The Purdue/CME Group Ag Economy Barometer dropped seven points from July to August, but remains ahead of the same time a year ago.
The barometer hit 132 in August 2017, compared to 95 in August 2016. The barometer, a sentiment index based on a monthly survey of 400 agricultural producers from across the U.S., dropped back near to the level observed from April through June of this year. Since peaking in January at a reading of 153, monthly barometer readings have ranged from a low of 124 in March to 139 in July.
The change in sentiment in August versus July was largely driven by a decline in the Index of Current Conditions to 122, a 20-point decline compared to a month earlier. Previously, the Index of Current Conditions, which reached a life-of-survey high in July 2017 at 142 points, had been a key source of support for the Ag Economy Barometer, going back to Fall 2016. In contrast, the Index of Future Expectations, the barometer’s other sub-index, was at 137 in August, virtually unchanged from the July reading of 138.
Weakness in the Index of Current Conditions compared to July was not unexpected given the recent downtrend in grain and oilseed prices. For example, from July 17 to Aug. 21 – the first days of the July and August sentiment surveys, respectively – the December 2017 corn futures contract price fell 6%. Moreover, the December 2017 corn futures contract also traded most of the month of August well below levels observed last winter and spring. Prices for wheat and soybeans also weakened generating additional concern about farm revenues and profitability.
Producers were asked if the best opportunity to market grain was “over the last six months,” or would be in the “upcoming six months.”
- 59% thought the best opportunity was in the last six months.
- 41% expect good grain marketing opportunities in the upcoming six months.
Producers were asked about their neighbors’ sentiments regarding the current agricultural economy.
- 71% reported that farmers in their area were “pessimistic” about the current state of the agricultural economy.
- 29% reported their neighbors as being “optimistic.”
The Index of Current Conditions trended higher over most of the last year, with the August 2017 survey being the biggest exception. Over the course of the last 12 months, improvement in farmers’ perspectives regarding current conditions contributed to increases in the Ag Economy Barometer. What actually drove the longer-term shift in the Index of Current Conditions?
- One of the most significant changes that took place over the last year was a shift in producers’ perceptions regarding their farms’ financial positions compared to a year earlier. In August 2016, a life-of-survey high of 81% of respondents said their farms were financially “worse off” than the year before. But over the course of the last 12 months, responses to this question changed markedly with roughly half as many producers responding “worse off” on the August 2017 survey.
- The second big change was a shift in expectations for the upcoming year. On a quarterly basis, producers report their expectations about farmers’ profitability, broadly speaking, over the next 12 months. When comparing the results of August 2016 to August 2017, far fewer respondents expected farmers’ profitability to “diminish” over the next 12 months, while a larger share of respondents reported that they expected profitability to improve.
Source: James Mintert, David Widmar and Michael Langemeier, Purdue University/CME Group