DTN/The Progressive Farmer Survey: Optimism Rises as Temps Fall
OMAHA (DTN) -- Perhaps the old adage "I'd rather have a good crop and lower prices than high prices and no crop," was taking hold as 2017 came to a close.
That's one explanation of why farmers would feel increasingly better about their conditions despite flat grain prices and the signs of lower livestock prices.
Farmers answering the latest DTN/The Progressive Farmer Agricultural Confidence Index survey told of increasing optimism, posting an overall score of 113, up 9 points from August and 15 points higher than the "Trump Bump" survey of a year ago.
More importantly, farmers' attitude about their current situation was twice as positive as November 2016, despite growing concerns from ag lenders and little end in sight to flat commodity prices.
Since 2010, DTN has surveyed farmers three times a year to determine their opinions about their current economic situation and about that situation in the year to come. Farmers are surveyed in spring prior to Midwest corn and soybean planting; in August just ahead of harvest; and in mid-November, as the harvest is in and farmers prepare for year-end taxes and planning.
Index levels above 100 are considered optimistic, those less than 100 are viewed as a pessimistic attitude as compared to baseline scores when the index began.
Calls for the latest ACI survey were made Nov. 12 through Dec. 11.
Each survey asks a series of financial and economic questions to create two scores -- one for how farmers' rate their present situation, while the second score reveals attitudes about future expectations. Those two scores combined create the overall Agricultural Confidence Index.
For the most recent survey, farmers put their present situation at 95, up 19 points from August, and more than twice the score of 44 in November 2016. Their expectation score is 123, up 3 from August and down 4 from a year ago, or essentially flat year-on-year.
The point that the index is based on the combination of present and future scores is important, as the trend in the difference of those two scores is perhaps most noteworthy this winter.
Since mid-2016, farmers have been hopeful, the present score has been below 100, sometimes significantly below, while the optimism about the future more than makes up for that, keeping the overall ACI in neutral to positive territory.
"The trend in 2017, however, has been for a re-convergence of the two scores," noted Robert Hill, economist and researcher who helped create the Agricultural Confidence Index. The present conditions score continues to rise, even while incomes and financial conditions are flat to downward. Farmer thoughts on the future, while still optimistic, have been slowly dropping.
"None of this is factually visible to those of us who follow this as a financial matter in the industry," Hill said. Farm income statements and balance sheets don't seem to have improved from where they were 12 months ago.
"Though the big yields surprised many farmers who had run their own yield checks," earlier in the 2017 season, he said. "It seems farmers like big yields over big prices."
Hill said there has been some downward pricing pressure on seed inputs, the growers are gaining cost relief by switching to lower priced options, backing away from some of the traits to save money, and even going to non-GMO seeds in response to premiums being offered at elevators. The shift to more soybean acres is another way growers may have gained cost relief since soybeans cost so much less per acre to grow versus corn, using a lot less fertilizer and much lower seed costs per acre.
Health care premiums under the Affordable Care Act, known as Obama Care, had become one of the largest expense items on many farms, Hill said, in some cases exceeding crop insurance premiums. While those costs haven't come down for everyone, the continued effort to repeal the ACC could be seen as positive by farmers.
One way to look at the current set of scores, Hill said, is that "the prophecy of the 'Trump Bump,' or the high expectation score we saw following the 2016 election, has come to fruition."
There could have been some expectation that recent changes in tax law would benefit farmers, Hill said. There will be a near-term benefit in accelerated depreciation and in lower taxes on pass-through income, the latter of which affects a large percentage of family farms. While the survey took place in mid-November, nearly a month before the tax bill was passed and signed by President Trump, farmers may have been anticipating that outcome.
The relatively positive outlook also fits with overall farm income levels, as farm profits are predicted to be relatively stable in 2017 following three consecutive years of decline, according to November figures from the USDA's Economic Research Service.
Net farm income was forecast at the end of November to increase $1.7 billion, or 2.7%, from 2016 to $63.2 billion. Net cash income to farms, a measure of actual current-year sales, is forecast to increase 3.9%, or $96.9 billion. The stronger growth forecast for net cash farm income is largely due to additional receipts from the sale of beginning-of-year crop inventories, as farmers sold the 2016 crop out of storage to make way for the 2017 harvest and sold livestock inventories against generally strong slaughter prices.
Regionally, Midwest farmers were the least optimistic, particularly with the present condition. They set current conditions at a still-pessimistic 66, though up 16 points from August and more than 25 points above November 2016. Overall, the Midwest earned a 91.5 ACI score.
Southwest producer ratings actually fell, with the overall index of 119, down 25 points from August and down 14 from a year ago.
Comparing farms that identified as predominantly crop- or livestock-based, it's no surprise crop farmers had a lower present situation score -- 87 versus 118 for livestock producers. Given the most recent downturn in cattle prices, it's also no surprise that crop producers have more hope for the year ahead, giving expectations a 129 versus the 110 dip for livestock operations.
AGRIBUSINESS REMAINS TEMPERED
Historically, the DTN/PF survey of agribusiness owners has produced more moderate scores, never reaching the optimism or pessimism of their farmer customers.
That held true for the 100 business owners surveyed Dec. 1 through 7. The overall Agribusiness Confidence Index was a slightly positive 102, down slightly from August by nearly 20 points, but above November 2016. Agribusinesses rated present conditions at 103, expectations at 101.
"Expectations and current conditions perceived nearly identically places the confidence of the agribusiness community on par with where it was when the index was first established in August 2010," Hill said. This re-convergence, he continued, of future expectations and current situation perceptions may have been a foreshadowing of the trend developing in the ACI farmer indices. It signals a return to a rural business mentality, where the present is consistently perceived more positively than the future.
Where overall conditions head from here is unclear, Hill said.
"Farmers would love to have hope for continually improved conditions for their businesses and communities, but the harsh realities of continued low commodity prices might be expected to eventually override political feel-goods."
The next DTN/PF Agricultural Confidence Index will be released in April.