WEST LAFAYETTE, INDIANA and CHICAGO, ILLINOIS, US — The Purdue University/CME Group Ag Economy Barometer dropped seven 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 2020, 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 US agricultural producers’ responses to a telephone survey. The most recent 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 US 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% to 4% of those surveyed are suffering financial stress. However, that is down from 5% to 6% of farms identified as suffering financial stress one year ago.
The survey found that 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 on-going trade dispute with China will ultimately be resolved in a way that favors US 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.
Read the full Ag Economy Barometer report at https://purdue.ag/agbarometer.