The Purdue/CME Group Ag Economy Barometer moved higher again in February. At 140 points, producer sentiment, which is based on monthly survey of 400 agricultural producers from across the country, reached its second-highest level in more than two years of data collection. Sentiment is also higher for the second-consecutive month, providing a strong 14-point boost to the index compared to December 2017.
Figure 1. Purdue/CME Group Ag Economy Barometer, October 2015-February 2018.
While the Ag Economy Barometer reached a survey high of more than 150 points back in January 2017, it’s worth noting the difference between the January 2017 peak in sentiment and the February 2018 reading (Figure 2). In early 2017, favorable sentiment regarding the agricultural economy was most heavily influenced by a strong uptick in in the forward-looking measure of producer sentiment, the Index of Future Expectations, along with a more modest improvement in current conditions (Figure 2). More recently, however, the barometer has been strongly supported by a long-term improvement in producer sentiment regarding current conditions on their farms, along with an uptick in expectations for the future. So, a year ago the primary driver behind the barometer’s rise was better expectations for the future, whereas this year the primary driver appears to be an ongoing improvement in current conditions.
Figure 2. Index of Current Conditions and Index of Future Expectations, October 2015-February 2018.
Producers Optimistic about Trade; but Uncertain about NAFTA’s Future
On the February survey, producers were asked about their future expectations for U.S. agricultural exports. Agricultural producers remain optimistic that U.S. ag exports will remain strong over the next five years with 87 percent of respondents expecting exports to either remain about the same or increase. Just 13 percent of farmers in the survey expressed concern that U.S. ag exports will decline over the next five years, which was virtually unchanged from a year ago when the same question was posed to producers. The upshot is U.S. agricultural producers’ long-run expectations regarding agricultural exports have not changed over the course of the last year.
A new survey question regarding the likelihood of the U.S. withdrawing from the North American Free Trade Agreement (NAFTA) agreement was posed on the February 2018 survey. Producers were asked to rank, on a scale from 1 to 9, the likelihood of a U.S. withdrawal from NAFTA (Figure 3). A large portion of respondents, 39 percent, provided a neutral rating of 5, while 34 percent indicated they thought withdrawal was more likely (a rating of 6 or higher) and 29 percent thought a withdrawal unlikely (a rating of 4 or lower). Responses suggest there is a tremendous amount of uncertainty among producers regarding the future of NAFTA. Despite that uncertainty, and notwithstanding the importance of U.S. ag exports to both Mexico and Canada, producers remain relatively optimistic about long-run prospects for U.S. ag exports.
by James Mintert, David Widmar and Michael Langemeier, Perdue University Center for Commercial agriculture/CME Group