“All farmers are optimists” is the truism attributed to humorist Will Rogers. But Purdue University’s Center for Commercial Agriculture and the global exchange operator CME Group have it on somewhat better authority—namely, the monthly Ag Economy Barometer, calculated from a telephone survey of 400 U.S. agricultural producers on their short- and long-term farm industry outlooks.
Results of the latest survey, taken in early December, show U.S. farm producers think now is a good time to make major investments in farming operations, compared to their feelings about it November. Purdue/CME Group’s Farm Capital Investment Index, a subindex that measures farmer capex sentiment, increased 13 points in December to a record high of 93. Researchers note that this December investment index is 28 points higher than back in August, at the beginning of a rally in U.S. crop prices, and more than double the April reading of 38.
Asked specifically about plans for farm machinery purchases, the percentage of farmers saying they expect to increase machinery purchases in the coming year rose 5 points to 15 percent in December. The percentage expecting to reduce their purchases declined by the same amount.
Producers were also more confident in December that farmland values will rise over both the short (12 months) and longer (5 years) term than in November, particularly when compared to farmland value expectations from earlier in the year. More than a third (35 percent) of farmers said they expect farmland values to rise over the next year, up from 26 percent a month earlier. Producers were even more optimistic regarding their longer-run perspective on farmland values, with an all-time high 65 percent of farmers saying they expect farmland values to rise over the next five years, which was 11 points higher than in November.
Bracing for tougher regulations, higher taxes
Farmers in December continued to express concerns following the November U.S. election over a number of key policy issues affecting agriculture. Purdue University recorded more than 80 percent of farmers in the December survey as saying they expect environmental regulations to become more restrictive, roughly twice as many who felt that way in October (41 percent).
A similar jump was reported in tax expectations. Over 70 percent of producers expect to see higher income and estate taxes, compared to 35 and 40 percent, respectively, who felt that way in October. One-third of farmers said they expect the farm income safety net to weaken compared to 18 percent who felt that way in October, and just over a quarter of producers said they expect government support for the ethanol industry to weaken compared to 17 percent who felt that way in October.
The reported lift in U.S. farmer sentiment follows a volatile (no kidding) 2020, which saw a contentious election, impacts of covid-19, a crash in oil prices, ongoing trade tensions with China, and (lest we forget) the second-highest prevented plant reading on record (second only to 2019).
Results of the survey come amid the latest predictions from the U.S. Department of Agriculture’s 2020 Farm Income Forecast, which expects a year-over-year increase in net U.S. farm income (a gross profit measure) of $36.0 billion (43 percent) to $119.6 billion in 2020. Adjusted for inflation, 2020 net farm income is expected to increase $35.0 billion (41 percent) from the 2019 level, marking a fourth straight year of gains. If this forecast proves accurate, 2020 inflation-adjusted net farm income will set a seven-year high, and 32 percent above its 2000-19 average of $90.6 billion.