Producer sentiment improves on crop futures rally

Producer sentiment improves on crop futures rally

Barometer registers highest reading since October 2015.

Producer sentiment about the agriculture industry's economy improved substantially in November, in part because of soybean and corn futures price rallies, according to the Dec. 6 report of the Purdue University/CME Group Ag Economy Barometer.

The barometer, which is based on a monthly survey of 400 U.S. agricultural producers, jumped to 116 (Figure 1) — the highest reading since October 2015 and up 24 points from the October 2016 reading of 92.

The shift was largely driven by the Index of Future Expectations, one of the barometer’s components, which climbed to 130 in November, up from 95 in October. The Index of Current conditions increased only slightly, from 85 in October to 87 in November.

"Producer sentiment about the future climbed partly because of a significant rally in futures prices for corn and especially soybeans this fall," said Jim Mintert, barometer principal investigator and director of Purdue's Center for Commercial Agriculture. "The rally included not just nearby futures contracts but extended to prices for both the 2017 and, to a lesser extent, 2018 harvests."

Recent November 2017 soybean futures prices were as much as 13% higher than August lows. Despite record corn and soybean harvests this fall that were expected to cause prices to decline, strong export demand and uncertainty regarding the South American crop offered support in November.

“The combination of strengthening commodity prices and record yields is improving the crop revenue picture for producers, providing support not only to their perspective on near-term economic conditions but also fueling a change in perspective about the future,” the report noted.

It's important to note that the jump in producer sentiment had more to do with decreased pessimism about the future of the agricultural economy than it did with a notable shift toward a positive outlook, Mintert said.

Each month, producers are asked about their expectations for the agricultural economy over the next five years. The share of respondents expecting "bad times financially" declined dramatically from 56% in October to 42% in November. However, the share of respondents expecting "good times financially" increased just 2% percent in the same period, from 35% to 37%.

"These responses suggest that producers as a whole are not necessarily more optimistic but, rather, they are less pessimistic about the future than earlier in the year," Mintert said, adding that the shift in producer sentiment doesn't indicate a prosperous time in agriculture as more producers continue to expect bad times than good.

"One way to look at November's improvement is that it reveals a slightly more optimistic outlook regarding what could still be characterized as a difficult time for many agricultural producers," he said.

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