WEST LAFAYETTE, INDIANA, U.S. — Weaker commodity prices and concerns about ongoing trade conflicts with key ag export customers led to a sharp decline in U.S. ag producer sentiment, according to a report released on Aug. 7.
The Purdue University/CME Group Ag Economy Barometer declined 26 points, down 117%, in July, making it one of the largest one-month declines in producer sentiment since data collection began in October 2015.
“This summer we’ve seen tariffs placed on imports of U.S. ag products by China and Mexico that are impacting producers’ bottom line,” said James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture. “This month, we asked producers whether they expect to see their net income decline as a result of trade war conflicts. Over two-thirds of respondents indicated they expect to see lower income because of trade conflicts with over 70% of them expecting a net income decline of 10% or more.”
Sharp declines were also recorded for the Index of Current Conditions, which fell from 138 to 99, and the Index of Future Expectations, which fell from 146 to 126 in July. The Ag Economy barometer is based on a monthly survey of 400 agricultural producers from across the country.
“Commodity prices dropped sharply in June and July, and there is real concern among producers that those prices will remain low and, possibly, fall even further,” Mintert said.
In the July survey, approximately 4 out of 10 producers stated they think it’s likely December 2018 corn futures will trade below $3.25 per bushel and November 2018 soybean futures trade below $8 per bushel between mid-July and this fall.
“Prices in that range would result in a significant cash flow squeeze for many farm operators,” Mintert said. “While prices at those levels would cover variable production expenses, it would leave some farmers falling far short of covering fixed and overhead expenses.”
The negative outlook on commodity prices spilled over into farmland values as well, with 31% of producers saying they expect lower farmland prices over the next year. Farmers also became more apprehensive about making large purchases, as 73% indicated it’s a bad time for large farm investments.