Agriculture Confidence Index

Spring Boosts Farmer Optimism

Greg D Horstmeier
By  Greg D. Horstmeier , DTN Editor-in-Chief
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Farmer attitudes about their current condition and their future expectations both moved into the optimistic territory for the first time in the index history. (DTN chart)

OMAHA (DTN) -- Nationwide, U.S. farmers have become positive about both their current situation and their future, pushing the DTN/The Progressive Farmer Agriculture Confidence Index to its third highest level ever. The overall index reached 134.8, up almost 22 points from the December/January level and slightly above the overall level of spring 2017.

Midwest farmers, dealing with continued lower commodity prices and the prospect of another big round of corn and soybean crops in 2018, were more pessimistic about the present than producers in other parts of the country.

The overall national index marks a continuation of an optimistic swing that confounds the conventional wisdom on the financial health and well-being of U.S. farmers and ranchers.

Since 2010, DTN has surveyed crop and livestock producers three times a year to determine opinions about their financial health. The survey of at least 500 producers is conducted in spring prior to Midwest corn and soybean planting; in August just ahead of harvest; and in mid-November, after harvest and as farmers prepare for year-end taxes and plan for the coming crop season.

Each survey asks producers a series of finance and economic questions to create two scores: one for how farmers rate their "present situation" and the second score reveals attitudes about "future expectations," or how producers feel their financial condition will be in 12 months. Those two scores are combined to create the overall Agriculture Confidence Index.

Index levels above 100 are considered optimistic compared to baseline scores when the index began; those less than 100 are viewed as a pessimistic versus baseline.

The current survey was conducted March 5-17. At that time, producers' answers about their present situation produced a score of 104.3, up 8.9 points from the neutral level of December, but more importantly, up a whopping 34.3 points from March 2017. That rise in optimism about the present had a big impact on the overall index.

That optimism countered a slight downturn in how farmers rated their expectations of things a year from now. While that "future expectations" score was still a very optimistic 151.7, it was 12 points below what farmers were expecting in spring 2017.

BROKEN CONNECTIONS

The index trend continues the path of recent enthusiasm that runs counter to general financial situations in the ag industry, according to Robert Hill, economist and principal of Caledonia Solutions, who helped create the DTN/PF index in 2010.

"Throughout the history of the index, the present condition score has mostly followed with Chicago futures (grain) prices. If commodities were high, farmer's present situation score was high. When commodities fell, the present score fell, even if the future expectations score rose," Hill said.

"That connection between (futures prices) and the present situation score, which started to split apart after the 2016 election, is now officially broken," Hill said. The correlation has been lost, which Hill said means farmers must be mentally factoring in issues other than commodity prices when they talk about their current financial situation.

The relative nature of "good times" versus "bad times" could be part of that phenomenon, noted Curt Hudnutt, head of rural banking for Rabobank North America.

"Corn and soybean prices certainly aren't where everyone would like them to be, but we do see small increases here and there. And if it's not as bad as it was, even if it's only a little bit better, that's still better."

The survey uncovered some key differences in farmer attitude by region. In the Midwest, farmers set their present condition at a pessimistic 76.6. That's an increase of 10 points from December and a large jump of 26 points from how farmers felt about things as they prepared to plant the 2017 crop. That's in strong opposition to farmers in the Southeast, who feel their present situation is survey-high 160, up 44 from a year ago, and Southwest farmers who scored a 130 for the present, up 51 points from 2017.

Midwest farmers are much more optimistic about the coming year, setting a future expectations score of 144.5, almost equal to the 143 set by farmers in the Southwest. Southeast farmers scored a slightly optimistic 123. Both southern regions where slightly less excited about their futures than the year earlier, when southeastern growers set a 111, farmers in the Southwest a similar 117.

"At this point, farmers are mostly obtaining the financing they need," Hudnutt said. "If they have any kind of diversity, if they have livestock as well as crops, or if they have any specialty crops in addition to corn and soybeans, there have been some bright spots in those areas."

Hudnutt also sees a number of signs of things being "a little bit better," in some easing of land rents, continued dryness in Argentina, easing up of input costs. The overarching concern is trade, he agreed. "I just think we're likely to find ways around any kind of real trade war, especially with China.

"But if a true trade war happens, of course, that could change everything."

During this survey period there were only small differences between respondents identifying as mainly crop producers versus those earning most on-farm income from livestock. Overall, the crop index was 136, compared to 132 for livestock producers. Crop farmers turned in a neutral 100 for their present condition and 158 for the future; their livestock colleagues scored 118 and 138, respectively. Both enterprise categories were slightly more optimistic about the future than in December, slightly less optimistic than a year ago.

The ACI growth since the election has been especially bullish in the livestock sector, where it has more than doubled since August 2016, Hill said. "Crop producers have also expressed strong growth in ag confidence, with about an 80% gain post-election."

Hill is hearing through crop-input suppliers that a percentage of their orders are coming in later in the buying season than usual. It's a sign of financial stress for a segment of growers who face difficulty obtaining crop operating loans. "That could mean a percentage of rented ground may be dropped at the last minute. While that spells opportunity for farmers who can pick up the ground, suppliers are concerned about the last-minute demand in some areas. This could also influence land rental rates and land values," Hill said.

"It feels as if we have transitioned over the past few years into an era where a farmer's financial success may come more from being a good marketer than a top producer. Most growers have done what they can to tap down input expenses. They have their costs down. Now the thing that will separate success from those struggling will be better-than-average marketing."

This could have effects on what farmers spend their money on in the near future as well, Hill said. "For many years, precision ag and farming by data has been all the rage. While still valuable in the long-run, farmers must now focus on marketing. Being the best marketer you can be is more important than ever."

The Agriculture Confidence Index was conducted March 5-17. That time frame precedes some of the strongest rhetoric around trade issues, Hill noted. "But the general concerns were known at that time."

AGRIBUSINESS STAYS POSITIVE

Each survey period DTN also conducts a similar poll of the U.S. agribusiness sector, to create the DTN/The Progressive Farmer Agribusiness Confidence Index. The latest survey of 100 business owners created an overall index of 111, 9 points above December and just a point above March 2017. Business set a present situation score of 111.2, with future expectations almost equal at 110.6.

"Like the farmers they serve, agribusinesses expressed a near-record-high index number," said Hill. "The two component indices, both the Present Situation and Future Expectations, both exceed 100 at the same time. This hasn't happened since spring 2012."

Also like the producer index, the Agribusiness Confidence Index has increased substantially since the 2016 election, Hill said. "However, the agribusiness increase has come strongly from their future expectations and only modestly from their present situation. Agribusiness future expectations hit near-all-time lows in August 2016, just ahead of the election. "Now their future expectations index is near an all-time high."

The next DTN/The Progressive Farmer index period will be in August, ahead of the 2018 harvest.

Greg Horstmeier can be reached at greg.horstmeier@dtn.com

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Greg Horstmeier