The Purdue University/CME Group Ag Economy Barometer rebounded sharply in January to a reading of 143, a 16-point improvement compared to December. It’s the best barometer reading since June 2018.
The January survey provided the first opportunity to measure farmer sentiment following the U.S. Department of Agriculture announcement that the second round of Market Facilitation Program payments would be made to soybean producers. It was also the first survey taken following passage of the Agricultural Improvement Act of 2018 – the 2018 farm bill. Both appear to have helped boost farmer sentiment. In particular, total Market Facilitation Program payments – first and second installments combined – to U.S. soybean farmers were estimated by the USDA to be about $7.3 billion. That provides a significant revenue boost to most Corn Belt farming operations.
The increase in the barometer from December to January was driven by increases in both of the barometer’s sub-indices. But the biggest improvement was in the Index of Current Conditions, which increased to a reading of 132 from 109 a month earlier. In comparison the Index of Future Expectations increased to 148 in January, 13 points more than its December reading of 135. It’s the best value since February 2017. The rise in the Current Conditions Index took it back to about its June 2018 level.
Producers indicated they were more inclined to view making large investments in their farming operations favorably on the January survey than they did a month earlier. The Large Farm Investment Index increased to 62 in January, 11 points more than its December value. It’s the best reading for the investment index since June 2018. Although the index was still less than a year earlier in January, it has increased substantially during the past several months. The index bottomed out at 42 in September and has increased every month since then, except December when a modest decline occurred.
Although producers held a more favorable view of making investments in machinery and buildings in January than in late 2018, that perspective didn’t seem to carry over into their view of farmland values. When asked for their expectations for farmland values in the upcoming 12 months, producer attitude actually weakened slightly compared to November 2018 – the last time farmland-value questions were posed. The percentage expecting greater values has declined from 17 percent to 13 percent; the percentage expecting lesser prices drifted to 21 percent from 22 percent. Producer longer-term view of farmland values also weakened compared to November. The percentage expecting greater values declined 2 points to 48 percent; the percentage expecting lesser values increased 4 points to 13 percent.
What’s going to happen with respect to trade negotiations continues to weigh heavily on U.S.-farmer minds. In January producers indicated they were a bit more optimistic about the future for agricultural trade – 63 percent responded they expect U.S. agricultural exports to increase during the next five years, compared to 59 percent in December. More significantly the percentage of farmers expecting ag exports to decline during the next five years declined to just 7 percent, the least percentage since we first posed this question in May 2017. That number compares to 26 percent a month earlier.
There continues to be a lot of uncertainty regarding a possible shift in 2019 in acreage between corn and soybeans. We asked producers who planted soybeans in 2018 what their plans are for 2019. Of respondents who planted soybeans in the previous year, 25 percent said they plan to reduce their soybean acreage in 2019. Two-thirds or 67 percent expect no change in their soybean acreage. Among those soybean farmers who expect to reduce soybean acreage, 58 percent of them expect to reduce their soybean acreage by more than 10 percent whereas the remaining 42 percent expect their acreage decline to be 10 percent or less.
Looking ahead to the rest of 2019, producers indicated that 2019 is poised to be a challenging year for many farm operations. A majority of producers at 57 percent indicated they expect farm operating expenses to increase this year, with 38 percent expecting operating expenses to be about the same – both compared to 2018. When asked if they expect livestock and grain prices to increase to levels that will substantially improve the farm financial situation in the next year, 70 percent of respondents said no. More specifically, when asked about their soybean-price expectations, four out of 10 respondents or 43 percent said they expect November 2019 soybean futures to fall to less than $8.50 sometime between mid-January and summer 2019. Looking at the farm’s financial situation, 25 percent of respondents said they expect to have a larger farm-operating loan in 2019 than in 2018. Among those expecting to have a larger operating loan, more than half at 53 percent said it was because input costs increased. But about one-fourth or 27 percent said it was because they were carrying over unpaid operating debt from prior years – suggesting that their farm operation is under financial stress.
Producer sentiment improved markedly in January compared to a month earlier. Producer view of current conditions and expectations for the future both improved. But the large improvement in farmer perspective concerning current conditions was the biggest driver behind the Ag Economy Barometer’s increase. The USDA’s Market Facilitation Program payments and the passage of the 2018 farm bill both took place in December but after the December survey was conducted. Their boost in revenue was likely responsible for some of the improvement in farmer sentiment in this barometer. The sentiment improvement spilled over into a more-optimistic perspective concerning making large investments in items like machinery and buildings. The Large Farm Investment Index increased 11 points in December to reach its best level since June 2018. Although producers looked more favorably upon investing in machinery and buildings, that didn’t carry over into their views regarding future farmland values. That weakened somewhat during both a 12-month and five-year time horizon.
Looking ahead to plans for 2019, nearly one-fourth of farmers who planted soybeans in 2018 plan to reduce their soybean acreage this year whereas just 8 percent plan to increase their soybean acreage. Among those who plan to reduce acreage, 58 percent plan to reduce their acreage by 10 percent or more. That was a lesser percentage than recorded on the November 2018 survey when 69 percent of growers planning to reduce soybean acreage said they expected to reduce soybean acreage by 10 percent or more.
Visit ag.purdue.edu for more information.