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 producer perspective regarding both the farm and production-agriculture sector’s economic health.

Producers expressed less confidence than a month earlier about current economic conditions. 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 producer expectations for the future remained strong as the Index of Future Expectations increased slightly to a reading of 155 compared to 153 a month earlier. This month’s Ag Economy Barometer survey was conducted from Dec. 9-13, 2019, and is based on responses from a nationwide survey of 400 agricultural producers.

A slim majority at 52 percent of farmers on the December-barometer survey indicated the farm’s financial performance in 2019 matched initial budget projections. In the same survey three out of 10 producers said their farm financial performance was worse than expected at the outset of the year. That was partially offset by about two out of 10 – 19 percent – of respondents indicating performance was better than expected. The varied responses to the question are indicative of the variability in economic conditions among U.S. farm operations as 2019 came to a close.

We wanted to better assess the level of financial stress among U.S. farms. We asked producers in November and again in December whether they expected the farm operating loan in 2020 to be larger than, about the same or smaller than in 2019. We followed up with respondents who indicated they expect to have larger operating loans to learn why the size of the loan is likely to increase. About one out of five farms in our surveys – 19 percent to 21 percent – expect to have a larger operating loan in 2020 than in 2019. About three out of 10 of those farm operations – 29 percent to 30 percent – indicated the reason for larger operating loans is they expect to carryover unpaid operating debt from 2019 into 2020. Carrying over unpaid operating debt from one year to the next is a sign of financial stress. Responses to those two questions suggest that about 6 percent of farms surveyed in late 2019 were experiencing significant financial stress.

The Farm Capital Investment Index changed little in December compared to November, with an index reading of 72 – an increase of 1 point from a month earlier. December’s index value of 72 left the investment index at its greatest value for 2019. The investment index was quite volatile during 2019, recording 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 than a year ago to consider making large capital expenditures on farm machinery and buildings. A year ago the Farm Capital Investment Index stood at just 51.

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 better farmland values, both in the upcoming year and the next five years, declined in December compared to a month earlier. Similarly more respondents in December said they expect future farmland values to decline than on the November survey – both in the year ahead and five years ahead. Reviewing responses to the two farmland value questions during the course of 2019 indicates that sentiment regarding the direction farmland values will take rebounded sharply from the negative sentiment expressed in May. That left expectations in December almost unchanged from the beginning of 2019.

Nearly eight out of 10 producers in our surveys expect cash-rental rates in the coming year to be unchanged from 2019. When asked about their cash-rental-rate expectations on three consecutive surveys – October through December 2019 – 78 percent 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 percent to 9 percent said they expected rental rates to increase; 13 percent to 14 percent said they expected rates to decline. That contrasts with fall 2018 when 69 percent to 70 percent of respondents expected no change in rates, 10 percent to 12 percent expected increased rental rates, and 17 percent to 21 percent of respondents expected rental rates to decrease. Overall farmers appear to be more confident than they were last year that farmland cash-rental rates will be stable.

Producers remained confident in December that the trade dispute with China will be settled soon. The percentage of producers indicating they expect a quick resolution slipped slightly to 54 percent in December from 57 percent in November. But the percentage of producers who believe it’s unlikely the dispute will be settled soon also decreased, from 38 percent to 34 percent. That leaves overall sentiment regarding the dispute’s resolution virtually unchanged. The percentage of producers who believe the dispute is likely to be resolved in a way that is ultimately beneficial to U.S. agriculture decreased 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 the question in March 2019. Except for a brief decline in May and June 2019, the percentage of producers expecting a beneficial resolution to the trade dispute has consistently remained at more than 70 percent.

Wrapping Up

Farmer sentiment drifted sideways in December as the Ag Economy Barometer registered a reading of 150 compared to 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. The Farm Capital Investment Index increased 1 point in December compared to November, leaving it at its best level of the year and well more than a year earlier.

Farmers continued to be much more optimistic about future farmland values than they were the previous spring, although they were somewhat less optimistic in December than they were in November. Compared to a year ago producers appear to be more confident that farmland cash-rental rates will remain unchanged in 2020.

Some farms are experiencing financial stress. About 6 percent of farms included in the December survey indicated they will have larger operating loans in 2020 because they expect to carryover unpaid operating debt from 2019 into 2020.

More than half the producers in our survey expect the trade dispute with China to be resolved soon. The percentage of farmers who expect the trade dispute to be resolved in a way that’s favorable to U.S. agriculture decreased in December from November. But it remained at more than 70 percent – as it has for all but two months since we first posed the question to producers in March 2019.

Visit ag.purdue.edu/commercialag/ageconomybarometer for more information.

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James Mintert and Michael Langemeier are agricultural economists with Purdue University. Each month the Ag Economy Barometer – a collaboration between Purdue University’s Center for Commercial Agriculture and the CME Group – 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.