(DTN) Producers surveyed the first two weeks of March have slightly scaled back the enthusiasm seen in the DTN/The Progressive Farmer Agriculture Confidence Index last issued in December. The overall index and present situation are still above the original survey done one year ago, but expectations have dropped below that base level, set at 100.

The index is based on producers' attitudes toward input costs, net margins and household income, currently and in the next 12 months. The pre-plant overall index, based on all questions, all regions and all commodities, is 111, compared with 151 in December.

"In this survey, people were less ambivalent, answering good or bad rather than normal or same," said Mary Rose Dwyer, DTN/The Progressive Farmer product manager for the Index. "Slightly more are answering bad or worse than good or better, and that has led to a slightly lower rating."

"Perhaps this marks an end to irrational 'agzuberance,' to coin a term," said Robert Hill, owner of Caledonia Solutions, who designed the Index for DTN/The Progressive Farmer. "While still positive overall and especially about the present, they have fallen into typical grower 'pre-plant caution.' They've had a good run and seem to worry that something could possibly turn against them this coming year, even though there is nothing specific on the horizon."

PRESENT VERSUS FUTURE

Note that the present situation is still very positive, at 148 -- up almost 50 percent from a year ago, though down from December's extremely strong 215. The Midwest rating is 186; the Southeast, 162.5; and the Southwest is more than double last year at 204.

Expectations for the next 12 months have provided the downward pull, dropping from 117 in December to 91 in March. Answers from farmers in the Midwest resulted in expectations at 111, but the Southeast is only 70 and in the Southwest, 79.

In the four surveys of producers DTN has done, there is a clear pattern for present confidence to be highest and expectations to be notably more conservative -- not surprising given the ever-present risks in farming.

"The old axiom, 'more farmers go broke during good times than during bad,' must have come from somewhere," said Dale Artho, who runs a diversified grain and cattle operation in the Texas Panhandle, reflecting the feeling that "maybe it's too good to be true" or the greater risk is on the downside.

When the initial survey was done last spring, the DTN Cash Grain Price Index (based on DTN's national cash prices for corn, soybeans and Chicago wheat on a weekly basis) was only about 80, reports DTN Senior Analyst Darin Newsom. By the September survey, it had risen to over 100; by December, 120. Early in 2011, the Cash Index peaked at 140 and dropped to 130 in the March survey period, seemingly confirming farmers' downside fears.

Today, prices move more in one month than in 30 years of farming, one grower pointed out. And rising crop prices mean rising input prices. "Fertilizer has doubled in price in one year as grain prices rose. The corn and soybean growers in this area have good prices right now so they can absorb expensive fertilizer, but our prices are only average," said Mack Chappell of North Carolina, who raises peaches, apples and other produce. "High fuel prices really hurt our operation, too. We sell about half our crop locally at roadside stands and people just don't come out when gasoline costs a lot."

MORE AT STAKE

"With the dollars and risk involved in farming, I feel as if I'm in a jet airplane and I'm not a trained pilot," said Bill Bayliss of Wigwam Enterprises, a grain and tofu-soybean producer in West Mansfield, Ohio. "With expenses going up, you can't help remembering the 1980s wondering when the hammer might fall."

The fall would be from a greater height, added Steve Henry, who farms in Nevada, Iowa. "Perhaps the number of bushels needed to pay for our inputs hasn't changed, but the volume of dollars has certainly risen."

"It has taken years to build equity, but with the capital needed to farm today, it would not take long to lose it all," Artho said. In addition, forward contracting cattle or grain carries counterparty risk, because of the huge volatility and amount of capital involved, he added. If the buyer doesn't honor a contract or goes into bankruptcy, a farmer's situation can change overnight.

"Overall, there is more risk than there has ever been, but also more rewards if you can produce it -- whatever that might be, crops or animals," he said. "It is dry in the Southwest. I plowed up about 200 acres of wheat last week. The remainder is in fair condition, but will need rain and irrigation. The weather cycle indicates more severe storms -- hail, winds, tornadoes -- threatening a crop that can now yield $1,000 to $2,000 an acre in revenue."

REGIONAL DIFFERENCES

As noted earlier, the ratings in the Southeast and South are lower than a year ago. The U.S. Drought Monitor shows conditions in those regions as "abnormally dry" to "extreme drought," and that dryness is expected to persist in April to June. It is no wonder growers there are concerned about the future, despite strong crop prices.

In addition, some traditional Southern crops such as tobacco and peanuts have been left behind in the current commodity boom, said Hill.

CROPS VERSUS LIVESTOCK

"Livestock producers seem down on their future possibilities," said Hill. "Not only are feed prices high, but the cost for replacements or new stock is at record levels. This is daunting for producers and they seem to have lost faith that their margins can hold up while getting squeezed from both ends." As a result, their rating for the present situation matches crops, at 188, but expectations have fallen to just 70.

Crops, on the other hand, have remained quite positive at 134 overall, 188 for present and 102 for expectations.

In conclusion, producers are still strongly positive about the current situation. While expectations have tempered seasonally and in response to price uncertainty, there's a good chance they will rebound going forward. DTN analysts believe the acreage battle is still to be waged and will keep spring-planted crop prices strong, perhaps even testing their records. Demand is still robust and excellent yields are required this year to maintain adequate stocks.

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