Farmer Optimism Fading; Large Operations Feel Financial Pinch – DTN

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    The optimism that farmers and others in rural America appeared to carry from the 2016 presidential election appears to be waning, according to the most recent DTN/The Progressive Farmer Agricultural Confidence Index.

    The overall producer Confidence Index for August fell more than 26 points, to a moderate 104.3, compared to results of the survey in March. While still much above the 71.9 index in August of 2016, it’s a sign the so-called “Trump Bump” is flattening.

    Since 2010, DTN/The Progressive Farmer has surveyed farmers three times a year to determine their opinions about their current economic situation and about that situation in the year to come.

    From those 500 responses, DTN creates a score for farmers’ “current condition,” or how they feel about their operations at the time of the survey, and a score for their “future expectations” for the coming year. Those two scores combine to create the Agricultural Confidence Index.

    Index levels above 100 are considered optimistic compared to the 2010 baseline, and those less than 100 are viewed as a pessimistic attitude compared to the 2010 baseline.

    A separate survey, conducted simultaneously, asks similar questions of 100 agribusiness owners.

    The Ag Confidence Index surveys are conducted before spring planting, just prior to harvest, and at year’s end, at key times in the crop cycle. The most recent farmer survey was conducted Aug. 16 to 30. The survey of agribusinesses took place Aug. 22 to 25.


    Farmers’ responses put their “current conditions” score at 76.7, a similar score to the pessimistic 70 of March 2017.

    The greatest move, and a worrisome sign, is in farmers’ attitudes about the future. When asked about their sales and income prospects a year from now, farmers gave answers that produced a score of 119.6. While still in positive territory, that’s down significantly from the 163.6 score farmers gave in March.

    In August 2016, farmers were even more pessimistic about the future, producing a score of 80.7.

    “While expectations continue to lead current reality, there is a trend toward convergence between those two numbers,” said Robert Hill, economist and researcher who helped create the Agricultural Confidence Index.

    “We seem to be heading back to where we were about two years ago, where expectations matched current reality, and the outlook was flat. This is consistent geographically and by type of producer,” across the survey data, he noted.

    While their scores fell as well, livestock producers remained slightly more positive than farmers who identified as mostly crop producers. Overall confidence scores were 111.2 for livestock, and 100.8 for crop farmers, both down from March 2017 scores.

    Again, the expectation scores caused the overall drop, as both types of farmers felt essentially the same about their current situation as they did in March. Expectations dropped 29.6 points — to 120.2 — for livestock producers and fell 51.5 points — to 118.2 — for crop farmers.

    Those results are in line with how things have been going for cattle feedlot owners. Feedlots through 2017 have had near-record profits, according to DTN Livestock Analyst John Harrington. He noted that in recent weeks, however, essentially about the same time as the survey was being conducted, DTN data showed feedlot returns slipping into the red.


    The feedlot owners might not be the only ones worried about seeing income in the red, although USDA is projecting things to get better.

    In its August forecast, USDA bumped up net farm income for 2017 to $63.4 billion nationally, a $1.9 billion increase, or 3.1% higher than 2016’s net farm income. However, USDA also said that while income is up, farm operations would mostly lose money in 2017, as costs also have climbed.

    USDA also said net farm income remains lower in 2017 than every year from 2010 to 2015. Net farm income peaked in 2013 at $131.3 billion and then declined. (See here)

    Overall, the Agricultural Confidence results showed Southwest farmers had higher optimism than their peers in the Midwest or Southeast, the three regions DTN surveys.

    “But given the timing of the calls, this doesn’t take into account Hurricane Harvey,” Hill said. “It will remain to be seen what growers feel about prospects after the recovery efforts get going there.”


    New for the August survey, DTN also asked farmers to rate their access to financing, as generally the ag lending industry begins to tighten its belt following five years of strong grain yields and low prices.

    According to responses, larger farms are feeling the biggest pinch so far.

    When asked if there was concern about obtaining necessary operating loan financing, more than half of all farms said no.

    “Yet, while about one-third of all producers are concerned about a lack of financing through traditional sources forcing them to change their farming practices, the very largest farmers are the ones most affected,” Hill said.

    “For producers with above $1 million in revenues, four of every nine (41%) have been forced to alter their farming practices because of lack of traditional financing. There is ample evidence that real estate debt is crowding out operational financing as lenders become more cautious with producer balance sheets.”

    The most recent anecdotal sign of the issues for larger operations was the announcement of the lawsuit filed by CHS Capital LLC against Boersen Farms Inc. of Michigan. Based in the western Michigan town of Zeeland, the farm is reported to have planted about 83,000 acres last spring. CHS says the farm has defaulted on a $145.3 million debt. (See here)

    “This is a sign of things to come, the dominoes are starting to fall,” Hill said. As banks get additional non-performing loans, they have to start putting more funds into reserves, which means less funds to lend, Hill said.

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    The issue of large farmers suffering financial failure carries a bigger affect today, compared to the downcycle of the 1980s, Hill noted. “One big boy going under may equal 100 average guys in terms of impact,” he said. Banks won’t be able to hide those big failures long, and, if they continue, it will have serious consequences for rural lenders. “The hiding of the bad account has been exposed, and it is likely just the start.”

    Historically, a telltale sign of financial difficulty is farmers’ need to turn to input suppliers to finance purchases because banks either refuse to lend or won’t lend enough for a farmer’s full needs. Most farmers surveyed said they had not yet turned to suppliers for financing.

    The largest user of those funds was in the $1 million-plus income segment. Of that group, 18% said they were obtaining 11% to 25% of their operating credit from suppliers; 15% said they would get 50% or more of operating credit from the companies supplying seed, fertilizer, chemicals and other inputs.


    Historically, the DTN/PF survey of agribusiness owners has produced more moderate scores, never reaching the optimism nor pessimism of their farmer customers.

    That held true for the 100 business owners surveyed in late August. The overall Agribusiness Confidence Index was 106.6, down three points from March but above the 90.6 score in August 2016.

    Businesses put their present situation at 95, essentially even with March, yet 10 points below a year ago. Their future expectations produced a score of 114.5, again slightly below the 119.3 score in spring, yet significantly above 79.7 from a year ago.

    “It appears that this has not been a very good year for input retailers,” Hill said. “Growers have been trimming their input expenses. Plus, fertilizer prices have come way down, which is a huge determinant of retailer profitability. It’s good for farmers, but bad for retailers.”

    Hill said he heard that the retail industry and manufacturers may try to cut back pre-pay and other incentives to producers.

    “Good luck with that,” Hill said. “Producers seem more likely to sit things out and wait until the input industry starts to meaningfully feel their pain, forcing some later concessions in the input planning and purchase season.

    “I’ll be very interested to see how the end-of-year survey turns out, as we close the circle on this year following the presidential election,” Hill said.

    “The only thing that could stop the falling optimism would be some unforeseen rise in commodity prices,” Hall said. While the overall feeling is USDA has overestimated the 2017 yields, things are still “dark all around,” he added.

    The next DTN/PF survey will be conducted just before the end of the calendar year.

    Greg D. Horstmeier can be reached at

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