Ag Economy Barometer Remains Strong; Producers Concerned About Estate Tax Policy

The Purdue University/CME Group Ag Economy Barometer was virtually unchanged in April, up one point from March to a reading of 178.

Producers are becoming more optimistic about the future, the Index of Future Expectations continued its upward trend from last month, up 5 points to a reading of 169.

However, their views on current conditions slipped. The Index of Current Conditions dropped 7-points in April, to a reading of 195.

The Ag Economy Barometer is calculated each month from 400 U.S. agricultural producers' responses to a telephone survey. This month's survey was conducted from April 19-23, 2021.

The Farm Financial Performance Index hit a record high in April, up 13 points from March to a reading of 138, 83 points higher than one year ago.

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This month 50% of producers indicated that they expect better financial performance in 2021 compared to 2020, up from 39% who felt that way in March.

Strength in commodity prices continues to drive improving expectations for strong financial performance, even as many producers face rising input costs.

Despite expectations for their farms' strong financial performance, farmers were less inclined to think now is a good time for large investments in buildings and equipment than they were in March.

However, in a follow up question, when asked more specifically about their farm machinery investment plans, more producers in April said they planned to increase their farm machinery purchases than in March.

Divergence between the two responses could be reflective of the run-up in building costs and difficulty in scheduling construction projects across the U.S.

Possible changes in U.S. tax policy are on the minds of ag producers. Ninety-five percent of respondents are either somewhat or very concerned that changes in tax policy will make it more difficult to pass their farms on to the next generation.

Eighty-seven percent expect capital gains rates to rise over the next five years.

Three-fourths said they are "very concerned" about the possible elimination of the step-up in cost basis for farmland in inherited estates and just over two-thirds (68%) of respondents said they are "very concerned" about a possible reduction in the estate tax exemption for inherited estates.

Farmers expect the rise in farmland values to continue unabated over the next year as the Short-Run Farmland Value Expectations Index rose to a record high reading of 159, 11 points higher than a month earlier.

Producers were less optimistic, however, when asked about the 5-year outlook for farmland values as the Long-Term Farmland Values Expectations Index declined 9 points in April to a reading of 148.

The difference in producers' short versus long-term expectations could be an indication they are concerned that the rapid rise in farmland values we're seeing may not be sustainable over the long run.

Read the full Ag Economy Barometer report at purdue.ag/agbarometer.

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