The Ag Economy Barometer is an agricultural-producer sentiment measure based upon a nationwide mid-month survey of 400 U.S. agricultural producers. It declined again in May.
The May barometer reading of 101 was 14 points less than a month earlier and was the worst barometer reading since October 2016. For the second month in a row the decline in farmer sentiment was attributable to big declines in two indexes.
- The Index of Current Conditions decreased from 99 in April to 84 in May.
- The Index of Future Expectations decreased from 123 in April to 108 in May.
This month’s declines in the barometer and in its two sub-indices effectively erased all the large improvement in farmer sentiment that took place following the November 2016 election. This month’s survey was conducted in mid-May, in the midst of a wet spring planting season. But it was conducted prior to the U.S. Department of Agriculture’s announcement that a second round of trade-dispute payments would be made in 2019 to U.S. crop producers.
Agricultural-producer sentiment regarding the advisability of making large investments in their farming operations is measured by the Large Farm Investment Index. It collapsed to a reading of 37 in May, 11 points less than in April and 23 points less than a year earlier. The Large Farm Investment Index’s May reading was its worst value since data collection began in fall 2015. Although the Large Farm Investment Index has ebbed and flowed during the past year, it has been decreasing since the start of 2019, when the index stood at 62.
Farmer sentiment regarding farmland values provides insight into both their short-run and longer-term views of the agricultural economy. Since the beginning of 2019 the percentage of farmers who expect farmland values to decline during the course of the upcoming year has been increasing. It increased from 21 percent in January to 25 percent in March – and most recently to 30 percent in May.
The increasingly negative short-run outlook for farmland was attributable to a shift away from an expectation that farmland values will remain unchanged. Instead the outlook has changed toward an expectation for decreased values.
Sentiment regarding the longer-run movement in farmland values has also waned, especially since March. In May just 39 percent of producers said they expect farmland values to increase during the next five years. That compares to 48 percent who expected increased values on the March survey. The shift in longer-run sentiment was primarily attributable to movement away from expecting farmland values to increase. Instead producers expect farmland values to remain about the same.
So from both a short-run and longer-run perspective, farmers appear to be less optimistic about future farmland values than they were in early 2019.
Periodically we ask producers whether they expect the farmer-equity position to improve, diminish or stay the same during the next 12 months. Responses to that question provide a guide with respect to farmer overall assessment of profitability in the production-agriculture sector. Throughout the history of our surveys, farmers have not been optimistic regarding future changes in farmer-equity position. More than one-third of respondents consistently expect farmer equity to decline.
With that caveat in mind, producers exhibited a noticeably more negative view in May than the previous time we posed that question in February. Of May respondents 55 percent told us they expect farmer equity to decline during the next year. That’s a big increase from the 39 percent who felt that way in February, and from the 35 percent who felt that way a year earlier.
One source of anxiety for U.S. farmers continues to be uncertainty about agricultural trade. During the past three months we’ve been asking survey respondents two questions about the trade dispute with China. We wanted to ascertain how optimistic or pessimistic they are regarding future trade prospects.
The first question focuses on the percentage of producers who expect the soybean trade dispute with China to be resolved by July 1. That percentage has declined rapidly.
On the March survey 45 percent of respondents expected the dispute to be resolved by July 1.
On the April survey that percentage declined to 28 percent.
On the May survey just 20 percent of farmers in our survey said they expect the dispute to be resolved by July 1.
The second question we have been tracking with respect to trade is focused on whether or not producers expect the trade dispute with China to ultimately be resolved in a way that benefits U.S. agriculture.
In March about three-fourths at 77 percent of respondents told us they expected a favorable outcome to the trade dispute.
In April that percentage declined to 71 percent in April.
In May about two-thirds at 65 percent of respondents said they still expect a favorable outcome for U.S. agriculture.
For the second month in a row agricultural-producer sentiment experienced a big decline as the Ag Economy Barometer fell 14 points in May – to a reading of 101. The sentiment decline was again driven by weakening perceptions of both current economic conditions and expectations for the future. Producer sentiment overall was the most negative we have observed since October 2016. The Large Farm Investment Index fell to its worst level since data collection began in fall 2015. That indicates farmers are reluctant to make major investments in their farming operations.
Farmer expectations for both short-run – 12 months ahead – and longer-run – five years ahead – changes in farmland values also weakened, especially when compared to their perspectives in early 2019. And producer confidence that the trade dispute with China will be resolved quickly is waning. They were also less confident that the trade dispute would ultimately be resolved in a way that favors U.S. agriculture than they were earlier in the year.