OMAHA -- Agribusinesses officials are happy at the moment, but less optimistic about their business future than they were a year ago, according to the DTN/The Progressive Farmer Agribusiness Confidence Index released Monday, Aug. 22.

Agribusiness owners surveyed gave their present-situation an index of 110.4; levels above 100 are seen as positive. The overall confidence index, which factors in feelings of current and future conditions, dipped to 97.8. That's the first time it has fallen below 100 since the index began in August 2010.

The overall economy seems to weigh on business owners' minds, despite commodity prices of $7 corn and $13 soybeans during this August's survey. Last year, they were $4 and $10.

Brian Thalmann, of Thalmann Seeds in Plato, Minn., a farmer and seed conditioner, said his confidence in the agricultural economy would fit right in line with the Agribusiness Confidence Index -- his positivity is waning a bit. For one thing, as a farmer he relies on the ethanol industry and there are several unknowns in ethanol's future. He also thinks another concern that might have turned the Agribusiness Confidence Index downward is the debt ceiling issue; Thalmann noted Minnesota just went through a state government shutdown for 21 days. "They shuffle some things around, but really didn't solve anything and that is what the federal government did as well," he said. "I think these general economy worries are weighing some on the ag economy right now."

Thalmann said three areas -- the cheap U.S. dollar, low interest rates and foreign demand -- are keeping the agricultural economy going. He worried a dip in any of these three factors would cause problems. "The effect of other countries' economies on the market is good currently, but that could change in a big way if the Chinese economy begins to suffer," he said.

"Currently the situation is good," he said. "Longer term, that's when it gets a little cloudy for me."

DTN/The Progressive Farmer launched its initial survey of a national random sample of businesses that provide products and services to farmers and ranchers in August 2010, and the results were set to 100.

That's exactly what is going on, said Mary Rose Dwyer, DTN business development associate who directs the three-times-per-year survey. "The factor contributing to the increase in the present situation index is the strong response in appraisal of current sale of products and services to farmers and ranchers. Out of the 100 respondents, only 6% stated that they thought their present situation was bad. This compares with 12% stating a bad appraisal in August 2010 and 11% in February of this year. So, overall, agribusinesses feel that they are successful in their current sales and services."

PRESENT SITUATION IS POSITIVE

Those supplying products and services to farmers and ranchers have seen excellent results in 2011 for the most part. The present index reflects that, coming in at 110.4, well above the initial survey and up a touch from 109.6 in February.

Consider John Deere's recently released third-quarter earnings and fiscal 2011 outlook, for instance: The company reported third-quarter equipment sales of $7.72 billion, beating the trade's expectation of $7.55 billion, and raised outlook for the year to a 25% improvement over fiscal 2010, up from its prior 21% to 23% estimate.

Jared Hargrove with Crop Production Services in Clay, Ky., told DTN that for the most part, he feels higher commodity prices are currently creating a positive agriculture market feeling because they tend to support everyone from farmers to companies like Crop Production Services. Locally, the ag economy looks to be in a good shape, he said. Planting was late because of extremely wet field conditions, but despite this Hargrove said he thinks the area's crop yields still may be "good."

"Short of a hail storm, or something like that, I think we will have a decent crop this fall, which is good for all the agribusinesses in the region," he said.

Deb Miller, vice president and branch manager of Citizens State Bank in Sinai, S.D., said she feels the agricultural economy is still "pretty positive" despite recent woes in the general global and national economies. The bank's region of east-central South Dakota has seen high commodity prices and excellent crops in recent years.

"We have had five years of excellent crops in our area," Miller said. "Farmers, really all of us in agribusiness, have been pretty fortunate as you don't have go far away to find crops flooded out."

Farmers have had more income in recent years to pay down debt and also invest in their operations in the form of upgrading facilities or equipment, she added. "We may see issues arise such as lower land prices, but really I think ag is in such a good position currently a slight pull-back would not hurt it," Miller said. "Longer term, maybe these issues will have an effect, but shorter term, I don't think so."

EXPECTATIONS ARE MORE CAUTIOUS

The DTN/The Progressive Farmer attitude surveys have uniformly found expectations are at least slightly more conservative than the corresponding questions about the present situation. In other words, people tend to hedge their bets looking forward. In this survey, given the strong current situation, some managers may simply feel it would be hard for things to get better.

"This time, we are really seeing a stagnant outlook," said Dwyer. "Overall, the majority agribusinesses felt their expectations for the future would be about the same or normal. This was especially true when asked about their expectations of business profitability 12 months from now. Only 12% of managers thought their profits would be better, 11% thought they would be worse, but 77% thought profits will stay the same. This is a pretty big change from what we saw in August 2010, when 27% of managers thought things would get better. So I would interpret this as managers don't expect a future boom in business, nor are they frightened by the future -- most just expect business to continue as it is."

"If you think about what's going on in these farming communities, this makes sense," said Robert Hill, principal at Caledonia Solutions in North Oaks, Minn., who helped design the survey. "On a macro level they've been rocked just as everyone else in the country has by the uncertainties around the general economy, the political economy, and the variability on Wall Street. The survey was conducted August 2-9, a period of record price swings on Wall Street, which came just after the federal government blowup around defaulting on the debt. These uncertainties in and of themselves can lead to negatives about the future, even though they say nothing specific about ag production economics."

Donald Schneider, part owner of Hamersville Coal and Feed in Hamersville, Ohio, agrees that the general economy problems are slowly creeping into agriculture and it is turning lower. "I see a lot more negative than positive today," Schneider said. The rising cost of everything associated with running a business is one concern that is not very good currently, he added. Looking at the upcoming 12-month period, he said, "I will be honest; I am not very excited about it."

Furthermore, Hill added, regarding future prospects in agriculture, "I am hearing a lot of disbelief about what USDA is saying with respect to acres and yields for this season. Too many corn and bean acres got planted late, really late. Add to that the added problems in many areas of either too much moisture, too much drought, too much heat, and so on. And on the livestock side, herds in the South are being liquidated due to drought. People in farming communities can see the lack of production uniformity with their own eyes, so the expectations are that farmers' wallets may clam shut over the coming year," he said. "It will be spotty, though. Some farmers will be making out really well, but in most areas there may be less total money available to spend on goods and services following the coming harvest."

Chris Pugh, grain operator at Perdue Grain and Oilseed in North East, Md., is a case in point. He told DTN his company sees the upcoming shortage for some grains as a challenge for companies in the grain business. This year's weather challenges, whether it be flooding or drought, are going to limit the amount of grain available on the market, he figures. "With grain prices high, we have to buy grain from farmers at a higher level and then find buyers at a higher price," Pugh said. "Higher grain prices are both good and bad for us."

More generally, market volatility is a challenging aspect for the ag economy as a whole, Hargrove said. The sudden changes in the price of commodities are stressful on everyone, especially those who missed opportunities. Looking out 12 months, Hargrove was not sure what to think.

Miller, the South Dakota banker, said the upcoming 2012 farm bill in the face of federal funding pressures adds to the list of uncertainties that could keep managers awake at night. They worry about possible effects on crop insurance and other features of the safety net.

DTN's next Agribusiness Confidence Index will be issued December 5. Results of a similar survey of farmers will be issued September 19.

For full results of this survey: Please see www.agricultureconfidenceindex.com

Linda Smith can be reached at linda.h.smith@telventdtn.com; Russ Quinn can be reached at russ.quinn@telventdtn.com.

(GH/CZ/ES)

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