AGRICULTURE CONFIDENCE INDEX™

 

Ag Confidence Index Results

Farmers View of Ag Economy Turns Pessimistic


By Katie Micik
DTN Markets Editor
September 8, 2014

Farmers adopted a pessimistic view of the agriculture economy for the first time since the DTN/The Progressive Farmer Agriculture Confidence Index started tracking farmer sentiments in April 2010.

The pre-harvest reading of the Agriculture Confidence Index came in at 99.8, down from 106.9 before planting and 109.2 before last year's harvest.

An index value of 100 is considered neutral with higher values indicating optimism and lower values reflecting pessimism. DTN surveyed 500 farmers and ranchers across the country between August 13 and August 22. DTN conducts the survey before planting, before harvest and after harvest each year to gauge farmers' attitudes at key times of the crop cycle.

"Clearly, I'm going to have a lower income," said Perry, Iowa, farmer Ron Heck, a former American Soybean Association president. With corn prices at multi-year lows and soybean prices on their way to the $9 range, farmers are looking at increasing weed control costs, high cash rents and difficult breakeven scenarios.

"We're getting into a serious adjustment period," Heck said. Farmers are going to have to make tough choices about living expenses, input costs and crop mixes. Cash rents and land values may have to adjust, but in some areas that'll be unlikely, he said.

DTN breaks the Agriculture Confidence Index down by sector and regions. Crop producers and farmers from the Midwest are the most pessimistic. The overall index value for crop producers came in at 96.3 while the Midwest index fell to 92. They were 102.7 and 104.2, respectively, in the springtime.

"Corn's going to be cheap, and while that's not good news for the grain farmer, it's been a struggle for us livestock guys the past couple years," said Mike Berdo, who raises cattle, hogs and crops with his brother in Washington County, Iowa.

Livestock producers, with an index of 108.7, are much happier with the current outlook. It's even with last August's results, but lower than 116.4 last spring.

Berdo said prices for his recent fat cattle sales were good, but the steers didn't perform as well as he hoped due to the frigid winter. The spring calves looks incredibly even, and he hopes this winter's weather is more cooperative when he puts them on feed.

"It'll be interesting here in the fall to see how the PED virus plays out," Berdo said. "Consumer demand is a top concern. How much are you going to pay at the grocery store? Chicken is cheap in relation to pork and beef."

AGRIBUSINESSES STAY OPTIMISTIC

While crop and livestock producers' attitudes diverged in the latest confidence index reading, agribusinesses appear to be on an even keel. The DTN/The Progressive Farmer Agribusiness Confidence Index, at 106.1, is down only 1.2 points from spring. Business optimism improved in the spring of 2013 with the outlook for bigger crops, and the index has stayed in a range of 102 to 108 ever since.

"People serving farmers are seeing an end to ag's period of 'irrational exuberance.' This bubble has popped," said Robert Hill, designer of the confidence indexes and owner of consulting firm Caledonia Solutions. "They can expect that crops will still get produced next year and that the bills will get paid, but the Midwest crop producers are likely to turn to some drastic belt tightening compared to the way they've spent money over the past four to five years."

Dennis Jempa, who works at the Hancock Co-op in Hancock, Minn., said farmers are leery about the shifting economics.

"I think it tightens the ropes up a little bit," he said. "If there's one thing about a farmer, if he's got money, he'll spend it. When you come from an agricultural community, a lot depends on the farmer and what he spends."

INCOME DECLINE WEIGHS ON FUTURE EXPECTATIONS

DTN's Agriculture Confidence Index is composed of two parts. The survey asks farmers to assess input prices and net farm income as good, bad or normal to gauge their attitudes toward their present situation. To get a grasp on future expectations, it also asks if farmers expect input prices and income to get better, worse or stay the same 12 months down the road. DTN then compiles the findings into an overall index value, a present situation index and an expectations index.

The results show that farmers feel positively about the present situation, reflected in an index value of 118. It's the outlook for the next 12 months is what pulled the overall index into negative territory for the first time. It came in at 87.8.

"The negativity charge is being led by Midwest crop producers," Hill said. "Other areas of the country tend to have slightly more diversified farming operations compared to the Midwest ... and the outlook is far more positive in these diversified areas, particularly where livestock operations play a significant role."

Farmers expect their incomes to be the same (46%) or worse (40%) a year from now, which adds to the low expectations for the future. Currently, most rank their income as normal (44%), while 27% consider it good and 29% consider it bad.

USDA expects farm income to fall 13.8% from last year's record high to $113.2 billion. While it's the lowest farm income projection since 2010, it's still the fifth highest on record. It's also an upward revision from previous estimates, which USDA says is due a 15% increase in livestock producers' revenues.

"The reality is that everyone over-prepares for a huge crop," Heck said. "We'll find resourceful ways to deal with it. I would hope we're at the worst of it, and the picture will be brighter in a few months."

He doesn't anticipate prices returning to $7 per bushel corn and $15 per bushel beans, but he pointed out that corn futures prices improve to the low-$4 range for the 2015 crop. To him, that means the market is prepared to chew through some of the anticipated 2 billion bushels of ending stocks.

Hill added that the farm bill is compounding frustration. Farmers have to make a one-time, irrevocable choice of farm bill programs, which could actually pay out in their first year, depending on crop, location and program chosen.

"It doesn't seem to have dawned on the politicians in Washington that the Midwest farmers have entered a new world of economic reality," Hill said. "And the environmental regulatory attitudes coming out of D.C. just add to the 'doom and gloom' outlook." 

FARMERS WARY OF CUTTING INPUTS

Most farmers who responded to DTN's poll think input prices are normal (40%), while 28% think they're good and 32% think they're bad. Overall, farmers expect input prices to the stay the same (48%) or get worse (38%) in the year ahead.

The farmers DTN spoke with all expressed a desire to save on next year's input costs without sacrificing yields. Heck said machinery is the first item farmers will cut. They may adjust their loan repayments and take a deeper look at their living expenses.

Sharon Thernes operates a corn and soybean farm with her son, David, and grandson, Tyler, near Hooper, Neb. She doesn't see input prices coming down, but she also doesn't foresee them pulling back on inputs.

Reducing fertilizer application rates or planting lower quality seed is a recipe for lower yields, she said. Instead, they might hold off on equipment purchases.

Instead of pulling back too far on fertilizer, seed and herbicides, Heck said a lot of farmers will consider growing more soybeans next year.

"They lose less money on beans" because beans don't require as many inputs, Heck said. "And the overarching question is: Where can I not spend money?"    

Wayne Burstert, a 74-year-old corn, bean and wheat farmer from New Cambria, Mo., said he may start moving some of his row-crop ground into hay production. It would allow him to continue farming profitably while avoiding some of the higher input costs.

"There is a lot of ground around here that should be in grass for cattle that is in row crops now," Burstert told DTN.

The other change he's planning on making is to shop around for better deals on inputs, including working with more retailers and taking advantage of early season discounts on seed. He will be careful not to go overboard, he said. After all, trying to save too much could result in lower yields and lost profits.

"One thing I have always said with farming is you don't want to save yourself poor," he said.

Russ Quinn contributed to the reporting of this article.

Katie Micik can be reached at Katie.micik@dtn.com. You can follower her on Twitter @KatieMDTN.