Purdue University and CME Group logos

The Ag Economy Barometer plummeted in April, declining to a reading of 115.

That’s an 18-point decline compared to March when the sentiment index stood at 133. The 18-point decline in the index was the fourth-largest one-month fall in the barometer since data collection began in October 2015. The barometer’s decline was driven by worsening perceptions of both current economic conditions and weaker expectations for the future. The Index of Current Conditions fell 21 points to a reading of 99 while the Index of Future Expectations declined 16 points to a reading of 123.

Producer negative sentiment was further borne out by their perspective on making large investments in their farming operations. The percentage of producers who viewed now as a good time to make large investments declined to 22 percent – from 26 percent a month earlier. The percentage that viewed now as a bad time to make large investments increased to 74 percent, from 69 percent in March. When combined those responses pushed the Large Farm Investment Index to a reading of 48 in April, 9 points less than in March and the fourth-weakest reading of the investment index since fall 2015.

Farmer expectations for farmland prices in the upcoming 12 months also weakened in April. The percentage expecting better values fell to 13 percent, from 14 percent. The percentage expecting lesser values increased to 28 percent, from 25 percent.

The largest response category, those expecting farmland values to remain about the same, fell to 59 percent from 61 percent. The one-month change in farmer perspective on farmland values was more modest than the decline in the investment index. But it still stands in sharp contrast to the perception producers had of farmland values a year earlier. In April 2018, of producers who responded, 18 percent expected better farmland values, while 64 percent expected values to remain about the same, and 18 percent expected values to decline. That’s a notably more optimistic outlook than recorded in April 2019.

To gauge producer expectations for 2019, the April month survey asked whether respondents expect their farms’ 2019 financial performance to be better than, worse than or about the same as in 2018. More than half at 56 percent of farmers said they expect their farms’ financial performance to be about the same as this past year. But 27 percent of farmers said they expect this year’s financial performance to be worse than the past year. In comparison, when the same question was included in the April 2018 survey just 19 percent of respondents expected worse financial performance for their farm than in the prior year.

Producer confidence that the trade dispute with China will be resolved soon appeared to wane in April compared to March. In March, of those who responded, 45 percent said they thought it likely the trade dispute with China will be settled by July 1. But in the April survey just 28 percent of respondents said they expect to see the trade dispute resolved that quickly. However when asked whether or not they expect the trade dispute will ultimately be resolved in a way that benefits U.S. agriculture, producers retained most of the optimism they expressed previously – 71 percent still expect a favorable resolution versus 77 percent on the March survey.

To learn more about producer perspective regardintrade, the April survey asked respondents if they think the United States should try to rejoin the Trans-Pacific Partnership. Just less than half at 47 percent of respondents favored rejoining the Trans-Pacific Partnership, while 29 percent said they were not in favor of rejoining the Trans-Pacific Partnership. Interestingly one-fourth of respondents said they were uncertain whether or not the United States should rejoin the trade agreement.

Responses to the open-ended comments question at the end of each month’s survey provide interesting insights into what’s on producer minds. Since January there has been a shift among survey respondents, with more producers indicating they have concerns about commodity prices.

To gain additional insight into producer expectations for corn and soybean prices, we have been using the University of Illinois 2019 iFarm Price Distribution Tool. We want to learn how producer price expectations compare with the expected distribution of prices implied by current new-crop futures prices and option premiums. Specifically the tool provides market-based probability estimates of prices falling to less than specified price levels.

In recent months we have chosen two price points from the tool that match with

  • a 75 percent probability that prices at contract expiration will fall to less than that level
  • a 25 percent probability that prices will fall to less than that level

We then ask producers if they think prices are likely to exceed the 75 percent level – exceed a relatively inflated price – or fall to less than the 25 percent probability level – fall to less than a relatively depressed price. We wanted to gauge how optimistic or pessimistic they are about corn and soybean prices.

Results during the first four months of 2019 suggest producers have consistently had a more negative commodity-price outlook than participants in the commodity futures and options markets. And their outlook appears to be becoming more pessimistic.

  • In January of those who responded, 32 percent expected December corn-futures prices to fall to less than the 25 percent probability level.
  • But by April, of those who responded, 42 percent expected prices to fall to less than the 25 percent probability level.

Producer expectations for soybean prices at the start of this year were already substantially more pessimistic than market-derived expectations.

In January, of those who responded, 43 percent said they expected soybean prices to fall to less than the 25 percent probability level. And that increased in April to 48 percent, substantially more negative than futures and options market-participant perspective. The increasingly negative producer perception regarding the likelihood that corn and soybean prices will decline is one factor behind the decline in the barometer.

Wrapping Up

The Ag Economy Barometer declined sharply in April, falling 18 points less than the March reading of the index. Weakening perceptions of both current economic conditions and expectations for the future created a depressed index. The waning sentiment regarding the ag economy also pushed the Large Farm Investment Index to its least reading since September 2018. Producers were less inclined to think now is a good time to invest in buildings and equipment.

Producer expectations for farmland values in the upcoming year also softened. But that was more modest compared to their reservations regarding building and equipment purchases.

Producers are less optimistic that the trade dispute with China will be resolved by July 1 than they were a month earlier. But they remain optimistic that it will ultimately be resolved with terms favorable to U.S. agriculture. A large minority at 47 percent of U.S. producers favor the U.S. rejoining the Trans-Pacific Partnership to help boost U.S. agricultural trade.

Finally producers appear to have a more negative perspective on the future direction of corn and soybean futures than do futures-market participants. They have become more pessimistic since the first of the year, helping to explain some of the decline in the barometer – and its two key sub-indices, the Index of Current Conditions and the Index of Future Expectations.

James Mintert and Michael Langemeier are agricultural economists with Purdue University. Each month the Ag Economy Barometer – a collaboration between Purdue University’s Center for Commercial Agriculture and the CME Group – surveys 400 U.S. agricultural producers to discern attitudes and sentiments regarding the status of the U.S. farm economy. Each quarter 100 agribusiness leaders are surveyed to provide additional insight into the health of the agricultural economy.