The Ag Economy Barometer drifted sideways in December, to a reading of 150 compared to 153 in November. Although the barometer changed little in December, there was a shift in producers’ perspective regarding both their farms’ and the production ag sector’s economic health. Producers expressed less confidence than a month earlier about current economic conditions as the Index of Current Conditions registered a reading of 141, a decline of 12 points compared to November’s index value of 153. In contrast, producers’ expectations for the future remained strong as the Index of Future Expectations rose slightly, to a reading of 155 compared to 153 a month earlier. This month’s Ag Economy Barometer survey was conducted from Dec. 9-13, 2019, and is based on responses from a nationwide survey of 400 agricultural producers.

A slim majority (52%) of farmers on the December barometer survey indicated that their farm’s financial performance in 2019 matched their initial budget projections. On the same survey 3 out of 10 producers said their farm’s financial performance was worse than expected at the outset of the year, which was partially offset by nearly 2 out of 10 (19%) respondents indicating performance was better than expected. The varied responses to this question are indicative of the variability in economic conditions among U.S. farm operations as 2019 came to a close.

To better assess the level of financial stress among U.S. farms, we asked producers in November and again in December whether they expected their farm’s operating loan in 2020 to be larger than, about the same or smaller than in 2019. We followed up with respondents who indicated they expect to have a larger operating loan to learn why the size of their loan is likely to increase. About 1 out of 5 farms in our surveys (19-21%), expect to have a larger operating loan in 2020 than in 2019. Approximately 3 out of 10 of those farm operations (29-30%) indicated the reason for the larger operating loan is that they expect to carryover unpaid operating debt from 2019 into 2020. Carrying over unpaid operating debt from one year to the next is a sign of financial stress. Responses to these two questions suggest that about 6% of farms surveyed in late 2019 were experiencing significant financial stress.

Producers remained confident in December that the trade dispute with China will be settled soon. Although the percentage of producers indicating that they expect a quick resolution slipped slightly to 54% in December from 57% in November, the percentage of producers who believe it’s unlikely the dispute will be settled soon also fell from 38% to 34%, leaving overall sentiment regarding the dispute’s resolution virtually unchanged. The percentage of producers who feel the dispute is likely to be resolved in a way that is ultimately beneficial to U.S. agriculture dipped in December to 72% from 80% in November. The percentage of producers expecting a favorable resolution has averaged 73% since we first posed this question in March 2019. Except for a brief decline last May and June, the percentage of producers expecting a beneficial resolution to the trade dispute has consistently remained above 70%.

Wrapping Up

Farmer sentiment drifted sideways in December as the Ag Economy Barometer registered a reading of 150 compared to 153 in November. Agricultural producers in December were less optimistic about current economic conditions on their farms than a month earlier but remained optimistic about future economic conditions. The Farm Capital Investment Index rose 1 point in December compared to November, leaving it at its highest level of the year and well above a year earlier. Farmers continued to be much more optimistic about future farmland values than they were last spring, although they were somewhat less optimistic in December than they were in November. Compared to a year ago, producers appear to be more confident that farmland cash rental rates will remain unchanged in 2020. Some farms are experiencing financial stress. Approximately 6% of the farms included in the December survey indicated that they will have a larger operating loan in 2020 because they expect to carryover unpaid operating debt from 2019 into 2020. Finally, over half of the producers in our survey expect the trade dispute with China to be resolved soon. The percentage of farmers who expect the trade dispute to be resolved in a way that’s favorable to U.S. agriculture dipped in December from November but remained above 70% as it has for all but two months since we first posed this question to producers in March 2019.