The more valuable farmland is, the more able the owners are to borrow money to make large investments, such as the purchase of new machinery. So it wasn’t good news this summer to see ag producers’ pessimism when asked what they thought the future had in store for the value of their land. But it appears that within the last month or two they have become more optimistic about the future of their land values.
According to the most recent Ag Economy Barometer survey from Purdue University, this past summer, “farmers became noticeably more pessimistic about farmland values than they were last winter.” Purdue professors Jim Mintert and Michael Langemeier note the percentage of farmers expecting lower farmland values 12 months ahead went up from 16% in February to 32% in September.
But in the October and November surveys, their pessimism subsided. For instance, only 22% of respondents in the November survey said they expected to see lower farmland values in the coming years. That number was even lower in October, with 17% reporting they expect lower values. The November survey also found that 17% of producers expected to see higher farmland prices, an increase from 12% in October.
Farmers are even more hopeful when asked what they thought would happen to farmland values over the next 5 years. Mintert and Langemeier note the percentage of producers expecting higher values over the next 5 years plummeted from 46% in September to 21% in October. But in November that number rebounded back up to 50%.
“The shift in producers’ attitudes was largely the product of producers shifting from expecting higher farmland values to expecting values to remain the same (on the October survey) and then back to expecting higher farmland values from expecting values to remain the same (on the November survey),” write Mintert and Langemeier.
Farmers Expect Higher Interest Rates
The November survey also asked farmers what they expect to happen to interest rates both in 2019 and over the next 5 years. A majority (85%) of respondents said they expect higher interest rates, while 14% indicated lower rates and 1% said that rates would stay about the same. When asked to make their 5-year predictions, 76% said they expect higher rates and just 4% indicated they expect lower rates and 20% said interest rates will stay about the same.
Rising Optimism in Trade Tensions
There have been some positive developments recently in the arena of international trade. Leader from the U.S., Mexico and Canada signed the U.S.-Mexico-Canada Agreement, a deal that replaces the North American Free Trade Agreement. China and the U.S. also agreed to put an ongoing trade battle on hold for the next 90 days, which will provide time for negotiations to take place.
Add growing optimism from farmers about the future of ag exports to that list of developments. In the November survey, 66% of producers indicated they expect ag exports from the U.S. to increase over the next 5 years, an increase from 54% in October. One-tenth of respondents said exports will decrease in that time period, a decrease from 14% the month prior.