At a Glance
- New monthly report surveys producers on health of the U.S. ag econonomy
- Sentiment in April improves from previous months
Like just about any industry, agriculture is driven by data. Markets move and farmers make business decisions based on a seemingly endless string of measurements and predictions from the USDA and a variety of other sources. There are weekly and monthly measurements for crop production, planted acreage, exports, land values and a host of other factors. It is surprising then that until May 3, there was not a monthly report on the overall health of the United States ag economy. The Purdue/CME Group Ag Economy Barometer has changed that by looking beyond crop data, and polling large producers on their financial health and how they see current and future conditions for the overall ag economy.
Similar reports on consumer behavior, manufacturing, employment and housing have changed the perception of the health of those industries. Could this report do the same for agriculture?
“We looked at the sector and thought ‘there’s really a void here. There’s an information gap’,” says James Mintert, Director of Purdue University’s Center for Commercial Agriculture and principal investigator for the Ag Barometer survey. We spoke with Mintert by phone to learn more about the survey – how it works, who it may influence and the challenges of conducting a major monthly report. This is an edited version of our conversation.
OM: How does the barometer work?
James Mintert: It’s based on a monthly survey of 400 U.S. agricultural producers. They are selected based on characteristics of their operation so they match up with the U.S. Census of Agriculture. The sample that we survey every month is very representative of the people that produce the vast majority of food in the U.S. – a relatively small sample, but really comprehensive when you think about the total food supply. We ask them five questions every month to generate the barometer.
It’s patterned after the survey that the University of Michigan has been doing since World War II applied to consumer sentiment. It’s the same idea applied to agriculture. We come up with a relative score for each question. We collected data for six months before the project was released. We used those six months as our base, so we scored each question relative to what it was during the base period.
In April our value was 106. That means the index was six points more favorable than during the six months October through March. So there is stability there with respect to the base period.
Do you see the number staying within a narrow range as the barometer progresses?
By comparing that to the base period all the time, it gives you a perspective that the changes you’re seeing are meaningful. We also split responses between current conditions versus future conditions. When you look at it that way, you expect people to be a little more volatile with respect to current conditions and less volatile about the future. That could translate into a negative reading for current conditions, but when people think about the next 12 months, they tend to moderate that, and expect things to be more stable.
Watch James Mintert explain the Ag Barometer methodology:
There are lots of data points people in the ag industry consume. Why did Purdue believe an ag barometer would be valuable?
There really was not anything in the ag sector that looked at the health of the ag economy on an ongoing basis. There are a couple of other indexes, but they are irregular or look at the agricultural economy in a tangential way. We looked at the sector and thought ‘there’s really a void here. There’s an information gap.’ There is clearly interest among producers and ag input suppliers. That is how it evolved.
The methodology evolved from us looking around at other surveys. We’re not the first ones to survey sentiment. That’s how the Michigan influence came about.
Another component is a survey of agricultural thought leaders we do four times per year. That’s more of a judgment sample from leaders in the industry – executives at input suppliers, processors, people in the lending sector, leadership at commodity organizations – people that are actively engaged in agriculture every day and thinking about the future.
And do the thought leaders have the same outlook as producers?
One of the things that came out of our survey showed that the thought leaders were a little more negative with respect to where the ag economy is going than the producers. That’s interesting when you think about who is in that survey – input supply business and lending business. People in those sectors are working closely with farm clients and are likely getting good exposure to what their clients’ financial condition is. That suggests they see some clouds on the horizon that maybe the producers haven’t quite zoned in on yet.
It sounds like we cannot assume that the ag economy is on solid footing despite the positive April reading.
The April number was up from March, that’s true. But when you dig a little deeper, people are still pretty concerned. This is not the boom times that we saw from 2006 or 07 to about 2013. Clearly people are feeling squeezed. Margins are still very tight. People are concerned about the prospects for their farm being in worse financial condition 12 months from now even though they’re feeling better than 30 days ago.
Who do you expect will find the most value in the barometer?
A lot of different groups will probably be using it in different ways. In addition to producers and market participants, we think people in the ag input supply industry will find this interesting because it is a measure of confidence that their clients have or don’t have. We think ag policy makers. In fact, I can tell from some of the e-mails I received this morning that some people in the policy arena are very interested in using this as a gauge along with some other quantitative measures with respect to the financial health of the ag economy.
— James Mintert (@JamesMintert) May 3, 2016
What do you see as the biggest challenge in making this survey continue to work?
Getting the methodology and tools right was one of the things we worked pretty hard on as we were developing this because we knew that anything that would go back to the well every month needed to be simple, and administered quickly. We debated different methodologies with web-based surveys. We concluded based on our experience that we would go with a phone-based survey. But those are getting tougher. Young people in particular tend not to answer phones very much, so that’s something to think about down the road.
It is also a challenge with new information. You can picture something happening between the time you collect your data and the time you release it. The good part about our survey is, we come back the middle of the following month and survey again. That way, we can be one of the first ones to pick up on major events and have a valid survey that measures the impact on producers.