Ag Confidence Index Falls

OMAHA (DTN) -- The mood of farmers across the country continues to slump, according to the most recent DTN/The Progressive Farmer Agriculture Confidence Index.

Farmers surveyed in August produced the lowest score, a pessimistic 72, in the seven-year history of the index. One year ago, the ACI was a more neutral 98.

That 27% drop, which is also down slightly from the pre-planting April findings, is "driven by producers simply feeling their present situation is pretty awful," said pollster Robert Hill, principal of Caledonia Solutions, and the creator of the DTN/PF index. "It seems that 'bad' has become the new 'normal' as their situation hits proverbial rock-bottom," Hill said.

The Agriculture Confidence Index is based on surveys of 500 farmers who are asked a series of questions about their financial and business conditions. The survey is conducted prior to planting, before harvest, and then just before year-end. The ratings are "indexed" with a midpoint of 100.

Indexes above 100 indicate optimism; the higher the number, the greater the optimism. Indexes below 100, which has been the case since March 2014, indicate farmers are pessimistic about their condition.

HOPE FOR A BOTTOM

The index is composed of a rating for current conditions and a rating for future conditions. Historically, as crop prices came down off their 2012 and 2013 highs, farmers were more neutral to slightly pessimistic about their current situation and had an even more pessimistic view of the future.

In the latest survey, farmers were extremely pessimistic about current conditions, with a rating of 56 as they prepared for 2016 harvest, but less pessimistic about the future at 81, resulting in the overall index of 72.

"This big whip in the ratings, with growers feeling much worse about things currently than about the future, is a new trend," Hill said.

"That says we can't overestimate the pain growers are feeling right now, and they must see, or be hoping for, some sign of a turnaround."

There is factual basis for that less-pessimistic future view, he noted. Land and fertilizer costs have been coming down. Fuel prices continue to be low.

"That leaves seed as a major cost-reduction target for the crop growers," Hill said. "This may be the year that seed pricing by the input supply industry gets a makeover. Growers are very hesitant to commit to any 2017 crop expenses right now.

"Seed suppliers are re-examining their pricing models, and may need to use deeper-than-usual discounting and better financing terms to get growers to make commitments."

On the income side, farm program payments, particularly for growers who elected revenue protection crop insurance policies, also are expected to ease some financial stress, which would improve growers' thoughts about the future.

Farmer attitudes about the present depend partially on how prepared they feel they are to weather the downturn in crop prices. For Jody and David Dvorak, who farm near West Liberty, Iowa, that preparation has been going on for several seasons.

"I think we all knew these tougher times were coming," Jody Dvorak said in a September follow-up call to the couple answering the DTN ACI pre-harvest survey. She spoke from the family's farmstead as her husband, David, was opening up the first corn field of the 2016 harvest.

"We feel we've prepared, not getting too aggressive to acquire land we felt was too expensive, and making sure we were preserving some cash." Part of their preparation was to continue to pay attention to grain marketing, something she and David see as a critical part of an annual farm plan.

"We still have some of the crop unpriced, but we've been pricing some all along the way, as we typically do. We also have some non-GMO corn and soybean contracts, and those premiums help," Jody said.

Midwestern producers had the lowest regional index, 58.5, compared to 77.8 for the Southeast and 84.6 for farmers and ranchers in the Southwest.

In a somewhat historic twist, livestock producers now rate their financial health and prospects below that of crop producers.

That created a new double-downward trend across farm enterprises for August. Typically, ACI indexes for crop and livestock producers have been opposites; when crop farmers were optimistic, chiefly due to high grain prices, livestock producers tended to be pessimistic, driven by higher feed expenses. In recent years, that has flipped, with crop growers having increasing pessimism while livestock producers were enjoying lower feed costs, and therefore were more optimistic.

The livestock index is now 63.6, down from 88.2 a year earlier, and below the 76.6 for farmers who see themselves as mainly crop producers.

The roller coaster of cattle prices and falling milk prices are likely reasons why livestock producers have turned even more pessimistic than their crop-growing peers.

AGRIBUSINESSES REMAIN NEUTRAL

A separate survey of 100 agribusinesses, including retail suppliers, machinery dealers and fertilizer, chemical and seed retailers, shows they remain only slightly pessimistic, with a DTN/The Progressive Farmer Agribusiness Confidence Index of 90.6. That's essentially equal to the 88 rating in August 2105.

That less pessimistic view, compared to farmers, is somewhat surprising, Hill said. "It may be due to their dependence on producers' cash flow rather than producer profitability. Cash from the 2014 farm program is beginning to flow to the producers, and this may brighten the outlook for the rural businesses serving farmers.

Unlike farmers, ag business owners are much more pessimistic about the future. Their answers produced a present condition rating of 105, with their expectations of future profitability at 79.7.

Drilling into the answers of specific questions, business owners indicated concern about lower future sales compared to a year ago. That feeling was echoed by many sales personnel at summer farm shows and events, with booth attendance down overall.

"The guys who come in [to the display area] are serious about purchases," said one ag equipment representative during a recent summer farm show. "There are just fewer coming in."

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

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Editor's Note: All DTN/The Progressive Farmer Agriculture Confidence Index numbers have been corrected for a historical calculation error. While that correction altered the actual index number slightly, the index's general trends of optimistic, neutral, or pessimistic, remained essentially the same.

(ES/CZ/AG)

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