Producer sentiment falls as future optimism wanes

Producer sentiment falls as future optimism wanes

Many producers to make changes due to expectations of future.

Producer sentiment about the agricultural economy fell in October as the focus shifted to 2017 and optimism about the future declined, according to the Nov. 1 reading of the Purdue University/CME Group Ag Economy Barometer.

The barometer landed at 92, down nine points from September's reading of 101. The current reading is the second-lowest since data collection began a year ago, with only March coming in lower, at 85. The barometer is based on a monthly survey of 400 U.S. agricultural producers.

The Ag Economy Barometer fell nine points in October to 92, which is the second-lowest reading since data collection began in October 2015. Source: Purdue University/CME Group Ag Economy Barometer/David Widmar

The drop was due, in large part, to the Index of Future Expectations, which fell from 109 in September to 95 in October, according to Jim Mintert, barometer principal investigator and director of Purdue's Center for Commercial Agriculture.

"The decline in producer sentiment recorded during October was primarily driven by an erosion in producers' perspective regarding the long-run health of the U.S. agricultural economy," he said. "Producers expressed strong pessimism about the agricultural economy's prospects in the next year."

Seventy-nine percent of respondents said they expect bad times financially over the next 12 months — an 11% jump from September. This is the highest share of respondents expressing pessimism since data collection began.

A factor in producers' outlook for the future is price expectations, Mintert said. This month's survey included questions about expectations for movement in July 2017 Chicago Board of Trade (CBOT) futures prices for corn and soybeans.

Twenty-seven percent of respondents said they expect July 2017 CBOT corn futures prices to be below today's levels, and 25% expect July 2017 CBOT soybean futures prices to be below where they are today.

Many producers indicated that they will make crop management changes in 2017 as a result of these expectations, including 46% who intend to lower fertilizer rates. Thirty-five percent of respondents plan to adjust the trait packages of their hybrid or seed varieties, while only 19% reported that they plan to lower seeding rates in 2017.

Also included in the October report is the quarterly "Ag Thought Leaders Survey" of 100 agribusiness executives, commodity association leaders, agricultural lenders and academics engaged in the agriculture sector.

Overall, the thought leaders were more optimistic than producers were regarding crop prices. For example, 40% of thought leaders expect July 2017 soybean futures prices to exceed $10.00/bu. between October 2016 and the summer of 2017, but only 30% producers feel this way. Furthermore, fewer thought leaders expect the negative price scenarios to take place. For instance, only 13% of thought leaders expect July 2017 corn futures prices to fall below $3.00/bu., while 27% of producers think this will happen.

When thought leaders were asked about sources of improvement for producers’ financial situations over the next 12 months, nearly 45% believe lower variable expenses will provide relief, and nearly one-third expect lower fixed expenses to help. In both cases, thought leaders believe expense reductions will have more impact on producers’ financial situation than producers anticipate.

However, fewer thought leaders than producers expect higher commodity prices to improve producers’ financial conditions. One-fourth of producer respondents expect higher grain prices to improve financial conditions over the next 12 months, compared to just 8% of thought leaders who expect improvement attributable to higher grain prices. Survey responses also indicated that thought leaders view rising grain prices as the least likely source of improvement in financial conditions, whereas producers view it as the most likely source of improvement.

Read the full October report, including an analysis of the "Ag Thought Leaders Survey," at http://purdue.edu/agbarometer.

The Ag Economy Barometer, Index of Current Conditions and Index of Future Expectations are now being reported on the Bloomberg Terminal under the following ticker symbols: AGECBARO, AGECCURC and AGECFTEX.

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