The December reading of the Purdue University/CME Group Ag Economy Barometer revealed that agricultural producers have reduced optimism heading into 2018. The barometer, which is based on a monthly survey of 400 agricultural producers from across the country, fell to 126 in December, a two-point drop from 128 in November and the second straight month of decline in producers' sentiment toward the health of the agricultural economy.
The decline was driven by producers' thoughts on the future, as measured by the Index of Future Expectations – one of the barometer's two sub-indices. The Index of Future Expectations fell seven points in December to 120. The index has fallen 15 points just since October.
"Two specific survey questions capture the recent erosion of producers' forward-looking sentiment," said James Mintert, the barometer's principal investigator and director of Purdue University's Center for Commercial Agriculture. "The share of producers expecting 'better' financial positions for their farms fell to just 20% in December, while the share expecting 'worse' financial positions climbed to 30%. Both of these responses are the least optimistic levels in more than a year."
A similar trend occurred with regard to the overall agricultural economy, wherein 63% of respondents said they expect "bad times" over the next 12 months.
In sharp contrast to the increased pessimism about the future, however, producers have become more optimistic about current economic conditions in U.S. agriculture. The Index of Current Conditions jumped 10 points to 139. That reading was supported by subtle changes in producers' thoughts about large farm investments, Mintert said.
The investigators said a paradox has basically developed in recent months: Producers’ optimism about current economic conditions has remained strong and arguably even has strengthened, while optimism about the future has faded to a 14-month low.
"When asked if now is a good time to buy large investment items such as buildings or machinery, 32% of respondents said it was," Mintert said. "That's marked improvement from just 21% of respondents who thought the timing was right for large investments back in August 2017. The August reading was a survey low, while the December reading is the second highest."
Despite that, 62% of respondents still believe now is a bad time for large farm investments.
A new generation
Given the nature of farming, a farm operator’s perspective on bringing a new generation into the operation provides insights into long-run expectations for the farm economy. In December, producers were asked if, given the current agricultural climate, they would consider now a good time to bring a new generation into a family farming operation. The results showed that respondents were split on the question, with a slight majority (51%) responding “yes.” This is essentially unchanged from the results when the question was last posed in December 2016.
As a follow-up question, respondents were also asked if they believe five years from now would be a more favorable time to bring a new generation into the operation. In December 2017, 56% said they expect that conditions will be more favorable in 2022 than now. This represents a drop from when the question was posed in December 2016, when 62% believed five years out would be a more favorable time to bring a new generation into a family farming operation.
This seems to be consistent with the erosion in producers’ confidence about the future economic conditions in agriculture, the investigators noted.