Record decline in the ag barometer as trade war concerns and low commodity prices weaken producer outlook
The Purdue/CME Group Ag Economy Barometer records largest one-month decline in July since data collection began in 2015. (Purdue/CME Group Ag Economy Barometer/James Mintert) The Purdue University/CME Group Ag Economy Barometer declined 26 points, down to 117, in July making it the largest one-month decline in producer sentiment since data collection began in October 2015. The drop in sentiment was fueled by increasing trade war concerns and decreasing commodity prices.
“This summer we’ve seen tariffs placed on imports of U.S. ag products by China and Mexico that are impacting producers’ bottom line,” said James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture. “This month, we asked producers whether they expect to see their net income decline as a result of trade war conflicts. Over two-thirds of respondents indicated they expect to see lower income because of trade conflicts with over 70 percent of them expecting a net income decline of 10 percent or more.”
Sharp declines were also recorded for the Index of Current Conditions, which fell from 138 to 99, and the Index of Future Expectations, which fell from 146 to 126 in July. The Ag Economy barometer is based on a monthly survey of 400 agricultural producers from across the country.
“Commodity prices dropped sharply in June and July, and there is real concern among producers that those prices will remain low and, possibly, fall even further,” said Mintert. In the July survey, approximately 4 out of 10 producers stated they think it’s likely December 2018 corn futures will trade below $3.25 per bushel and November 2018 soybean futures trade below $8 per bushel between mid-July and this fall. “Prices in that range would result in a significant cash flow squeeze for many farm operators,” said Mintert. “While prices at those levels would cover variable production expenses, it would leave some farmers falling far short of covering fixed and overhead expenses.”
The negative outlook on commodity prices spilled over into farmland values as well, with 31 percent of producers saying they expect lower farmland prices over the next year. Farmers also became more apprehensive about making large purchases, as 73 percent indicated it’s a bad time for large farm investments. Read the full July Ag Economy Barometer report at http://purdue.edu/agbarometer. The report includes more information on producer concerns over the trade conflict and its impact on agricultural exports. New this month, get additional July barometer analysis in a video from Center for Commercial Agriculture Director James Mintert. Available now at https://youtu.be/7QiiIMUcjhs.
The Ag Economy Barometer, Index of Current Conditions and Index of Future Expectations are available on the Bloomberg Terminal under the following ticker symbols: AGECBARO, AGECCURC and AGECFTEX.
About the Purdue University Center for Commercial Agriculture
The Center for Commercial Agriculture was founded in 2011 to provide professional development and educational programs for farmers. Housed within Purdue University’s Department of Agricultural Economics, the center’s faculty and staff develop and execute research and educational programs that address the different needs of managing in today’s business environment.
About CME Group
As the world’s leading and most diverse derivatives marketplace, CME Group (www.cmegroup.com) enables clients to trade futures, options, cash and OTC markets, optimize portfolios, and analyze data – empowering market participants worldwide to efficiently manage risk and capture opportunities. CME Group exchanges offer the widest range of global benchmark products across all major asset classes based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals. The company offers futures and options on futures trading through the CME Globex® platform, fixed income trading via BrokerTec and foreign exchange trading on the EBS platform. In addition, it operates one of the world’s leading central counterparty clearing providers, CME Clearing. With a range of pre- and post-trade products and services underpinning the entire lifecycle of a trade, CME Group also offers optimization and reconciliation services through TriOptima, and trade processing services through Traiana.
CME Group, the Globe logo, CME, Chicago Mercantile Exchange, Globex, and E-mini are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of Board of Trade of the City of Chicago, Inc. NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. BrokerTec, EBS, TriOptima, and Traiana are trademarks of BrokerTec Europe LTD, EBS Group LTD, TriOptima AB, and Traiana, Inc., respectively. Dow Jones, Dow Jones Industrial Average, S&P 500, and S&P are service and/or trademarks of Dow Jones Trademark Holdings LLC, Standard & Poor’s Financial Services LLC and S&P/Dow Jones Indices LLC, as the case may be, and have been licensed for use by Chicago Mercantile Exchange Inc. All other trademarks are the property of their respective owners.
