The Ag Economy Barometer dipped slightly in September to a reading of 121, a decrease of just 3 points from August when the index stood at 124. Although the barometer’s decline was small, there was a relatively large sentiment shift among ag producers. They were noticeably more pessimistic about current conditions on their farms and in the U.S. ag economy, compared to one month earlier. But they were somewhat more optimistic about future economic conditions compared to one month earlier.

The Index of Current Conditions declined from a reading of 122 in August to 100 in September. That was in contrast to the Index of Future Expectations, which actually increased 6 points compared to August. The September reading was 131.

The Ag Economy Barometer is based upon results from a nationwide telephone survey of 400 U.S. crop and livestock producers. This month’s survey was conducted Sept. 9-13.

Concerns about current economic conditions on farms spilled into producer perspective regarding making large investments in farming operations. The Farm Capital Investment Index, which is based upon a question posed to farmers each month regarding the advisability of making large investments in their farming operations in items such as machinery or buildings, declined for the second month in a row to 47. That was a decrease of 9 points from August – and 20 points less than the Farm Capital Investment Index’s best reading of this calendar year, observed in July when crop prices were almost at the 2019 peak.

Producer expectations for farmland values decreased in September compared to August; the 12-month and five-year indices of farmland values both weakened. When asked to look ahead both 12 months and five years, the percentage of farmers expecting decreased farmland values increased modestly. The percentage of farmers expecting better values decreased, which decreased both indices slightly.

As crop-growing conditions improved this season, producer short-run perspective regarding the profitability of crop production changed significantly. Periodically we ask farmers if they expect profitability in crop production to improve, diminish or stay the same during the next 12 months. When we posed that question in May, at a time when concerns about delayed planting were increasing and crop prices were depressed, farmers had an extremely negative outlook – with 41 percent of respondents telling us they expected profitability to decline during the next year.

When we next posed that question in August, producer perspective was starting to shift. About one-third or 34 percent of respondents still said they expected profitability to decline. In September producer response shifted again, with just one out of five producers or 21 percent telling us they expected profitability to decline during the next year. When considered jointly with this month’s decline in the Index of Current Conditions, that could be a signal that growers expect better times in 2020 compared to 2019. That’s possibly because they are looking forward to a return to more-normal growing conditions and crop production in 2020.

We continue to monitor producer perspective on the trade dispute and tariff battle with China. Interestingly the percentage of producers who expect the dispute to be settled soon increased during the summer, increasing from just 22 percent in July to 41 percent in September. At the same time the percentage of farmers who expect a favorable outcome to the trade dispute remained at more than 70 percent throughout the summer, after decreasing to 65 percent in May.

During late summer and fall many farmers who rent cropland discuss rental arrangements with landowners, so we posed several questions to learn more about rental arrangements. Two-thirds of the farmers in our survey indicated they rent cropland as part of their farming operation. The most common rental arrangement was cash rent at 73 percent of respondents, followed by share rent at 18 percent of respondents and flexible cash rent at 9 percent of respondents. Of the farmers who cash-rent cropland, 63 percent said that more than 75 percent of their rented cropland is cash-rented – confirming the importance of cash-rental rates for farm profitability.

Wrapping Up

The Ag Economy Barometer decreased in September as producers became more pessimistic about current economic conditions on their farms. Concerns about current economic conditions led producers to be less inclined to think now is a good time to make large investments in their farming operations. The Farm Capital Investment Index declined 9 points to a reading of 47, which was 20 points less than in July. Producers were slightly more pessimistic about farmland values during both the coming 12 months and the next five years than they were in August.

But fewer farmers told us they expected crop profitability to decline in the upcoming year than when we posed the same question this past spring and earlier this summer. Taken in context with the decline in the Index of Current Conditions, it could be that more farmers expect growing conditions to improve in 2020 compared to 2019. That would lead to stronger financial performance next year for many farming operations.

Finally more farmers are optimistic the trade dispute with China will be resolved soon than when surveyed earlier this summer. But the percentage of farmers who expect the dispute to be resolved in a way that is favorable to U.S agriculture remained at more than 70 percent for the third month in a row.

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.