Farmers are increasingly pessimistic about financial conditions in coming months, with Purdue’s Ag Economy Barometer dropping by nearly 18 percent since last January. A post-election surge of optimism — a farm-state version of the “Trump bump” in the stock market — propelled Purdue’s gauge of producer sentiment to a record-setting peak the same month that President Trump took office.
After starting the year at a reading of 153, its highest ever, the index fell to 126 at the end of 2017, a decline of 27 points. “A paradox has developed in recent months,” said Purdue. “Producers’ optimism about current economic conditions has remained strong, and arguably even strengthened, while optimism about the future has faded to a 14-month low.”
The USDA estimated that farm income, a sector-wide figure, rose modestly in 2017, a sign of stability after three years of steep declines triggered by the collapse of commodity prices. Still, farm income this year would be the lowest of the decade. At a meeting this week, the largest U.S. farm group celebrated the enactment of tax cuts and a regulatory rollback. “Official Washington feels more like a partner than it did just a short time ago,” said Zippy Duvall, president of the American Farm Bureau Federation.
For this year, the USDA projects marginal improvement in farm-gate prices for corn, wheat, soybeans, and upland cotton, the four most widely planted crops. Growers sowed 238.8 million acres of those four crops last year and should nearly match that figure this year, according to USDA projections, which call for a record soybean crop in 2018. Cattle and hog prices are projected to soften this year.
In its most recent Ag Finance Databook, the Federal Reserve pointed to “a persistently weak agricultural economy” that has forced farmers and ranchers to rein in spending. “Some borrowers may find it increasingly difficult to obtain credit amid low profits,” said the Databook, which the Fed produces quarterly. The USDA and the Fed will update their outlooks in coming weeks.
Based on its monthly interviews of 400 producers, Purdue said there was a divergence in the two elements it combines to create the Barometer. The index of current conditions is up; the reading of 139 is the second highest since the Barometer began in October 2015. Yet the index of future expectations — what producers expect a year from now — stood at 120, the lowest reading since October 2016, just before the general election.
“The share of producers expecting ‘better’ financial conditions for their farms fell to 20 percent in December, while the share expecting ‘worse’ financial conditions climbed to 30 percent. Both of these sentiment measures are at the most extreme levels recorded in over a year,” said Purdue. There was a similar darkening of the mood about the outlook for the agricultural economy in the year ahead — more farmers expecting bad times and fewer saying there would be good times.
Despite that, farmers were slightly more likely than a year ago — 32 percent vs. 27 percent — to say that now is a good time to make large investments. “It appears that … producers’ stronger impressions of current economic conditions are outweighing their increasing concerns about future conditions, both on their own farms and in the overall agricultural economy,” said Purdue.
For Purdue’s monthly list of Ag Economy Barometer readings, click here.