The Purdue University/CME Group Ag Economy Barometer dropped 7 points in January to a reading of 167. While the Index of Current Conditions remained relatively flat, down 3 points to a reading of 199; the Index of Future Expectations fell 10 points to a reading of 151. Since its peak in October, the Ag Economy Barometer has fallen 9%, all attributable to weaker expectations for the future. The Index of Future Expectations has fallen 19% since October, while the Index of Current Conditions rose 12% over the same time period. The Ag Economy Barometer is calculated each month from 400 U.S. agricultural producers’ responses to a telephone survey. This month’s survey was conducted from Jan.18-22.
“The ongoing strength in the Current Conditions Index appears to be driven by the ongoing rally in crop prices, while the deterioration in the Futures Expectations Index seems to be motivated by longer-run concerns about policies that could impact U.S. agriculture in the future,” said James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture.
Producers are becoming more optimistic about short-term expectations for their farms’ financial performance, with nearly one-third expecting better financial performance in the coming year compared to 2020. When asked about the size of their operating loan, 17% of respondents expect their loan to increase this year and, of those, 20% said the increased loan is due to carrying over unpaid operating debt from the previous year. This implies that 3%-4% of those surveyed are suffering financial stress; however, that is down from 5%-6% of farms identified as suffering financial stress one year ago.
Producers continue to think now is a relatively good time to make large investments in their farming operations. The Farm Capital Investment Index held strong at its record high of 93 for the past two months. The percentage of farmers expecting to increase their machinery purchases also held at its highest level over the last year of 15% in January.
Farmers also remained bullish about short-term farmland values and cash rental rates. In January, 43% of respondents said they expect farmland values to rise over the next year (up 8 points from December) and 27% of respondents said they expect cash rental rates to rise in 2021 (up 9 points from last month).
Farmers’ weakening expectations for the future appear to be motivated by concerns about several policy issues. Confidence that the ongoing trade dispute with China will ultimately be resolved in a way that favors U.S. agriculture has waned, falling 12 points in January to 38%. There is also concern about possible changes in environmental policies with 83% of respondents expecting more restrictive regulations under the new administration (up 42 points since October). Lastly, approximately 73% and 75%, respectively, expect higher estate and income taxes over the next five years, compared to 35% and 40% who felt that way in October.
Interest in capturing carbon on farms that agree to follow specified production practices has increased as several firms have begun offering contracts to farmers. To learn more about this, the January barometer survey included questions related to carbon capture. Thirty percent of respondents to the January survey said they are aware of opportunities to receive a payment for capturing carbon. Interestingly, among the 30% aware of these opportunities, 22 % said they have actively engaged in discussions about receiving a carbon capture payment. This implies that 6%-7% of the farmers in the January survey have given consideration to contractually sequestering carbon.
Finally, to better understand the farming community’s perspective on receiving the COVID-19 vaccine, the barometer survey has been asking respondents since October, whether they plan to get the vaccine. Possible responses included, “Yes, as soon as possible;” “Yes, but not right away;” and “No.” Interest in being vaccinated quickly has been trending up since October. In January, 58% said they plan to get vaccinated as soon as possible, up from 39% in December, 36% in November, and 24% in October.