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Farmers Could Use a Lift, Ag Barometer Indicates

Farmer Sentiment Reading Plunges

Some U.S. farmers see a financial storm brewing, while others feel like they are already in one.

The latest Purdue University/CME Group Ag Economy Barometer, a measuring stick for producer sentiment, shows a downturn.

The Ag Economy Barometer – based on a monthly survey of 400 farmers across the U.S. – fell to 95 in August, down from 112 in July. The 17-point drop from July to August was the largest one-month decline since November 2015.

Farmer sentiment regarding both the current state of the ag economy (measured by the Index of Current Conditions) and future prospects (measured by the Index of Future Expectations) declined during August.

“This was in sharp contrast to July when farmers’ optimism about their future prospects pushed the Ag Economy Barometer up, despite concerns about current economic conditions,” Purdue University economics officials stated in a recent press release.

Farmer sentiment in late spring and early summer was buoyed by a spring rally in key commodity prices, but near-ideal growing conditions for corn and soybeans this summer helped push crop prices down sharply, the survey results indicated.

In its August Crop Production Report, the USDA pegged record yields and harvests of both corn and soybeans for this fall, leading to increasing carryover stocks for both crops and the lowest corn prices of the last decade.

Since mid-June, when the commodity price rally peaked, December 2016 corn futures prices have declined by more than $1 per bushel and November 2016 soybean futures prices have fallen by $1.75 per bushel.

View of 2017

“Tight operating margins for crop producers are leading to adjustments in production costs. For example, the Purdue crop budgets for rotation corn reported a $47-per-acre reduction in variable costs (seed, fertilizer, herbicide, etc.) from 2015 to 2016. Furthermore, a recent Purdue survey of Indiana farmland values and cash rents found that cash rents, on average, decreased 9.8% to 10.9% across the state from 2015 to 2016,” Purdue officials stated in the press release.

This summer’s crop-price declines indicate crop production margins will be even tighter in 2017 than in 2016, leading to questions about the direction production costs will take in the year ahead, Purdue University economists stated.

In the August Ag Economy Barometer survey, producers were asked about their expectations regarding changes in key input prices (seed, fertilizer, crop protection) for 2017 vs. 2016.

Somewhat surprisingly, at this juncture, is that more producers expect input prices to rise in 2017 than decline. This was especially true for crop protection products as nearly one third of respondents expected prices for herbicides, insecticides, and fungicides to rise compared with just over 10% of respondents who expected these input prices to decline. The long-term trend for crop input prices to rise seems to be leading to skepticism regarding prospects for input prices to decline, despite the lack of profitability among crop producers.

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