Livestock producers more confident than crop producers

News
Sep 24, 2010
by DTN

American farmers were gloomy last spring, but they’ve turned more optimistic, according to the latest DTN/Progressive Farmer Agriculture Confidence Index.

The index aims to take the pulse of the agricultural economy. It’s based on a survey of 500 producers picked at random to reflect the demographic makeup of the 2007 USDA Ag Census. The survey is conducted three times a year—before planting, before harvest, and at year’s end. The index was launched last April, and this second survey was conducted the first two weeks of September.

The index now stands at 140, up sharply from the initial survey in April, whose index reading was recalibrated to 100 to serve as the baseline for future reference. The Present Situation Index, which reflects current producer sentiment regarding input prices and net income, is a strong 180. The Expectations Index, which measures sentiment 12 months from now, is 118.

“What a difference—very dramatic!” said Robert Hill, an economist and the owner of Caledonia Solutions, the research and consulting firm for agribusinesses that designed the Agriculture Confidence Index for DTN. “It’s been a dramatic year, and this index reflects that.”

This second reading of the index raises a couple of questions, Hill suggested. Does the difference have to do with the mood of producers at the different stages in the crop year? As Hill put it, “Are growers so craggy preplant and giddy at harvest time?” Or is something else happening this year regarding input prices and farm income?

The survey consists of five questions. In the first two, participants are asked to rate current input prices and net farm income as good, normal or bad. The other three concern expectations for the next 12 months for input prices, net farm income, and gross household income, the possible answers being better, same or worse.

The drop in fuel prices is one reason why Robert Revels, a farmer in Geneva County, AL, is more optimistic about his current situation. And Revels said prices he got for calves he sold this summer were favorable. But it’s extremely dry in his area now, so he’s less certain about what conditions will be a year from now.

Regional differences

Alabama farmers like Revel are included in the Southeast Region of the Agricultural Confidence Index, and his outlook may be typical for that area because the Southeast Present Situation Index was 162 while the Expectations Index for that area was 91, indicating less optimism about the future than farmers in this region expressed in April.

With those two components, Southeast Agriculture Confidence Index was 110. By contrast, the Agriculture Confidence Index for the Midwest Region (North Dakota, South Dakota, Nebraska, Kansas, Minnesota, Iowa, Missouri, Illinois, Wis consin, Michigan, Indiana and Ohio) was 160, with the Present Situation at 186 and the Expectations Index at 141.

Input prices, especially fertilizer prices, were down this year, said Leroy Bender, a corn and soybean producer near Scotland, SD, and he’s been fortunate in that he’s had rain for his dryland crops and so far, he’s slipped by without hail.

Like Revels, Bender had a ready list of concerns about what the year ahead will bring. But Bender said, “To be a farmer, you have to be an eternal optimist. You hope if input prices go up, crop prices will follow. I’m hoping it will stay in the area where it is now. But I read things that don’t sound too optimistic about prices.”

The third region included in the index is the Southwest Region, comprising Oklahoma, Texas and the states west of the Midwest region. That index is now at 122, with the Present Situation index at 176 and the expectations index at 98.

The Agriculture Confidence Index is also broken down between crop and livestock producers. Confidence strengthened among livestock producers more than crop producers (148 vs. 135), but livestock producers are much more confident about current conditions than conditions a year from now, as the Present Situation index for livestock producers is 206, the Expectations Index, 122.

In the near term, the greater optimism makes sense because the market has been able to sustain historically high prices through the summer and into the fall, a much longer period than people thought possible last spring, said DTN Livestock Analyst John Harrington.

But looking ahead, “the great uncertainty is the cost of feed,” Harrington said. “People are really wary about the ability of retailers to pass on higher costs of production. The economy seems to be stagnant at best. The question is: We know costs of production will be higher, but will consumers be willing to pay the higher tab? That goes to the caution reflected in the longer-term index.”

Comparisons

The results of this latest index confirm opinions of economists like John Kruse, managing director, agriculture services at IHS Global Insight. “How high prices currently are seems to be driving the present situation. ... Farmers are more optimistic now, going into fall, consistent with the reality of what’s out there,” Kruse said. “This is an interesting index, and as it gets history with it, it’ll become more and more interesting.”

In addition to the Agriculture Confidence Index, DTN/ Progressive Farmer also publishes the Agribusiness Confidence Index, which was released for the first time Aug. 23. The relative value of that index was 71, indicating U.S. agribusinesses were upbeat about present and expected sales and profitability. — Pat Hill, DTN

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