The Purdue University/CME Group Ag Economy Barometer, a monthly survey of 400 U.S. agricultural producers, dropped 16 points to a reading of 167 in November, down from its all-time high set just one month ago. This month's survey was conducted after the election from November 9-13, 2020.
According to the report authors, the decrease in sentiment was led by farmers' more pessimistic view towards the future of the agricultural economy with the Index of Future Expectations falling 30 points to a reading of 156 in November. The on-going rally in commodity prices and CFAP-2 payments continued to support producers' view of current economic conditions as the Index of Current Conditions rose 9 points in November to 187, an all-time high for the index.
"Producers were more pessimistic about future economic conditions on their farms in November than they were just a month earlier," said James Mintert, the barometer's principal investigator and director of Purdue University's Center for Commercial Agriculture. "This is the opposite of what happened following the November 2016 election. That year producers became much more optimistic about the future following the election and, in turn, that optimism about the future helped drive the Ag Economy Barometer up sharply in late 2016 and early 2017."
To learn more about what factors might be motivating the shift in producers' sentiment pre- and post-November election, a series of questions focused on producers' future expectations for environmental regulations, taxes and other key aspects of the agricultural economy, were included on both the October and November surveys. Comparing results from October to November, far more producers in November said they expect to see: 1) environmental regulations impacting agriculture to tighten over the next five years; 2) higher income tax rates for farms and ranches; 3) higher estate tax rates for farms and ranches; 4) less government support for the U.S. ethanol industry and 5) a weaker farm income safety net provided by U.S. government program policies.
Since the summer of 2019, Purdue researchers have been tracing producers' perceptions regarding the ongoing trade dispute between the U.S. and China–specifically, whether they think the dispute will be resolved soon and the outcome will ultimately benefit U.S. agriculture. In January and February of this year, 80% of survey respondents said they expected to see the trade dispute with China be resolved in a way that benefits U.S. agriculture. However, on the November survey, the percentage of farmers expecting a favorable outcome for U.S. agriculture declined to 50%, the lowest percentage recorded since the question was first included on a barometer survey. In a related question, only 44% of respondents to the November survey said they think it's likely that China will fulfill the Phase One Trade Agreement requirements, down from 59% a month earlier.
This month's report also asked farmers about their intentions on making large investments as well as their expectations for farmland values in the next 12-months and five-years.
The Farm Capital Investment Index changed little in November with a reading of 80, just 2 points below the index’s record high set back in October. However, when asked more specifically about their plans with respect to farm machinery purchases, survey respondents pulled back somewhat in November compared to October. In this month’s survey, 10% of farmers said they planned to increase their farm machinery purchases compared to a year earlier, down from 14% who planned to increase purchases back in October. At the same time, the percentage of farmers planning to keep their machinery purchases even with a year ago, fell to 53% to 50% on the November survey, while the percentage of respondents planning to reduce their purchases rose from 33% to 40%.
The survey revealed that producers’ optimistic view of current conditions on their farms is supporting their short-run perceptions about farmland values. When asked to look ahead 12-months, survey responses were virtually unchanged compared to the prior month. However, consistent with the decline in future expectations among survey respondents, there was a softening in producers’ longer-term views on farmland values. The percentage of producers expecting to see farmland values rise over the next five years declined from 59% in October to 54% in November.
The report authors said this was a much more optimistic view on farmland values than this past spring, when the percentage of producers expecting to see farmland values rise over the next five years ranged from 41-44%.