Farmer sentiment and farm service agency direct loan applications

Purpose Farmer sentiment may be an important indicator for the agricultural sector, similar to the way that consumer sentiment is linked to the general economy. This study uses the Purdue University–CME Group Ag Economy Barometer to test the degree to which farmer sentiment is correlated with demand for United States Department of Agriculture Farm Service Agency (FSA) direct loan applications. Design/methodology/approach We estimate the dynamics between farmer sentiment and applications to FSA direct operating or farm ownership loans using monthly measures of farmer sentiment and loan applications from October 2015 to April 2023 and pairwise vector autoregression. Findings A negative relationship exists between farmer sentiment and FSA direct operating loan applications. In contrast, a positive relationship exists between farmer sentiment and FSA direct farm ownership loan applications. Together, the estimated nonzero relationships suggests that the Ag Economy Barometer may be a leading indicator for the Agricultural Economy and that FSA loan programs play a nuanced role in the agricultural credit market. Originality/value This study uses unique data sources to further the discussion on the link between farmer sentiment and real economic outcomes and the role of an important US Federal Government farmer lending program: FSA direct loans.