Agricultural data have been around for almost as long as there have been markets, but the type of data and the amount have changed over time.
Whether its data from the U.S. Department of Agriculture, satellite data that forecast weather or growing conditions, or any of the many daily, weekly or monthly reports, market participants sort through reems of information to give them insight on the market.
Ken Morrison, editor of Morrison on the Markets newsletter, says he uses several types of market data to help confirm (or contradict) information he gathers from his contacts, helping him make decisions.
A lot of the data he uses are quantitative, such as weekly export sales, monthly USDA supply and demand reports, the weekly Commitment of Traders report from the Commodity Futures Trading Commission and the CME Ag Daily Bulletin. But he says it’s also good to get qualitative information about other countries. For that he uses the USDA’s attache reports from the Foreign Agricultural Service. In addition to giving data on a certain region’s agricultural production, the in-country attache at the U.S. embassy also offers perspective.
“They have local contacts that they’re drawing upon, so it’s kind of a boots-on-the-ground perspective of what’s going on in some of the major countries,” Morrison said.
Tracking Producer Sentiment
This local sentiment information can add viewpoints that sometimes get lost when market participants solely focus on quantitative data. It’s why data measurements such as the Ag Economy Barometer that CME Group sponsors with Purdue University’s Center for Commercial Agriculture can offer insight that previously was going unmeasured.
The barometer is a nationwide measure of the health of the U.S. agricultural economy with an index value, and just marked its second anniversary. The index is based on a survey of 400 agricultural producers on economic sentiment each month. Quarterly, the index is accompanied by an in-depth survey of 100 agriculture and agribusiness thought leaders.
Jim Mintert, professor of agricultural economics and director of Purdue University’s Center for Commercial Agriculture, says the Ag Barometer differs from other data measurements because surveyors focus on producers’ interpretation of what current and future events will impact their operations, which helps provide insight into what producers are likely to do in the future.
The CME Group/Purdue Commercial Agriculture Ag Barometer declined in April 2018
The original idea behind the barometer was to create something like the University of Michigan’s consumer sentiment survey, but for the farm sector, Mintert says.
“The consumer sentiment survey is viewed as a leading indicator with respect to consumer behavior. Our thought process was that the Ag Barometer might turn into a leading indicator with respect to producer behavior,” he says.
When looking at the barometer over the past two years, Mintert says current commodity prices have an important impact on producer sentiment, noticeable when looking at the month-to-month shifts in the survey and its two sub-indices. However, he says, sentiment is definitely influenced by what producers perceive to be significant policy shifts that will affect their farming operation over time.
One of the biggest surprises Mintert has seen in two years of the barometer came after the 2016 presidential election. Purdue conducted the survey right after the election in November and saw an improvement in farmer optimism, which they thought was tied to a farm program payment in October. However, when they resurveyed in December and January, sentiment remained high. The sentiment improvement also correlated with the improved consumer sentiment reading in the University of Michigan data.
Mintert and his colleagues decided to ask questions of famers to understand their uptick in optimism.
“Farmers told us they thought the future regulatory environment would be more favorable to ag than it had been recently and that they expected changes in trade policy that would benefit U.S. agriculture,” he says.
Even in its short existence, the Ag Barometer has become an important data point for some in the ag industry. Vernon Schmidt, executive vice president of the Farm Equipment Manufacturers Association, which represents privately held, short line agricultural equipment manufacturers, says the Ag Barometer gives his members information they’d otherwise be unable to discover.
“Our members are worried about what the dealerships are thinking, and obviously dealers are worried about what the consumer is thinking,” Schmidt says.
Since private companies don’t share information but still need information, having a sentiment survey gives some insight about current market conditions and what equipment farmers might be willing to buy.
“Something that shows where confidence stands is hugely important,” he says.
While Schmidt’s group still looks at sentiment data such as Creighton University’s Rural Mainstreet index, that is a survey of bankers’ opinions, rather than producers.
The Ag Barometer is a good counterbalance to what short line farm equipment salespeople may be hearing, too, says Schmidt.
“It’s just nice that the surveys, whether the Ag Barometer or the Creighton survey, are checkpoints to look at and say, ‘does this all add up, or is there a warning sign here?’ You don’t want to miss that opportunity when to sell more equipment, or know when things aren’t going so great.”