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DTN/THE PROGRESSIVE FARMER RELEASES ITS QUARTERLY AGRICULTURAL AND AGRIBUSINESS CONFIDENCE INDEXES
Source: DTN/The Progressive Farmer news release

Farmers feel less optimistic about the agriculture economy as lower crop prices collide with hefty input bills, according to the latest DTN/The Progressive Farmer Agriculture Confidence Index results.

The final Agriculture Confidence Index of 2013 came in at 105.5, a 3.6-point drop from last year. Farmers' assessments of their present situation, however, took an even sharper decline, reflecting farm incomes that have returned to more normal levels after several record-setting years.

A value of 100 is considered neutral with higher values indicating optimism and lower values reflecting pessimism. DTN surveyed 500 farmers and ranchers across the country between Dec. 3 and 13. DTN conducts the survey before planting, before harvest and after harvest each year to gauge farmers' attitude at key times of the crop cycle.

"It seems that current input prices are not as favorable, and current farm income may be taking a hit as a result," said Robert Hill, owner of Caledonia Solutions and designer of the survey. "Most of this is coming from crop producers and not so much from livestock producers. High cash rentals and increased costs per acre for weed control are the likely culprits."

Farmers' attitudes may be sobering, but businesses' attitudes toward the economy improved slightly over last year. The DTN/The Progressive Farmer Agribusiness Confidence Index, a similar survey of 100 agribusinesses conducted between Dec. 3 and 6, increased to 102.5 from 100.7 last year.
All but one survey respondent categorized current sales as good or normal, and more than 50% of respondents said their profits were at a normal level, both improvements over last year. Uncertainty about fiscal policy, the farm bill, and global economy kept business' optimism in check.

Farmers Feel Pressure of Shifting Market Dynamics

DTN's Agriculture Confidence Index is composed of two parts. A survey asks farmers to assess input prices and net farm income as good, bad or normal to gauge their attitudes toward their present situation. To get a grasp on future expectations, it also asks if farmers expect input prices and income to get better, worse or stay the same 12 months down the road. DTN then compiles the findings into an overall index value, a present situation index and an expectations index.

Farmers rate their present situation as 120.7, a sharp decline from last December's 137.2. Their expectations for 12 months down the road came in at 93.6, a pessimistic reading that's slightly better than 2012's 90.5.

Producers have lowered their assessment of current farm income from good to normal in the latest round of results, but they haven't strongly shifted into "bad" territory yet. The number of respondents who classify their farm income as good fell from 46% last year to 33% this year. Forty eight percent consider it normal, while 18% say income is bad. That compares to 38% and 15% last year, respectively.

Justin Bauer runs a no-till grain farm with his father in Durand, Wis. Drought in their corner of the nation's dairyland was worse than in 2012, and they got hit by a double whammy of low prices and disappointing yields. He says their farm income falls in the bad category.

"We sold all the soybeans right out of the field pretty much. We have all the corn in storage on the farm. We're hoping (for a better price). We're not sure we'll get it, but we have the ability to hold off a little bit," he said.

He thinks input prices, in relationship to the price of corn, are bad this year, especially on seed. Fertilizer prices have come down somewhat, but it's still a big cost.

Overall, the survey showed producers' perspectives on input prices have soured since last year. Producers who think current input prices are good declined to 23.4% from 38.7% last year. Forty five percent of respondents considered prices normal while 31% considered them to be bad, compared to 34% and 27% last year respectively.

"The Roundup resistance has really driven up weed-control costs and hurt yields," Hill, the economist, said.

Most farmers see input prices staying the same (42%) or getting worse (38%) next year. Bauer's one of the 18% who think input prices will improve.
"It seems like it takes two years of low corn prices to pull down input prices," he said, adding that cash rents stayed similar to last year. But while he thinks there could be some relief in input prices, lower commodity prices lead him to think farm income will be down next year.

Crop Producers Feel The Brunt

DTN breaks down the Agriculture Confidence Index by region and by type of operation, and the latest survey shows confidence among Midwestern, row-crop farmers like Bauer have taken the biggest hit.

The overall index value for crop producers, at 104.3, was the lowest reading since DTN began the survey in April 2010. In the Midwest, the index reading broke a three-survey streak of values higher than 109, falling to 103.4.

By comparison, the index for livestock producers came in at 107.7, which was slightly lower than last year's 109.4, but it showed a shift towards higher expectations for the future even though the present situation index declined. With the cattle herd at its smallest since World War II, DTN Senior Analyst Darin Newsom thinks it'll take until the end of 2014 before herd expansion becomes realistic.

Optimism among producers in the Southwest increased over last year with the index increasing to 110.6 compared to 109.5 last year. Producers in the region also had a 102 value for their expectations index, which Newsom said likely reflects improved pasture and wheat crop conditions as long-term and widespread drought improves.

"This year, they might actually have something to sell," Newsom said.

Washington, Slow Farmer Sales Drag On Business

The Agribusiness Confidence Index improved slightly over last year, to 102.5, largely due to better assessments of sales of goods and services. All but one survey respondent said current sales of products and services to farmers were good (57%) or normal (42%). Sixty three percent of businesses said they expect sales to stay the same in the next 12 months.

The survey includes responses from equipment dealers, market advisers, crop consultants, crop insurance agents, agronomic suppliers, country elevators and banks. Not every sector of the business responds the same to the anticipated downturn in farm income.

For instance, Deere and Company expects ag machinery sales to decline 5% to 10% in fiscal 2014. Local banks may have more farmers applying for operating notes.

Agribusinesses rate their present situation a little higher than last year at 120.7, while expectations stayed about the same at 90.2, a negative reading.
"People serving farmers have been waiting for more than two years now for the good times to end. They haven't," Hill said. "These business people have a demonstrated tendency to react to uncertainty about the future, and the index shows that they consistently make out better than they had expected.

"As with any business, uncertainty is viewed as a negative, causing them to hold back on investing and hiring. The uncertainty is about what's happening in Washington around the Farm Bill. With the Farm Bill up in the air for several years now, there are no solutions coming out of Washington, only continued uncertainties."


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