22 SEPTEMBER / OCTOBER 2020 AG BANKING Farmer Sentiment Improves Brady Brewer, Ph.D. Assistant Professor, Agricultural Economics Purdue University brewer94@purdue.edu Bankers who serve the agricultural sector are used to riding the ups and downs of the markets along with farmers. Indeed, this is why we incorporate commodity marketing, crop insurance products and risk management policy tools into the curriculum of the Midwest Agricultural Banking School cosponsored by the Indiana Bankers Association. While we could take a deep dive into some backward-looking data to explore this volatility, given the current pandemic, trade wars and policy uncertainty, it would be wise to look instead at what farmers think will unfold as we close in on the 2020 corn and soybean harvest in Indiana, and what may lie ahead for farmers and agricultural bankers alike. To do this, I am using a tool that my colleagues at Purdue University developed in conjunction with the CME Group. The Purdue University-CME Group Ag Economy Barometer is a monthly survey of farmers from across the nation that provides one of the only forward-looking sentiment surveys in agriculture. In this article we take a look at the latest survey results that were published in July 2020 to provide an overview of the agricultural sector. Farmer Sentiment Farmer sentiment, as measured by the Ag Economy Barometer, improved in July by 14 points. This indicates that farmers were more optimistic than they were in early summer after farmer sentiment plunged. This increase in sentiment has been driven by the future expectations of farming conditions and less worry about the impacts of COVID-19. Twenty-seven percent of farmers indicated they were very worried about the impact of COVID on their farms profitability, down 7 percentage points from the previous survey. These results confirm the U.S. Department of Agriculture’s Economic Research Service 2020 farm income forecast, which indicated that 2020 net farm income will come in slightly above 2019 levels. Decomposing this increase into off-farm income and farm income, however, shows that the increase is due to an expected increase in off-farm income, while farm income will remain steady from 2019 to 2020. Farmers additionally were asked if they expect their farms’ financial performance to be better, about the same or worse than their financial performance last year. Forty-two percent of farmers indicated that their financial performance would be worse than last year. This may sound pessimistic, but it is an improvement from previous survey periods. Forty-five percent of farmers responded that their financial performance would be about the same, and 12% indicated it would be better. These results give some hope for farm profitability, since 57% of farmers indicated farm profitability will be at or above 2019 levels. Overall, farmer sentiment, excluding the decrease at the start of the COVID-19 pandemic, continues to improve as 2020 progresses. Farmland Price Expectations The biggest component of a farmer’s balance sheet, and the biggest source of collateral, is farmland. In what seems like good news for both farm and bank balance sheets, 55% of farmers responded that farmland prices will be higher in five years than where they currently stand. Ten percent of farmers indicated they think farmland prices will be lower, but this is a fairly small percentage of farmers. Considering we are only a couple of years removed from decreasing land prices, it is not an unreasonable position to hold. Given farmland’s longrun trend, and the stable farm income, I agree that farmland should continue to be a good investment.
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