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Audio Transcript

James Mintert: Welcome to Purdue Commercial AgCast, the Purdue University Center for Commercial Agriculture’s podcast featuring farm management news and information. I’m your host, James Mintert, director of the Purdue Center for Commercial Agriculture. And joining me today is my colleague, Dr. Michael Langemeier, who’s a professor of ag economics here at Purdue, as well as the associate director of the Center.

[00:00:24] Farmer Sentiment Following the U.S. Election

James Mintert: We’re going to review the results from the November 2024 Purdue University-CME Group Ag Economy Barometer survey of farmers from across the nation. Each month, we survey 400 farmers across the U.S. to learn more about their perspectives on the ag economy. This month’s ag barometer survey was conducted from the 11th through the 15th of November. And Michael, the Ag Economy Barometer Index rose again this month. In November after a pretty sharp rise in October. It was up 30 points this month. That takes the barometer up to a reading of 145. We’ve not seen those levels since May of 2021 in the barometer.

And when you look at the Index of Current Conditions and the Index of Future Expectations, they were both up sharply again as well. The biggest rise was future expectations. It was up 37 points compared to last month. It’s the highest reading on that Future Expectation Index since April of 21. Current Condition Index was not up quite as sharply, but still up 18 points compared to last month. And that pushed that index above 100 for only the second time since March.

And we always like to index back to 100 because that’s the average. reading we got back in late 2015, early 2016 during the early stages of a downturn in U. S. agriculture. So, people have clearly gotten a lot more optimistic these last two months, both before the election and then following through the presidential election. What’s your take?

Michael Langemeier: This is a post election bump. I think we saw something similar in the 2020 elect in the, uh, 2016 election rather. Um, and so and so sometimes this index can move after an election. I think that’s what we’ve seen here.

Uh, the Index of Future Expectations rose dramatically and that’s looking five years out. And so, you know, you could see where the sentiment could change a little bit there. But the Index of Current Conditions is a little bit more of a head scratcher. Because I would think that one would be more based on the fundamentals, and the fundamentals haven’t changed all that much.

James Mintert: Yeah, that, I guess I kind of agree with you, Michael. And we’ve seen the index up two months in a row now. I mean, so it’s not like this is brand new. People became more optimistic in October. Um, you know, at that time, we contributed part of it to the fact that we had such strong yields, and much of the U. S., especially in the corn belt, um, pretty good harvest, weather, etcetera. And I think that probably was a contributing factor again, but not enough to give us the kind of boost that we saw.

[00:02:53] Farm Financial Performance

James Mintert: This also showed up in the Farm Financial Performance Index. That index was up again in November. It was up sharply in October, up again in November. This time it was up 18 points. No, 16 points, I guess, compared to October, um, and it’s 38 points higher than it was back in September.

And I want to point out that September reading was the lowest reading we’ve ever gotten on that Farm Financial Performance Index. So people since September have become dramatically more optimistic about their farm’s financial performance. And you and I were talking before we started recording. If, as we look at financials, we, we don’t see that.

Michael Langemeier: No, 2024 looks like a, a very rough year and, and ’25 doesn’t look a lot better. Uh, we are seeing maybe slight decline and break evens, but the key word is slight there. And prices look like they’re going to be similar, if not, maybe a little bit higher than the current prices, but not much higher. And so ’24 and ’25 from a financial projection standpoint, look like pretty tough years for crop farmers.

James Mintert: You know, when we do the survey, we don’t ask people to go check their balance sheet or their income statement. Uh, we just ask them how they feel about their farm’s financial performance effectively. So you get a kind of an off the cuff response. Clearly this, at least in my view, was a sentimental response or a change in sentiment response as opposed to really looking at their own financials.

Michael Langemeier: Yeah, it’s, it’s again, it’s tied to that Index of Current Conditions. Usually, when the Index of Current Conditions increases, that Farm Financial Performance Index increases.

James Mintert: Yeah, exactly.

[00:04:21] Farm Capital Investments

James Mintert: Uh, Farm Capital Investment Index, also up this month. That was 13 points higher than it was a month ago, uh, and also a year ago. Um, this month’s index, you know, if you look at it on a chart, I thought this was sort of significant. It bumps the index out of the trading range of 30 to 50. It’s been in since late 2021. Now, whether or not it stays there, I guess, is another question, but the reading was 55 compared to 42 last month. Um, you go back a year ago, that index was sitting at a reading of 31. So again, a big shift, more optimistic about whether or not now is a good time to make large investments in their farming operation than they were just a couple of months ago,

Michael Langemeier: I think if you look under the hood a little bit and, and you look at, uh, their anticipation of actually increasing, uh, their capital purchases, that’s still relatively small, lower than 10%, and that’s been below 10% all year. Uh, so at 8% is slightly higher than it was in, in September and October, but only, only three, two to 3%. So not much change there. Uh, the change was in those that thought they were gonna indicate they were gonna have low, have lower, uh, machine purchases. That percentage has, has came down.

James Mintert: Yeah, and I think, uh, the real question for listeners is, you know, if you’re, for example, if you’re in the farm machinery business, is this going to result in a change of behavior?

And I think from our perspective, we’d be a little bit surprised if we see much evidence of follow through with respect to changes and purchases. And I think the key there is in the survey, the percentage of people who say they’re going to increase their purchases did bump up a little, but not significantly. Not in a significant way. I think this month it was 8 percent versus 6 percent last month and 5 percent back in September.

The shift was in this percentage of people saying they’re going to reduce purchases, um, shifting from that category over to holding it about the same. And I would be a little surprised if that really is reflected in a change in behavior, for example, in terms of actual machinery purchase.

Michael Langemeier: I would too, uh, we’ll have to, we’ll have to keep track of this and see if, see if we’re right.

James Mintert: Yeah. We’ll be, we’ll be tracking the AEM data to see what happens to tractor sales and combine sales. Um, there was a little bit of a shift though, and there is, there is definitely some optimism out there with respect to making investments.

So the, we ask people who tell us it’s a good time to make large investments, why they feel that way. The first thing that happened here is there was an increase in the percentage of people who said it’s a good time to make an investment. It was 22 percent of the people who surveyed, so just a little over one out of five. That was up from 15 percent in October and 13 percent in September. So there is kind of a shift going on there.

Um, and then when you look under that, under the hood a little bit in terms of why they feel that way, The percentage of people who were pointing to strong cash flows changed a little bit. It went from, in October, 19 percent to 23%. I personally think that’s probably tied to strong yields.

Michael Langemeier: Yeah, you could easily be right, but it’s also, also tied to the fact, the way they answered the Farm Financial Performance question. So at least they’re, they’re being consistent there. One of the things I find interesting about this particular question is we’re still not as high in terms of strong cash flows. That’s the reason for their good investment as we were earlier in the year. And so that kind of puts it in perspective a little bit. Even though they, it’s a lot higher than September reading in terms of those that think the primary reason now is a good time is strong cash flows. It still remains under what it was earlier in this year.

James Mintert: Yeah, that’s a good point. It was 23 percent this month. Back in January, it was 32 percent and that was clearly coming out of a different economic environment.

[00:08:06] Farmland Value Expectations

James Mintert: The Short-Term Farmland Index was a little bit lower this month. It was five points lower than last month. So this is one of the few things that we picked up that was maybe a little bit negative. Almost everything else in the survey was positive. Um, but I have to point out that follows a 25 point increase from September to October. So when you look at it that way, the five point increase or excuse me, five point decline that we saw in November is probably not very significant at all.

Michael Langemeier: Yeah, very similar to what we saw the last month.

[00:08:34] Policy Shift with President-Elect Trump?

James Mintert: So now the interesting part, Michael, we’ve been a asking some pre and post questions pre election post election. And we did this back in 2020, as well. So these results really focus on trying to ascertain why sentiment was going to change. And, you know, in advance the election, we didn’t know how this was going to turn out. We just wanted to track what people were thinking before the election. and see if we could pick us up, pick up some changes following the election.

So the first question was, do you think environmental regulations impacting agriculture will be more restrictive, less restrictive, or about the same five years from now?And Wow! Was there a switch in sentiment here? Uh, compared to before the election, only 10 percent of the people in the survey thought environmental regulations affecting agriculture would be less restrictive. After the election, in November, 55%. A huge swing.

Michael Langemeier: And moreover, we did this again in November ’20. Uh, under, under the, when the Biden administration, uh, is, uh, was, was elected, or when Biden was elected. And at that time, only 4 percent thought we would have less, less restrictive environment five years from now. Now it’s 55%. So elections do matter when it comes to some of these policies.

James Mintert: Yeah, it was a huge shift, uh, and that was probably the biggest shift on the environmental side. We’re going to ask some more questions here about taxation and trade. Um, I’d say the environmental shift was the biggest worry.

Michael Langemeier: This one is very clear.

James Mintert: Yeah. So the next question was, do you think income tax rates for farms and ranches will be higher, lower about the same five years from now? And there was a shift here, but not so much from October to November of this year, but rather looking at both October and November of this year compared to what we found in 2020.

When you look at it that way, those income tax rate expectations didn’t change hardly at all compared to October of this year. But far fewer respondents said they expect to see higher tax rates than felt that way following the 2020 election. So I think, again, I think we’re picking something up there with respect to the attitudes about what might take place under the incoming administration.

Michael Langemeier: And for those of you that perhaps think that we’re going to have lower income taxes, I can’t tell you exactly if that’s going to happen, myself, obviously. Only 9% thought we were going to have lower income taxes, uh, in November ’24. That’s not that much different than, uh, than respondents in November 2020.

James Mintert: Yeah, that’s a good point. Then we asked the same question except with respect to estate tax rates. And of course, that’s always a big issue in agriculture because we tend to be asset heavy. And thinking about transitioning to the next generation that difficulties that can create. So we asked, do you think estate tax rates for farms and ranches will be higher, lower, or about the same five years from now?

And when you compare the results, we got this time around both October and November to 2020, uh, compared to November, 2020, far fewer producers expect estate tax rates to rise. And I, Again, I think that was a little bit of a campaign issue, right?

Michael Langemeier: I think it definitely was, and the last time the exemptions were changed, the exemptions, the amount you can have in your estate and not have to pay estate taxes was during the Trump administration. So when we asked this question in November 2020, 66 percent thought that estate taxes would go up. So they were kind of responding that they, maybe they reversed some of that, uh, that some of that legislation that was passed during the Trump administration, uh, today, or, or in November ’24, it was 34%. I was a little surprised there was 34%. I thought it was going to go up, but, but, uh, I thought more people would say about the same.

James Mintert: Okay.

Michael Langemeier: Status quo.

James Mintert: All right. Yeah.

Michael Langemeier: Well, that’s my guess.

James Mintert: We’ll see how it happens. We’ll see how this plays out. But it clearly a bit of a shift in ’24 versus 2020. All right. So now I think listeners might be wondering, because this is the issue that is the big negative hanging out there for agriculture. How likely do you think U. S. agriculture is at risk of a trade war that results in a significant decrease in U. S. ag exports?

Producers are concerned about this. 42 percent of respondents think a trade war is either likely or very likely. Just 26 percent think a trade war is either unlikely or very unlikely. So it’s not like people have forgotten about the risk exposed to trade with all this discussion of tariffs, but somehow it didn’t impact their basic sentiment. Which is a little surprising.

Michael Langemeier: It’s a little interesting. And so one of the questions we tend to ask is related to possible trade payments. Maybe down the road we can ask a question like that.

James Mintert: Yeah, I mean, I think there’s probably a pretty strong institutional memory here with respect to what happened the last time around when we imposed some tariffs. Uh, China retaliated. Uh, there was some negativity with respect to the price response. And we more than made up for it with, with, uh, payments. So, uh, maybe, maybe that’s what’s going on here. We don’t know.

Michael Langemeier: It could be a partial explanation why they’re, they’re, they, why they’re worried about a trade war, but it doesn’t seem to be impacting their optimism.

James Mintert: Yeah.

Michael Langemeier: Or their sentiment that much?

James Mintert: Yeah. So maybe they’re worried about a trade war but got their fingers crossed, I guess.

Michael Langemeier: Yes.

James Mintert: I don’t know. Um, so, interesting set of responses, we’re going to repeat probably most of these questions in December. Um, you know, going back to 2016, Michael, uh, sentiment continued to improve in December and even in January, so it’s going to be interesting to see how that plays out these next couple of months, if we see a repeat of what we saw in 2016. Um, lots of change taking place, and of course we don’t have a new Secretary of Agriculture named yet, so that could be an influencer as well. So lots, lots of things to think about.

[00:14:34] Conclusion

James Mintert: So that wraps up our overview of what took place in this month’s Ag Economy Barometer. If you want the details, you can get the full report at our website for the barometer, which is purdue. edu slash agbarometer. Uh, and of course you can always subscribe to this podcast for more information, not just on the barometer, but for a variety of farm management news and information. So on behalf of the Center for Commercial Agriculture, I want to thank my colleague for joining us today, Dr. Michael Langemeier. And on behalf of the Center, I’m James Mintert.