Uptick driven by producers' more positive expectations for the future.

Krissa Welshans 1, Feedstuffs Editor

August 2, 2016

3 Min Read
Ag barometer: Long-term outlook strengthens

As the dust settled on what turned out to be a volatile June and early July for commodity markets, agricultural producer sentiment has turned higher (Figure 1). The Purdue University/CME Group Ag Economy Barometer, which is based on a monthly survey of 400 agricultural producers, came in at 112 for July, up from 104 in June and 97 in May.

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The improvement in producer sentiment occurred despite the fact that grain and oilseed prices declined sharply in late June and early July, the report said, adding that the uptick in sentiment was driven by producers' expectations for the future. Specifically, the producer Index of Future Expectations jumped to 121 in July, well above June’s observation of 107 and the highest reading for the index since data collection began in the fall of 2015.

Although producer perspective regarding future conditions in the agricultural sector improved, their sentiment about current conditions, measured by the Index of Current Conditions, declined to a value of 93, down from June’s more optimistic reading of 98.

“Although the uptick in crop prices this spring was short-lived and prices retreated in late June and July, it appears the price rally boosted producers’ expectations regarding future economic conditions in agriculture,” the report noted.

While the rally did not substantially improve perspectives regarding near-term economic conditions, the ability of crop prices to trade, albeit briefly, at levels substantially higher than observed since last year (approaching $4.50/bu. for corn and $12/bu. for soybeans) did affect producers’ views regarding future economic conditions in production agriculture.

Short run vs. long run

During July, 69% of survey respondents indicated that they expect bad financial times in the agricultural economy over the next 12 months, which changed little from responses recorded during both May (70%) and June (65%). This stands in contrast to the share of producers expecting “bad times” financially in the general agricultural economy over the next five years. During July, only 40% of producers reported expectations of bad financial times. The July reading was lower than during June (45%) and May (50%), suggesting that producers are becoming more optimistic regarding the long-run agricultural outlook for several months.

Commodity price expectations buoyed

In the July survey, producers were also asked about their expectations regarding commodity prices. Overall, more respondents during July expected higher crop prices in the future than they did in recent months. For example, 23% of respondents expect higher corn prices 12 months out. This was higher than recorded in March or April and actually was similar to the percentage of producers who reported, back in the January survey, that they were expecting higher corn prices.

The story was similar for soybeans. However, expectations for wheat prices 12 months out were more optimistic as the highest share of respondents (25%) expecting higher wheat prices was observed during July.

In addition to commodity prices, expectations related to farmland values also shed some light on producers’ long-run view of the agricultural economy. During July, 23% of respondents reported expecting higher farmland values over the next year. This was higher than in any previous survey dating back to October 2015.

The share of respondents expecting lower farmland values 12 months out during July (25%) was the lowest percentage recorded since data collection began last fall. Additionally, when producers were asked to rate farmland as an investment, 62% of survey respondents gave farmland a favorable rating in July. This compares to 52% when this question was last posed in May.

“The decline in crop prices that took place during late June and July helped push down agricultural producers' perspective regarding current economic conditions, but this decline was more than offset by an improvement in producers' longer-run view of economic conditions in agriculture, resulting in an improvement in the July reading of the Ag Economy Barometer,” the report noted.

Producers’ improving long-run view was likely buoyed by declines in their cost structure, driven by declines in fertilizer prices and cash rents during 2016, the report suggested.

“It appears that a combination of lower production costs and a brief rally in crop prices this spring was enough to restore some of producers’ long-run optimism,” the report concluded.

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