Economic concern sends producer sentiment lower

Effect of trade issues on agriculture continues to be on minds of producers.

Agricultural producer sentiment fell in December as farmers' perception of both current and future economic conditions weakened, according to results from the Purdue University/CME Group "Ag Economy Barometer." The December barometer reading, which is based on 400 survey responses from agricultural producers across the country, came in at 127, seven points lower than November.

Both of the barometer's two sub-indices declined in December: The Index of Current Conditions fell six points to 109, and the Index of Future Expectations fell eight points to 135. When comparing these readings to December 2017, the Index of Current Conditions is substantially lower, registering a decline of 30 points, while the Index of Future Expectations actually improved from year to year with an uptick of 15 points.

"Over the course of the last year, producers' impression of current economic conditions on their farms has declined markedly, but at the same time their expectations for future economic conditions have held steady," said James Mintert, the barometer's principal investigator and director of Purdue University's Center for Commercial Agriculture. "As a result of this mixed view, farmers appear to be cautious about making large investments in their farming operations."

For example, in December 2018, the Large Farm Investment Index, which measures whether producers feel that this is a good time to make large farm investments, fell five points to a reading of 51. This marked a 29-point drop from one year ago, when it reached a reading of 70.

Those same concerns were also apparent when producers were asked whether now is a "good time" or "not a good time" to bring a new generation of family into the business. Just 42% said now was a "good time," compared to approximately half during the previous two years. However, when looking ahead five years, 65% of producers expect conditions to be more favorable to onboarding a new generation.

International agricultural trade issues continue to cause concern and could be causing producers' reduced confidence in current economic conditions, the authors reported. When producers were asked whether they expect exports to increase or decrease in the next five years, 59% indicated that they expect agricultural exports to increase, down seven points from November's survey response, whereas 26% expect these exports to decrease, 10% more than in the November survey.

Livestock production

The latest survey also explored the livestock production outlook. Results showed that contraction of both the beef and dairy herds is more likely in 2019 than expansion. In contrast, hog herd expansion is expected to continue during 2019.

“Over 60% of respondents expect the beef herd to contract in 2019, compared to 37% of respondents who expect the herd to expand. This was almost a complete reversal compared to last year, when nearly 60% of respondents thought expansion likely and just 41% expected the herd to decline in upcoming 12 months,” the authors noted.

The survey also revealed that producers overwhelmingly expect the dairy herd to contract, with 83% of respondents expecting herd contraction to take place during 2019 versus just 17% of respondents who expect the U.S. dairy herd to increase in the upcoming year.

The authors noted that expectations for a rise in pork production were consistent with the U.S. Department of Agriculture’s December “Hogs & Pigs” report, which indicated that the U.S. breeding herd was 2% larger than a year ago and that producers are planning larger sow farrowings than a year earlier.

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