WEST LAFAYETTE, INDIANA — The Purdue University/CME Group U.S. Ag Economy Barometer rebounded sharply in January to a reading of 143, a 16-point improvement compared to December and the highest barometer reading since June 2018.
The January survey, released on Feb. 5, provided the first opportunity to measure farmer sentiment following the USDA’s announcement that the second round of Market Facilitation Program (MFP) payments would be made to soybean producers. It was also the first survey taken following passage of the Agricultural Improvement Act of 2018 (farm bill), both of which appear to have helped boost farmer sentiment.
In particular, total MFP payments (first and second installments, combined) to U.S. soybean farmers were estimated by the USDA to be about $7.3 billion, providing a significant revenue boost to most Corn Belt farming operations.
The jump in the barometer from December to January was driven by increases in both of the barometer’s sub-indices but the biggest improvement was in the Index of Current Conditions, which rose to a reading of 132 from 109 a month earlier. In comparison, the Index of Future Expectations rose to 148 in January, 13 points above its December reading of 135 and its highest value since February 2017. The rise in the Current Conditions Index took it back to just below its June 2018 level.
Producers indicated they were more inclined to view making large investments in their farming operations favorably on the January survey than they did a month earlier. The Large Farm Investment Index rose to 62 in January, 11 points above its December value and the highest reading for the investment index since last June. Although the index was still below a year earlier in January, it has increased substantially over the last several months. The index bottomed out at 42 in September and has risen every month since then, except December when a modest decline occurred.
Although producers held a more favorable view of making investments in machinery and buildings in January than in late 2018, that perspective did not seem to carry over into their view of farmland values. When asked for their expectations for farmland values in the upcoming 12 months, producers’ attitude weakened slightly compared to November 2018 (the last time farmland value questions were posed) as the percentage expecting higher values declined from 17% to 13% and the percentage expecting lower prices drifted down to 21% from 22%.
What’s going to happen with respect to trade negotiations continues to weigh heavily on U.S. farmers’ minds. In January, producers indicated that they were a bit more optimistic about the future for agricultural trade as 63% responded that they expect U.S. ag exports to increase over the next five years, compared to 59% in December. More significantly, the percentage of farmers expecting ag exports to decline over the next five years declined to just 7%, the lowest percentage since we first posed this question in May 2017, compared to 26% a month earlier.
There continues to be a lot of uncertainty regarding a possible shift in acreage between corn and soybeans in 2019. Producers that planted soybeans in 2018 were asked about their plans for 2019. About 25% of respondents that planted soybeans last year said they plan to reduce their soybean acreage in 2019 while two-thirds (67%) expect no change in their soybean acreage. Among those soybean farmers that expect to reduce soybean acreage, 58% of them expect to reduce their soybean acreage by more than 10% whereas the remaining 42% expect their acreage decline to be 10% or less.
Looking ahead to the rest of 2019, producers indicated that 2019 is poised to be a challenging year for many farm operations. A majority of producers (57%) indicated they expect their farms’ operating expenses to increase this year with 38% expecting operating expenses to be about the same, both compared to 2018. When asked if they expect livestock and grain prices to increase to levels that will substantially improve their farm’s financial situation in the next year, 70% of respondents said no.