In January, agricultural producers were more optimistic about the agricultural economy than a month prior, according to the Purdue University/CME Group Ag Economy Barometer and the expectation of lower taxes may have something to do with it.
The January barometer read 135, up 9 points from December’s 126. The uptick was driven by increases in both the Index of Current Conditions, which climbed 5 points to 144, and the Index of Future Expectations, which climbed 11 points to 131. This marks the largest one-month improvement in future expectations since January 2017.
The barometer is based on a monthly survey of 400 agricultural producers from across the U.S. Each month, survey respondents are asked whether their farm operations are financially better off, worse off, or about the same. In January, 43 percent said their farms were financially worse off than a year ago, while 14 percent said their farms were financially better off.
According to James Mintert, director of Purdue University’s Center for Commercial Agriculture and the barometer’s principal investigator, the 43 percent number is significant.
“To help put January’s responses in perspective, the percentage of farmers who felt their operations were financially worse off reached a high of 81 in August 2016,” he said. “Since April 2017, the share reporting that their farms were financially worse off has consistently fallen below 50 percent. The reduction has been an important driver of the ongoing improvement in the Index of Current Conditions.”
Another potential driver of producer sentiment in January was the passage of the Tax Cuts and Jobs Act of 2017. Surveyed producers were asked to rate the likely impact on their farming operations, as well as their families’ tax burdens. Nearly half of all producers said they expect the tax bill to be beneficial to their operations. Conversely, 19 percent said they expect the tax bill to have a negative impact on their farming operations. The remaining 35 percent gave a neutral response.
When it came to producers’ expectations for their families’ tax burdens, 43 percent said they expect a decline, 18 percent expect an increase, and 40 percent said they expect their families’ tax burdens to stay about the same.
“It’s possible the 40 percent of respondents expecting no changes in their taxes and the 35 percent who provided a neutral rating 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,” Mintert said.
Each quarter, a parallel survey gauges the sentiment of 100 agricultural thought leaders. Sentiment among thought leaders declined sharply from October’s survey, falling from 152 to 127. The decline in agricultural thought leaders’ sentiment was driven in part by their more negative perspective on current conditions than they had last fall.
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