more optimistic regarding longer-run perspective on farmland values, with a life-of-survey record 65 percent of farmers saying they expect farmland values to increase during the next five years, which was 11 points more than in November.
The December survey also included a question regarding producer expectations for farmland cash-rental rates in 2021 compared to 2020. In December there were 18 percent of respondents who said they expected cash-rental rates to increase in 2021, which was double the percentage who believed that in August and September. But it was 20 points less than in October, the previous time that question was posed. The sentiment shift from October to December was primarily the result of a shift toward expecting rates to remain about the same as in 2020. Examining responses from August through December, it’s clear that downward pressure on cash-rental rates has largely evaporated. In August there were 17 percent of respondents who said they expected cash-rental rates to decline, whereas in December just 5 percent of farmers in our survey said they expected to see reduced rental rates in the upcoming year.
U.S. exports to China have increased substantially in recent months, especially for corn and soybeans. In turn the increase in exports has been key to the improvement in crop prices. Despite that producers have become less optimistic that the trade dispute with China will be resolved in a way that’s beneficial to U.S. agriculture. For example in first-quarter 2020 an average of 76 percent of respondents thought the trade dispute’s ultimate resolution would favor U.S. agriculture. In the spring quarter, that average declined to 62 percent and in December it decreased further, to just 47 percent.
Producers also became somewhat less optimistic about U.S. agriculture’s trade prospects as year-end approached. In the three-month period from August through October, an average of 63 percent of farmers in our survey said they expected U.S. ag exports to increase during the next five years. But ag-trade expectations were less optimistic in November and December, with an average of just 52 percent of respondents expecting to see growth in U.S. ag exports during the upcoming five years.
On the December survey farmers continued to express concerns following the November election about several key policy issues affecting agriculture. More than 80 percent of farmers in the December survey said they expect environmental regulations to become more restrictive, compared to 41 percent who believed that in October. More than 70 percent of producers expect to see more income and estate taxes compared to 35 and 40 percent, respectively, who believed that in October. One-third of farmers said they expect the farm-income safety net to weaken compared to 18 percent who believed that in October. And about one-fourth of producers said they expect government support for the ethanol industry to weaken, compared to 17 percent who believed that in October.
Farmer sentiment improved modestly in December, primarily as a result of farmer perception that current conditions on farming operations improved compared to a month earlier. Although the Ag Economy Barometer increased in December, it remained 9 points less than its October reading. Producers were markedly more inclined to say it’s a good time to make large investments in farming operations than a month earlier, as the Farm Capital Investment increased 13 points to a life-of-survey record reading of 93. Their optimism was also reflected in their expectations for farmland values; the percentage of farmers who expect farmland values to increase during the next five years increased to a record of 65 percent. Comparing survey results from before the November election to the post-election time frame, there continues to be less optimism following the election about future ag exports – and more concerns about increasing environmental regulations and prospects for more taxes. Additionally the percentage of producers concerned that the farm-income safety net will weaken remained more post-election than before the election, as did the percentage of farmers expecting government support for the ethanol industry to decline.
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.