At a Glance
- Monthly producer sentiment gauge growing in influence
- Optimism for the ag economy increased in September
The Purdue/CME Group Ag Economy Barometer saw a five point jump in optimism from producers surveyed in September. That could be good news for an industry in the midst of a harvest season already seeing record yields. The barometer is a measure of the overall health of the ag economy in the United States and surveys large producers on a monthly basis to reach its findings. We first spoke with Jim Mintert, the barometer’s principal investigator and the Director of Purdue’s Center for Commercial Agriculture, back in May when the first report was released. “ There really was not anything in the ag sector that looked at the health of the ag economy on an ongoing basis,” he told us then. Now that the survey is in its sixth release, and has been collecting survey data for a full year, many sectors of the ag economy – from machinery suppliers to investors – are beginning to take notice for what it could mean in getting a read on the ag industry’s near future.
We recently sat down again with Mintert and Purdue ag economist David Widmar to discuss how farm sentiment has changed, and the barometer’s growing influence in the industry. This is an edited version of our conversation.
OM: Since you announced the first results in May, who have you been hearing from that has found the barometer helpful?
Jim Mintert: We’ve had several contacts from a variety of different people looking at the barometer from their perspective and letting us know how they found it useful. I recently heard from a couple of portfolio managers at Fidelity who were investing predominantly in ag input suppliers. They were looking for sources of information and found the barometer. Someone sent it to them, and they found it interesting enough to call me on the phone, and it’s something they will be paying attention to going forward.
I also heard from someone at John Deere, who was in their harvesting group and trying to forecast sales of combines and heads. He told me that they look at a lot of sources of information, but he found this one very helpful and one they would continue to monitor.
David Widmar: The other audience we have is ag media. Last month we had more than a dozen requests for radio interviews within 36 hours of the release. A lot of people want to tell the story of what’s happening in agriculture. I think producers find a lot of value reflecting on what other producers are facing as well. ‘Are the conditions I’m facing a local phenomenon or part of a broader trend?’ And there’s comfort in both of those. We’re in an awareness phase with people finding out how it relates to their business.
OM: When we last spoke, you mentioned that policy makers were one of the key audiences for the report. Are you still hearing from them?
JM: We don’t necessarily hear from them, but I think they use it as confirmation for what they’re hearing. Policy makers are constantly visiting with groups of farmers and farm organizations. I think the barometer for them is a confirmation of something they also heard recently from a handful of producers in their office. Producers told me ‘prices were collapsing, we’re looking at difficult times,’ and the barometer confirmed it.
DW: With all of our users, there is the barometer which is the first two graphs we share in the report. The real value is the follow-up questions, where we can discover the farm economy driver that really influenced a change. Is it farmland values or commodity price expectations or changes in profitability down the road? The barometer is the tagline that catches some buzz, but the other elements are the drivers and that’s what really resonates.
In some of the recent readings, commodity prices were a key driver of sentiment. Has there been any one factor that influences the barometer most?
DW: One of the drivers that vary on a month to month basis is commodity prices. Sometimes the barometer follows prices, but not always. We saw that in July when, even as prices faded, sentiment jumped, and it was producers looking to the long run. So it follows a trend at times, but it deviates from trends, and those deviations are insightful.
JM: When I visited with people individually this past winter and early spring, what I picked up was this idea that the world had changed, we’re now in a burdensome supply situation, commodity prices are going to be low and will not bounce back for the foreseeable future. Then all of a sudden, the U.S. had a bit of a weather scare, combined with crop production problems in South America, and we have a significant rally in both corn and soybeans. What that did was create some optimism regarding the future among producers. The mindset became ‘we’re going to see some low prices, but we’ll also see bouncebacks, we’ll see opportunities to sell at profitable prices. We just need to be nimble enough to take advantage of it,’ and that was reflected in our July survey. But we lost that optimism as prices continued to collapse throughout the summer. So the barometer is correlated with commodity prices, but it’s not perfectly correlated. If you’re in the input supply business, that’s a useful piece of information.
— Purdue Commercial Ag (@PUCommercialAg) October 4, 2016
In August, the barometer fell 17 points, its biggest drop so far, then bounced back some in September. Is that lower optimism something we may see continuing as we go through the harvest season?
Jim: As I visit with producers, there’s definitely concern out there. The small bit of optimism we do pick up is some farmers are pretty happy about the fact that they’re looking at the highest yields they’ve seen by a wide margin. So even with higher prices, their revenue situation is not horrific. But it’s still a pretty tight margin situation, even on those farms.
David: The index of future expectations in August was in that range of one hundred, plus or minus five points. It spends a lot of time in that range. We were coming off a peak out of that range. The question is do we stay in that range or do we take a dip lower? As we’re thinking about 2017, how do producers roll into the next year? Do we hover around 100, which was our summer average, or do we go back to where sentiment bottomed out earlier this year in March. That’s what I’m watching for.
The future outlook for the ag economy from producers dropped 19 points in August, the biggest drop since you started the survey. What has changed in terms of the long term view?
JM: We have a question on the survey that asks ‘Do you expect good times or bad times financially?’ When you look at those numbers and look at the big picture, people have been pessimistic about the future of the ag economy since the start of the survey (October 2015). There is some movement from month to month, but the big picture is, we’re in some challenging times for most people in agriculture, and I don’t see that changing.
In our conversations with ag lenders, and looking at the survey data, we realized that quite a few farmers didn’t fully realize what had happened financially until they came in for a loan renewal. That’s when a lot of them realized how quickly they eroded their working capital that they had built up over seven or eight years. They took a pretty big hit in 2015. That’s going to happen again in 2016 for many farm operations.
The barometer is still new to a lot of people. Are there sectors of the ag economy you would like to reach that you haven’t yet?
JM: I still we’re at the stage where a lot of people don’t know we exist, even though there’s been a lot of press and we put a lot of effort into it. For example, we’re on Twitter, but it takes a while to get traction. I’m not aware of anybody who has looked at the barometer and didn’t want it. It’s been more about people that didn’t know yet that we are doing this.
DW: Part of it is we have the data and the insights. There are a lot of people watching the barometer. The piece we’re working on now is the implications. What are the implications for machinery companies and machinery dealers? What are the implications for an investment firm as they structure their portfolio? Or for a group of specialty corn seed companies? It’s all kind of different, and they need to figure out how it applies to their firm. I think there are a lot of folks out there watching the barometer, and figuring out how it ties in to their business.
You’ve been conducting the survey for a year now. Has the methodology changed?
DW: The methodologies don’t change, but the survey is always changing. We have five questions that we ask every month, another five that are on a rotating basis, and we have some room to pose more topical questions each month. This summer we asked if marketing plans had changed with El Nino or La Nina concerns lingering. Looking ahead, the farm bill discussions are about to get started. I imagine this winter we’ll ask some questions about the upcoming farm bill. We’re always trying to keep things consistent and maintain a historical perspective, but also keep it relevant and on target with current concerns.