Ag Barometer drifts lower, farmers remain concerned about the future despite strong economic conditions

Rhea-AI Summary

The Purdue University/CME Group Ag Economy Barometer fell 7 points to 167 in January, reflecting declining future expectations among U.S. agricultural producers. The Index of Current Conditions remained stable at 199, while the Index of Future Expectations dropped to 151, a 19% decline since October 2020. Despite this, 30% of farmers expect better financial performance in 2021. Concerns loom over policy changes, with 83% anticipating stricter environmental regulations, and trade disputes impacting confidence. Interest in carbon capture also rose, with 30% aware of payment opportunities.

Positive

• 30% of farmers expect better financial performance in 2021 compared to 2020.
• Farm Capital Investment Index remains high at 93, indicating strong investment confidence.
• 43% expect farmland values to rise in the next year, up 8 points from December.
• Interest in carbon capture opportunities increased with 22% actively engaged in discussions.

Negative

• Ag Economy Barometer has decreased 9% since its peak in October 2020.
• Confidence in resolving trade disputes with China fell by 12 points to 38%.
• 83% expect more restrictive environmental regulations under the new administration.
• Concerns over potential increases in estate and income taxes have risen significantly.

WEST LAFAYETTE, Ind. and CHICAGO, Feb. 2, 2021 /PRNewswire/ -- The Purdue University/CME Group Ag Economy Barometer dropped 7 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 of 2020, the Ag Economy Barometer has fallen 9 percent, all attributable to weaker expectations for the future. The Index of Future Expectations has fallen 19 percent since October, while the Index of Current Conditions rose 12 percent over the same time period. 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 January 18-22, 2021.

"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 U.S. 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 5-6% of farms identified as suffering financial stress one year ago.

 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 percent 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 percent 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 U.S. agriculture has waned, falling 12 points in January to 38 percent. 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.

Interest in capturing carbon on farms that agree to follow specified production practices has increased as several firms have begun offering contracts to farmers. To learn more about this, the January barometer survey included questions related to carbon capture. Thirty percent of respondents to the January survey said they are aware of opportunities to receive a payment for capturing carbon. Interestingly, among the 30 percent aware of these opportunities, 22 percent said they have actively engaged in discussions about receiving a carbon capture payment. This implies that 6 to 7 percent of the farmers in the January survey have given consideration to contractually sequestering carbon.

Finally, to better understand the farming community's perspective on receiving the COVID-19 vaccine, the barometer survey has been asking respondents since October, whether they plan to get the vaccine. Possible responses included, "Yes, as soon as possible;" "Yes, but not right away;" and "No." Interest in being vaccinated quickly has been trending up since October. In January, 58% said they plan to get vaccinated as soon as possible, up from 39% in December, 36% in November, and 24% in October.

Read the full Ag Economy Barometer report at https://purdue.ag/agbarometer. The site also offers additional resources – such as past reports, charts and survey methodology – and a form to sign up for monthly barometer email updates and webinars.

Each month, the Purdue Center for Commercial Agriculture provides a short video analysis of the barometer results, available at https://purdue.ag/barometervideo, and for even more information, check out the Purdue Commercial AgCast podcast. It includes a detailed breakdown of each month's barometer, in addition to a discussion of recent agricultural news that impacts farmers. Available now at https://purdue.ag/agcast.

The Ag Economy Barometer, Index of Current Conditions and Index of Future Expectations are available on the Bloomberg Terminal under the following ticker symbols: AGECBARO, AGECCURC and AGECFTEX.

About the Purdue University Center for Commercial Agriculture
The Center for Commercial Agriculture was founded in 2011 to provide professional development and educational programs for farmers. Housed within Purdue University's Department of Agricultural Economics, the center's faculty and staff develop and execute research and educational programs that address the different needs of managing in today's business environment.

About CME Group
As the world's leading and most diverse derivatives marketplace, CME Group (www.cmegroup.com) enables clients to trade futures, options, cash and OTC markets, optimize portfolios, and analyze data – empowering market participants worldwide to efficiently manage risk and capture opportunities. CME Group exchanges offer the widest range of global benchmark products across all major asset classes based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals.  The company offers futures and options on futures trading through the CME Globex® platform, fixed income trading via BrokerTec and foreign exchange trading on the EBS platform. In addition, it operates one of the world's leading central counterparty clearing providers, CME Clearing. With a range of pre- and post-trade products and services underpinning the entire lifecycle of a trade, CME Group also offers optimization and reconciliation services through TriOptima, and trade processing services through Traiana.

CME Group, the Globe logo, CME, Chicago Mercantile Exchange, Globex, and E-mini are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of Board of Trade of the City of Chicago, Inc. NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. BrokerTec, EBS, TriOptima, and Traiana are trademarks of BrokerTec Europe LTD, EBS Group LTD, TriOptima AB, and Traiana, Inc., respectively. Dow Jones, Dow Jones Industrial Average, S&P 500, and S&P are service and/or trademarks of Dow Jones Trademark Holdings LLC, Standard & Poor's Financial Services LLC and S&P/Dow Jones Indices LLC, as the case may be, and have been licensed for use by Chicago Mercantile Exchange Inc. All other trademarks are the property of their respective owners. 

Writer: Kami Goodwin, 765-494-6999, kami@purdue.edu  
Source: James Mintert, 765-494-7004, jmintert@purdue.edu

Related websites:
Purdue University Center for Commercial Agriculture: http://purdue.edu/commercialag
CME Group: http://www.cmegroup.com/

Photo Caption: Ag Barometer drifts lower, farmers remain concerned about the future despite strong economic conditions. (Purdue/CME Group Ag Economy Barometer/James Mintert) https://www.purdue.edu/uns/images/2021/jan-barometerLO.jpg

CME-G

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SOURCE CME Group

FAQ

What is the latest reading of the CME Ag Economy Barometer for January 2021?

The CME Ag Economy Barometer fell to a reading of 167 in January 2021.

What percentage of farmers expect better financial performance in 2021?

30% of farmers expect better financial performance in the coming year compared to 2020.

How have expectations for farmland values changed according to the January survey?

43% of respondents expect farmland values to rise over the next year, an increase from December.

What concerns do farmers have regarding environmental regulations?

83% of farmers expect more restrictive environmental regulations under the new administration.

What is the change in farmer confidence regarding trade disputes with China?

Confidence that trade disputes with China will be resolved favorably fell by 12 points to 38%.