January’s boost in optimism erodes quickly, suggesting financial stress my be growing.

March 6, 2019

3 Min Read
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Uncertainty looms behind a weakened Purdue University/CME Group Ag Economy Barometer reading in February, with producers showing less optimism about current conditions and the commodity price outlook. The barometer, which is based on a survey of 400 U.S. agricultural producers, declined seven points to a reading of 136, down from 143 in January.March 19 ag economy barometer.png

"Last month, we saw a significant boost in optimism among agricultural producers after the announcement of the second round of [Market Facilitation Program] payments; however, it appears the positive impact eroded quickly," said James Mintert, the barometer's principal investigator and director of Purdue University's Center for Commercial Agriculture. "Compared to responses from a year ago, fewer farms said they expect their operation to grow in the future, which could be a sign of increasing financial stress. We're also seeing a growing number of farms concerned about marketing risk, ranking it as the biggest risk facing their operations."

The monthly survey includes measures of producer sentiment toward current conditions and future expectations. In February, both indexes declined from their January reading. The Index of Current Conditions saw the biggest drop, down from 132 to 119, whereas the Index of Future Expectations weakened slightly, down from 148 to 145.

Last summer, the tariff battle disrupted commodity markets, and as a result, producers' perspective on whether now is a "good" time or a "bad" time to make large farm investments has significantly fluctuated. From January 2018 through June 2018, before the trade disruptions emerged as a major market factor, the Large Farm Investment index averaged a reading of 65. However, since that time, the index has had an average reading of 53 points, and in February 2019 alone, the index fell to 50, down 12 points from January, as uncertainty about commodity prices continues to make farmers wary of large investments in their operations.

Additionally, when producers were asked whether they have plans to grow or increase the size of their current operation in 2019, 50% of respondents said they either "have no plans to grow" or "plan to reduce in size," compared to 39% in 2018. Last month, when 25% of farmers surveyed indicated that they expected to take out a larger operating loan in 2018 versus 2019, a follow-up question found that 27% of those farms were taking out larger loans due to unpaid operating debt carryover, suggesting that they were experiencing financial stress.

In February, producers were slightly more optimistic about evaluating farmland as a long-term investment and the future growth of agricultural exports, yet they remain concerned about risk. When asked what type of risk was most critical to their farming operation, producers overwhelmingly chose marketing risk (56%) over both financial (27%) and production (17%) risk, which explains their uncertainty regarding the commodity price outlook.

Spring planting

This month’s survey also asked producers who planted soybeans in 2018 what their plans are with respect to soybean acreage in 2019. More than two-thirds of soybean growers said their acreage would be the same as in 2018, while 9% said they plan to increase their soybean acreage. However, 23% indicated that they plan to reduce their soybean acreage compared to last year. Those who plan to reduce soybean acreage were asked by how much. Two-thirds (66%) said they plan to reduce acreage by more than 10%. This compares to a response rate of 59% to this same question in January 2019 and 60% in November 2018.

Read the full February “Ag Economy Barometer” report at http://purdue.edu/agbarometer.

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