By James Mintert and Michael Langemeier
Increasing concerns about future economic conditions drove the Ag Economy Barometer down three points from 136 in February to 133 in March.
The Index of Future Expectations declined to 139 in March compared to an index value of 145 in February. This contrasted with producers’ Index of Current Conditions, which at a reading of 120, was virtually unchanged from February. Although the Future Expectations Index declined in March, it is still 15 points stronger than a year prior. In contrast, the Current Conditions Index is 14 points below its March 2018 value.
The Large Farm Investment Index rebounded during March to a reading of 57 compared to a value of just 50 one-month earlier. This month’s value was the second highest reading for the Investment Index since last summer when it was in the low 60s. Although the Investment Index improved, this more optimistic attitude did not carry over into producers’ perspective on farmland values. The percentage of producers expecting farmland values to decline over the next year increased from 20% in February to 25% in March. Similarly, the percentage of producers expecting lower farmland values 5 years into the future rose to 15% up from 11% one month earlier.
The level of financial stress in the production agriculture sector continues to be of concern, prompting us to pose several questions to producers on this topic.
In March, approximately 6 out of 10 (59%) of producers said they expect their farm’s 2019 financial performance to be about the same as in 2018, 21% expect “better than” performance and 20% expect “worse than.”
When asked whether they are more or less optimistic about their farm’s financial outlook today compared to a year earlier, 52% of respondents indicated they are less optimistic about their farm’s financial future now than a year earlier.
Producers were asked whether or not they expect their operating debt to increase, decrease, or remain about the same in 2019 as in 2018. Respondents who indicated they expect their farm’s operating debt to increase received a follow-up question, asking why they expected their operating debt to increase.
In March, 22% of farms surveyed said they expect to have a larger operating loan in 2019 than in 2018 and 21% said it was because they were carrying over unpaid operating debt from a prior year. These results were similar to what we observed in January 2019.
In January, 25% of the farms in the sample indicated they were going to have a larger operating loan in 2018 than in 2019 and 27% indicated it was because they had to carryover unpaid operating debt from prior years.
Combined, these survey results suggest that 5% to about 7% of U.S. farms are under some degree of financial stress, using the need to carryover unpaid operating debt as an indicator of financial stress.
Producers were asked if they expect agricultural exports to increase, decrease or remain the same over the next five years. Just 8% of producers expect ag exports to decrease whereas 68% said they expect ag exports to increase, which was the most optimistic perspective on ag exports since we first posed this question in May 2017.
Producers were asked whether they think the trade dispute with China will ultimately be resolved in a way that benefits U.S. agriculture and they responded overwhelmingly positive, with 77% confident the dispute will be resolved satisfactorily. Respondents were asked if they think it is likely or unlikely that the soybean trade dispute with China will be settled by July 1. More than half of respondents, 55%, indicated they think it is unlikely the dispute will be settled by July 1. So, producers are cautiously optimistic about future growth in ag exports, and over three-fourths of producers ultimately expect the U.S. trade dispute with China to be resolved in a way that benefits U.S. agriculture, but less than half of producers expect the trade dispute to be resolved before July 1.