Recently Purdue’s Center for Commercial Agriculture, in a partnership with the CME Group, launched the Purdue CME Group Ag Economy Barometer. The Ag Economy Barometer is designed to fill an information void regarding the overall health of the U.S. farm economy and is analogous to publicly available indices focused on the broad U.S. economy, such as the University of Michigan’s Consumer Sentiment Index.

The Barometer is based on a monthly telephone survey of 400 U.S. agricultural producers and is designed to learn more about farmers’ attitudes and sentiments regarding the status of the U.S. farm economy. Farmers across a broad spectrum of agricultural enterprises are surveyed. Their responses are weighted based upon the USDA’s Census of Agriculture to ensure that survey responses are representative of the entire farm sector.

The key agricultural enterprises in each month’s survey include the following: corn/soybeans, wheat, cotton, beef cattle, dairy, and hogs. These enterprises collectively account for two-thirds of all U.S. agricultural production. In each survey, we target a distribution of farms across these key enterprises. Then we ensure a portion of responses come from each production enterprise. Those survey portions are 53% corn/soybeans, 14% wheat, 3% cotton, 19% beef cattle, 5% dairy, and 6% hogs.

Specifically, responses to five questions are used to generate the Ag Economy Barometer value each month. The questions are:

1. Would you say that your operation today is financially better off, worse off, or about the same compared to a year ago?
2. Looking ahead, do you think that a year from now your operation will be better off financially, worse off, or just about the same as now?
3. Turning to the general agricultural economy as a whole, do you think that during the next twelve months there will be good times financially, or bad times?
4. Looking ahead, which would you say is more likely; U.S. agriculture during the next five years will have widespread good times or widespread bad times?
5. Thinking about large farm investments – like buildings and machinery — generally speaking, do you think now is a good time or bad time to buy such items?

INTERPRETING THE AG ECONOMY BAROMETER VALUES

Responses to these five questions are used to calculate the index value each month. Data was collected monthly from October 2015 through March 2016 to establish a base period for the Barometer and each month the Barometer value provides a comparison of farm sector economic conditions with the six-month base period. For example, a Barometer value of 100 implies conditions were unchanged compared to the base period whereas values greater than or less than 100 indicate an improvement or deterioration in farmers’ sentiment, respectively, compared to the October 2015- March 2016 base period

EARLY RESULTS FROM THE AG ECONOMY BAROMETER

Data collected from October through March revealed that farmer sentiment regarding the Ag economy was declining, with the index reaching a low of 85 in March. But sentiment among agricultural producers improved markedly in early spring as the index rose to 106 in April before backing down in May to a value of 97, which put the index back in line with readings provided by producers in January (98) and February (96) of this year.

Digging into the components of the Ag Economy Barometer, producers’ perspective regarding both current and future conditions declined in May relative to April, but remained above the late winter lows. Each month’s Index of Current Conditions is derived from producers’ responses to questions focused on current financial conditions and their thoughts about making large investments today. Recent shifts in farmers’ assessment of current economic conditions appear to be the driving force behind changes in the Ag Economy Barometer. The Index of Current Conditions reached a low of 77 in March and improved to 105 in April, before dropping back in May to 83.

Ag Economy Barometer, October 2015 to May 2016.

In contrast, the May Index of Future Expectations retained most of the gain observed in April, suggesting that farmers’ longer-term view of the agricultural economy was still significantly more positive than in late winter.

COMMODITY PRICES AND THE BAROMETER

Responses to questions used to compute the Index of Current Conditions seem to reflect changes in commodity prices. When grain and oilseed prices declined over the winter, farmers’ assessment of current conditions drifted lower. However, when these same commodity prices rallied during late March and April, farmers’ assessment of current conditions improved markedly. May’s decline in farmers’ assessment of current conditions appears to be correlated more closely with livestock price weakness. In particular, both feeder cattle and live cattle futures prices declined sharply during late April and early May, resulting in diminished profit prospects for both cattle feeders and cow-calf producers.

ARE LOWER FARMLAND VALUES ON THE HORIZON?

For the May survey, producers were also asked whether they expect farmland values to increase, decrease or remain about the same over the next 12 months. We asked this same question last November, as well as February and March of this year. Examining the results over time provides an interesting perspective into producers’ views regarding farmland. The percentage of producers that expect farmland prices to increase in the next year has been quite small, but remarkably stable going back to last fall, consistently falling in a range of 13% to 15%. In contrast, the percentage of producers expecting farmland prices to decline over the next year has fluctuated much more. Producers were most pessimistic regarding farmland prices in November and March, when 46% expected a decline and noticeably less pessimistic in May when 33% of respondents reported that they expect farmland prices to decline over the next year. The reduction in pessimism regarding near-term farmland prices is likely attributable to the improvement in crop prices the last couple of months.

Current and Future Indices, October 2015 to May 2016.

FARMLAND STILL GENERALLY VIEWED AS A FAVORABLE INVESTMENT

While a small percentage of survey respondents, just 15% in May 2016, reported that they expect farmland prices to be higher in May 2017, a majority of producers still view farmland as a favorable investment. When asked to evaluate farmland as an investment on a scale of 1 to 9 (1 being ‘extremely poor’ and 9 being ‘extremely good’), 52% of respondents scored farmland favorably (a score greater than 5) and nearly onequarter of survey respondents provided a neutral rating (a score equal to 5) for farmland as an investment. Conversely 23% of the farmers viewed farmland as a poor investment (a score below 5). While it might seem paradoxical that a majority of farmers continue to view farmland as a good investment when so few producers expect farmland values to increase over the next 12 months, it’s likely attributable to the time horizon. Although most farmers do not view the short-run prospects for farmland prices favorably, their long-run perspective continues to be relatively positive.

SHADOWS STILL LINGER OVER THE AG ECONOMY

Overall, the general agricultural outlook is still problematic and our Ag Economy Barometer is currently reflecting these concerns. When asked about expectations for their farm’s financial situation in recent months, more than 70% of producer reported that their expectations regarding the broad agricultural economy over the next twelve months were for “bad times” financially. In short, although economic conditions in agriculture improved in early spring compared to late winter, a large majority of farmers continue to think the outlook of the Ag economy remains very challenging.

The Ag Economy Barometer will be published the first Tuesday of each month. If you are interested in learning more about the Ag Economy Barometer, visit our website, www.purdue.edu/agbarometer where you can also register for email updates when the Ag Economy Barometer is published.