A monthly measure of the agriculture economy shows post-harvest price rallies have lifted the spirits of farmers over the past month. The Purdue University-CME Group Ag Economy Barometer released Tuesday reached an index point of 116 for November, considerably higher than the October reading of 92. The Barometer surveys 400 farmers monthly. A rating below 100 is negative, while a rating above 100 indicates positive sentiment regarding the agriculture industry. Organizers of the survey say the improved rating can be attributed to an improvement in farmers’ perspective about the future, which was motivated in part by better corn and soybean prices. However, organizers also note the jump in producer sentiment was reflected by fewer respondents with a negative outlook, rather than a notable shift toward a positive outlook on the agricultural economy.
From the National Association of Farm Broadcasting news service.
From: Purdue University-CME Group Ag Economy Barometer
Post-Harvest Grain-Price Rallies Lift Ag Producers’ Spirits
by James Mintert, David Widmar, Michael Langemeier
Agricultural producers’ sentiment improved markedly in November, reaching its highest level since October 2015. At 116, the Purdue University/CME Group Ag Economy Barometer–a monthly survey of 400 agricultural producers from across the country–was considerably higher than October 2016’s value of 92 and also compared favorably with the early summer reading of 112 (Figure 1). Reduced pessimism about the future, motivated in part by improving corn and especially soybean prices, was the driving force behind the improvement in this month’s barometer.
Figure 1. Purdue/CME Group Ag Economy Barometer. October 2015 to November 2016.
The Ag Economy Barometer can be broken down into two component indexes: the Index of Future Expectations and the Index of Current Conditions. The November uptick in producer sentiment was attributable primarily to an improvement in the Index of Future Expectations, which increased to 130 in November versus a reading of 95 in October (Figure 2). Meanwhile, producers’ outlook about the current state of the agricultural economy (as measured by the Index of Current Conditions) continued the slow climb that began in September after bottoming out in August 2016.
Figure 2. Index of Current Conditions and Index of Future Expectations. October 2015 to November 2016.
Fall Crop Revenues Trending Higher
What was behind the improvement in producer sentiment about the future? Producers’ view of the future was buoyed in part by a significant rally in futures prices for corn and especially soybeans this fall. Importantly, the price rally included not just nearby futures contracts, but extended to prices for both the 2017 and, to a lesser extent, the 2018 harvest. For example, recent November 2017 soybean futures prices were as much as 13 percent higher when compared to their late August lows (Figure 3). The price rally occurred despite record-large harvests of both corn and soybeans this fall, which had been expected to put downward pressure on futures prices.
The impact of the price rally was magnified for many corn and soybean producers by their harvest of record yields in 2016. 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.