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Commentary: Survey shows cautious optimism among farmers

Issue Date: March 4, 2020
By John Newton
John Newton
In a survey conducted by the American Farm Bureau Federation, more than three quarters of farmers and ranchers said they expect profitability to be lower or about the same this year.
Photo/Ching Lee

The U.S. Department of Agriculture recently projected net farm income, a broad measure of farm profitability, to rise 3% in 2020. Moreover, at its annual Outlook Forum, USDA projected higher crop prices for wheat, cotton and soybeans, and higher livestock prices for cattle, pork, dairy and some poultry products.

In order to provide additional perspective on the farm economy, the American Farm Bureau Federation conducted an informal online survey earlier this year. Survey participants were asked to provide their short-run and long-run perspectives on the farm economy:

  • Commodity prices: Less than 25% of the respondents expected commodity prices to be higher in 2020. Nearly half expected prices to be about the same and more than 26% expected commodity prices to be lower. During the next five years, however, survey participants had a more favorable outlook on commodity prices, with more than 45% expecting higher prices.

  • Production expenses: USDA currently projects total production expenses to increase 3% in 2020. Nearly 60% of our survey respondents agreed that farm production expenses will rise. During the next five years, nearly 82% of the respondents expect farm production expenses to rise. For context, farm production expenses increased 16% during the last decade and have increased in seven out of the last 10 years.

  • Farm profitability: Though USDA forecasts a slight improvement in farm profitability in 2020, nearly 50% of survey respondents expected farm profitability to be lower. Approximately 36% expect profitability to be about the same. USDA projects net cash income to fall 9% in 2020. During the next five years, survey respondents were slightly more optimistic, with more than a quarter expecting higher profitability.

  • Farmland values and cash rents: Aside from production costs increasing, one other certainty is that land prices and cash rents will go up. The value of farm assets in 2020 is forecast at $3.1 trillion; since 2006, farm asset values have increased 64%. During the last 30 years, farm asset values have only declined three times.

  • A majority of survey respondents expected cash rents and farmland values to remain the same in 2020, while 45% expected farmland values and cash rents to increase during the next five years.

  • Farm debt: U.S. farm debt is projected to be a record $425 billion in 2020, and real estate debt is projected at a record $265 billion. Farm debt has increased for 17 consecutive years.

    A large majority of survey respondents, nearly 67%, expected farm debt to rise in 2020 and nearly 60% expected farm debt to increase during the next five years. In the short run, less than 9% of respondents expected farm debt to decline and in the longer run, less than 10% of respondents expect debt to decline.
  • Farm investments: A key component of a strong farm economy is reinvestment in rural communities. When farm income is strong, farmers are more likely to make capital purchases and investments, such as buying new farm machinery or expanding on-farm storage capacity. This drives employment in their communities and has a multiplier effect on farm and rural economies.

According to USDA's Economic Research Service, capital expenditures on vehicles and machinery were a record-high $33 billion in 2014, and since that point have fallen 36%, or nearly $12 billion.

During 2020, farm expenditures on vehicles and machinery are expected to fall slightly. This aligns with survey responses, in which more than 56% of respondents indicated farm investments and capital purchases would decline. During the next five years, however, more than a quarter of respondents expected to make additional capital investments.

In summary, approximately 83% of farmers and ranchers surveyed expect farm profitability to be lower or about the same in 2020—despite a Phase 1 agreement with China and enhanced trade opportunities with Canada, Mexico and Japan. Despite their outlook on the farm economy, a majority of surveyed farmers expected land and cash rents to hold their value in 2020 and during the next five years.

Many farmers are cautiously optimistic that recent news on the trade front will manifest itself through higher export volumes and ultimately improved farm profitability. Until then, farmers are reluctant to make significant investments in buildings, machinery or equipment.

(John Newton is chief economist for the American Farm Bureau Federation. This piece was adapted from a post on the AFBF Market Intel blog.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.

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