Farmers surveyed as part of the Purdue/CME Group Ag Economy Barometer indicated more optimism in July because of better commodity prices expectations this fall. The monthly survey for July reached 139, its highest level since January 2017, and its second-highest level since data collection began in October 2015. The increase continues a trend seen over the summer of more optimism regarding the future of the agriculture economy. The forward-looking measure of sentiment, the Index of Future Expectations, climbed seven points in July to 138. A measure above 100 indicates optimism, while a measure below 100 indicates pessimism regarding the farm economy. In July, farmers were asked if they expect to see higher, lower, or about the same grain, oilseed and cotton prices in the next 12 months. Many indicated they expected to see higher commodity prices through the next year. The improvement in producers’ expectations for commodity prices corresponded with early summer market activity. Wheat futures prices, driven by drought conditions in the Northern Great Plains, have been the most active, but uncertainty about the corn and soybean growing seasons has also contributed to market volatility.
From the National Association of Farm Broadcasting News Service.
from Purdue/CME Group Ag Economy Barometer
Strengthening Commodity Price Expectations Send Farmer Sentiment Higher in July
The Purdue/CME Group Ag Economy Barometer turned higher in July, following several months of stagnation. The index of agricultural producer sentiment, which is based on a monthly survey of 400 agricultural producers from across the country, reached 139 in July – its highest level since January 2017 and its second-highest level since data collection began in October 2015 (Figure 1). Sentiment this summer among the nation’s agricultural producers is markedly more positive than during summer 2016 when barometer values ranged from the mid-90s to the low 100s.
Figure 1. Purdue/CME Group Ag Economy Barometer, October 2015 to July 2017.
Continuing a trend that’s been underway for several months, the increase in the barometer was underpinned by an improvement in producers’ perceptions of current conditions in the ag economy. The Index of Current Conditions rose to 142 in July, up 10 points from June. The Index of Current Conditions in July was actually 24 points higher than it was in January when the Ag Economy Barometer peaked (Figure 2).
Agricultural producers also indicated in July that they were more optimistic about the future than a month earlier. The forward-looking measure of sentiment, the Index of Future Expectations, climbed 7 points in July to 138. Unlike the Index of Current Conditions, however, the Index of Future Expectations remains well below the peak level established in January 2017, when it jumped up to a reading of 169.
Over a period of several months, a fundamental shift has taken place with respect to the primary drivers of producer sentiment. In the fall of 2016 and continuing into early 2017, improvements in farmer sentiment were motivated primarily by producers’ more optimistic views of the future, as measured by the Index of Future Expectations. However, since February, future expectations have mostly trended sideways. In contrast, the Index of Current Conditions has improved steadily in a trend that actually got underway last summer. The Index of Current Conditions has exhibited a month-to-month increase in nine out of the last 11 months. After bottoming out last summer with an index value of just 80, the Index of Current Conditions has climbed 62 points in the last year and in July was at its highest level since data collection began in October 2015.
Figure 2. Index of Current Conditions and Index of Future Expectations, October 2015 to July 2017.
Improved Commodity Price Expectations
Part of the improvement in producers’ perceptions of current conditions appears to be the more optimistic view they have of key commodity prices. In the latest Ag Economy Barometer survey, we asked producers if they expect to see higher, lower, or about the same grain, oilseed and cotton prices in the next 12 months. This is a question that we pose periodically to producers in our surveys. On the July 2017 survey, it was clear that a much larger share of producers expect to see higher corn, soybean, and wheat prices in the year ahead than on prior surveys. The exception was cotton prices, a commodity for which price expectations actually declined from April to July of this year (Figure 3). For example, in July, 39 percent of respondents said they expect higher corn prices in the next 12 months, up from 24 percent in April 2017 and just 22 percent in the July 2016 survey.