After trending lower in late 2017, the Purdue/CME Group Ag Economy Barometer turned higher in January. The monthly survey of 400 agricultural producers from across the U.S. indicated that the measure of producer sentiment climbed to 135 points at the beginning of 2018, up 9 points from December’s 126.
The uptick in sentiment was driven by an improvement in both of the barometer’s two sub-indices: the Index of Current Conditions and the Index of Future Expectations. The improvement in the Index of Future Expectations, a one-month jump of 11 points, was the most obvious driver behind the barometer’s January increase. This was the largest one-month improvement in future expectations since January 2017. The change was further supported by an increase in the Index of Current Conditions, which rose to a reading of 144—a more modest rise of 5 points compared to December 2017. Producers’ appraisal of current conditions in January was also a bit more positive than last summer when the index reached 142 and was the most positive reading for the Index of Current Conditions since data collection began in October 2015.
The January survey provided the first opportunity following the passage of the Tax Cuts and Jobs Act of 2017 to assess producers’ perspectives regarding the likely impact on their farming operations. Two questions related to the tax bill were posed. The first question asked producers to rate the expected impact of the tax bill on their farm operations on a scale that ranged from 1 (very adverse) to 9 (very beneficial). Although the single largest response category (35 percent) was 5, suggesting a neutral rating, there were far more producers who expect a beneficial impact than a negative impact from the tax bill. For example, nearly half of all producers (47 percent) expect the tax bill to be beneficial to their operations, providing a rank of 6 or higher on the survey. Conversely, approximately one out of five (19 percent) respondents provided a ranking of 4 or less, indicating they expect the tax bill to have a negative impact on their farming operations.
A second question related to the tax bill asked producers if they expect the taxes their families face to be higher, lower, or about the same as a result of the tax bill’s passage. Approximately four out of ten producers (43 percent) expect their families’ tax burdens to decline as a result of the tax bill’s passage. On the other end of the spectrum, nearly one-fifth of producers (18 percent) expect their taxes to increase as a result of the tax bill. Finally, 40 percent of respondents said they expected their family taxes to be about the same under the new tax bill. It’s possible the 40 percent of respondents expecting no change in their taxes and the 35 percent of producers who provided a neutral rating with respect to the expected impact of the bill on their farm operations, could reflect uncertainty regarding the specific content of the tax bill and the fact that IRS regulations implementing the tax bill have yet to be issued.
In conclusion, agricultural producer sentiment improved during January compared to a month earlier, driven by improved expectations for the future and, to a lesser extent, by a perceived improvement in current conditions. The increase in the Index of Current Conditions marked the continuation of a long-term trend dating back to summer 2016. In contrast, agricultural thought leaders’ perspective on current economic conditions has been declining continuously since April 2017 and is now back within the range of readings observed throughout much of 2016. This month’s survey provided the first opportunity to gauge producers’ perception of the Tax Cuts and Job Act of 2017 on their farming operations and their families’ tax obligations. Responses indicated that, although there is still a great deal of uncertainty regarding the tax bill’s expected impact, more farm operators expect the tax bill to be beneficial to their farming operations and to lower their families’ taxes than expect a negative impact and higher taxes.
The full report can be found here.
Source: James Mintert, David Widmar and Michael Langemeier with Purdue’s Center for Commercial Agriculture