Improved spring planting conditions, in addition to support from USDA's Coronavirus Food Assistance Program, fueled an improvement in farmer sentiment in the latest Purdue University-CME Group Ag Economy Barometer.
The Purdue University-CME Group Ag Economy Barometer rose 14 points in June to a reading of 117. The barometer’s rise was fueled by improvements in both the Index of Current Conditions, which rose to a reading of 99, 19% higher than a month earlier, and the Index of Future Expectations, which climbed to 126, 12% higher than in May.
The improvement in farmer sentiment left the Ag Economy Barometer 7% below one year earlier, while the Index of Future Expectations was 10% below its June 2019 level. The Index of Current Conditions, however, was 2% higher than in June 2019.
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 June 22-26, 2020.
Is now a good time to make large investments?
Farmers’ perspective regarding whether or not now is a good time to make large investments in their farming operation improved markedly over the last two months.
The Farm Capital Investment Index recovered to a reading of 60 in June, 10 points higher than a month earlier and 22 points higher than the low reached in April. The recovery still left the index 12 points below the 2020 high established back in February.
For the last four months, producers have been asked about their plans for farm machinery purchases. Responses to this question suggest producers’ plans for machinery purchases dipped noticeably during April and May, but recovered to their March level in the June survey, which, on the surface, appears to be consistent with the improvement observed in the investment index.
Farmers were less pessimistic about their farms’ financial performance in June than they were in April and May, but they were noticeably more negative than in early spring 2019. In June, 42% of farmers said they expected their farm’s financial performance to be worse than last year. This was down from 55% that felt that way in April and 54% that felt that way in May, but still noticeably worse than in April 2019 when 27% of respondents expected a worse financial performance for their farm than a year earlier. There was virtually no change in the percentage of farmers who expect their farm’s financial performance to improve compared to 2019. Just 12% of respondents to the June survey said they expect better financial performance in 2020 compared to 2019.
What about COVID-19?
Although farmers were still concerned about the impact of coronavirus on their farms in June, they were slightly less concerned than a month earlier. When asked about the virus’ impact on their farms’ profitability, 64% of respondents said they were either “very” or “fairly worried”, down from 71% of respondents that felt that way in May.
A large majority of farmers (73%) expressed concern about the ethanol industry’s future viability, but this was also down somewhat compared to the 81% of respondents who expressed concern in May.
The June survey provided the first opportunity to survey farmers after details of the Coronavirus Food Assistance Program were widely available. Sixty percent of farmers in the June survey said CFAP “somewhat” (53%) or “completely” (7%) relieved their concerns about the impact of COVID-19 on their 2020 farm income with just over one-fourth of respondents (26%) responding “not at all” to this question. However, nearly two-thirds (64%) of June survey respondents still said they think it will be necessary to pass another bill to provide more economic assistance to farmers in 2020, similar to May when 67% of respondents felt that way.
Producers are also changing the way they do business in response to the pandemic. Four out of ten respondents on the June survey said they have increased the amount of business they conduct online, and just over half (53%) of respondents said they are less likely to attend in-person field days or educational programs during the remainder of this year due to concerns about COVID-19.
Land values and rental rates
Farmers’ short-run outlook for land values improved markedly over the last two months. The percentage of respondents expecting land values to decline over the next 12 months fell to 21% percent in June, down from 29% in May and 35% in April. The shift in perspective on farmland values was even more pronounced when farmers were asked for their opinion on farmland values five years into the future. Fifty-five percent of respondents said they expect farmland values to rise over the next five years, up from 40% that felt that way in May.
When it comes to rental rates, 17% of producers said they planned to ask for a rent reduction next year, down from 27% a month earlier.
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