Ag Economy Barometer rises to record high on improving financial conditions

Rhea-AI Summary

The Purdue University/CME Group Ag Economy Barometer increased by 27 points to a record high of 183 in October 2020, reflecting improved sentiment among farmers regarding their financial situations. The Current Conditions Index rose significantly by 36 points, while the Future Expectations Index increased by 23 points. Factors contributing to this optimism included rising commodity prices, government payments from CFAP 2, good crop yields, and expectations of increased farmland values and cash rental rates. Additionally, optimism about U.S.-China trade agreements has also surged.

Positive

• Ag Economy Barometer reached an all-time high of 183 in October.
• Current Conditions Index rose to 178, reflecting significant financial improvement for farmers.
• Future Expectations Index increased to 186, indicating positive outlook.
• 25% of producers reported improved financial conditions compared to the previous year, the highest in the survey's history.
• Farm Capital Investment Index reached an all-time high of 82.
• Expectations for increased machinery purchases rose to 14%, up from 11%.
• Percentage of producers expecting higher farmland values increased to 27%.
• Trade optimism with China increased, with 59% expecting compliance with Phase One agreement.

Negative

• None.

WEST LAFAYETTE, Ind. and CHICAGO, Nov. 3, 2020 /PRNewswire/ -- The Purdue University/CME Group Ag Economy Barometer rose 27 points to a reading of 183 in October and set an all-time high for the index. Farmers were more optimistic about both the future and current financial situation on their farms, the Current Conditions Index rose 36 points to a reading of 178 and the Future Expectations Index rose 23 points to a reading of 186. The Ag Economy Barometer is based on survey responses from 400 U.S. agricultural producers and was conducted between October 19-23, 2020.

"Since bottoming out this summer, the ag economy has rebounded sharply and the dramatic improvement in sentiment reflects the turnaround in the farm income picture," said James Mintert, the barometer's principal investigator and director of Purdue University's Center for Commercial Agriculture.

Mintert was referring to a late summer/early fall rally in commodity prices combined with government program payments arising from the second round of the Coronavirus Food Assistance Program (CFAP 2), which provided a boost to many producers' farm income. Corn and soybean prices continued to rally even though U.S. corn yields are expected to set a record high and USDA projects soybean yields to be the fourth highest on record.

"Together the combination of good yields, a rally in crop prices and CFAP 2 payments set the stage for an all-time-high in the barometer and farmer sentiment," said Mintert.

That optimism was reflected in many ways. Comparing their farm's financial condition today to one-year ago, 25% of survey respondents said their farm was better off financially now than at the same time last year. This was the most positive response from producers to this question in the history of the barometer survey.

The Farm Capital Investment Index also hit an all-time high in October, up 9 points from September to a reading 82. The percentage of producers expecting to increase their purchases of machinery in the upcoming year rose to 14 percent from 11 percent a month earlier, and up from just 4 percent back in May. Even more importantly, the percentage of respondents who plan to reduce their purchases in the next year was 33 percent, down from 40 percent in September.

The short-run outlook toward farmland values also improved. Respondents expecting land values to rise over the next 12 months rose to 27 percent, up from 23 percent in September. The percentage expecting lower farmland values declined to nine from 12 percent. There was also a big shift in sentiment in the October survey regarding 2021 cash rental rates for farmland. Nearly four out of ten (38%) respondents said they expect cash rental rates to increase in 2021. In September, just 8 percent of producers said they expected to see higher cash rental rates for farmland in 2021.

Producers also became more optimistic about trade with China this month. Nearly six out of 10 respondents (59%), said they expect to see China fulfill the food and agricultural import requirements outlined in the Phase One trade agreement with the U.S., compared with just 47 percent in September. When asked for their overall perspective on U.S. ag exports, the percentage of producers expecting exports to rise over the next five years increased to 65 percent in October, up from 58 percent in September.

Read the full Ag Economy Barometer report at https://purdue.ag/agbarometer. The site also offers additional resources – such as past reports, charts and survey methodology – and a form to sign up for monthly barometer email updates and webinars.

Each month, the Purdue Center for Commercial Agriculture provides a short video analysis of the barometer results, available at https://purdue.ag/barometervideo, and for even more information, check out the Purdue Commercial AgCast podcast. It includes a detailed breakdown of each month's barometer, in addition to a discussion of recent agricultural news that impacts farmers. Available now at https://purdue.ag/agcast.

The Ag Economy Barometer, Index of Current Conditions and Index of Future Expectations are available on the Bloomberg Terminal under the following ticker symbols: AGECBARO, AGECCURC and AGECFTEX.

About the Purdue University Center for Commercial Agriculture

The Center for Commercial Agriculture was founded in 2011 to provide professional development and educational programs for farmers. Housed within Purdue University's Department of Agricultural Economics, the center's faculty and staff develop and execute research and educational programs that address the different needs of managing in today's business environment.

About CME Group
As the world's leading and most diverse derivatives marketplace, CME Group (www.cmegroup.com) enables clients to trade futures, options, cash and OTC markets, optimize portfolios, and analyze data – empowering market participants worldwide to efficiently manage risk and capture opportunities. CME Group exchanges offer the widest range of global benchmark products across all major asset classes based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals.  The company offers futures and options on futures trading through the CME Globex® platform, fixed income trading via BrokerTec and foreign exchange trading on the EBS platform. In addition, it operates one of the world's leading central counterparty clearing providers, CME Clearing. With a range of pre- and post-trade products and services underpinning the entire lifecycle of a trade, CME Group also offers optimization and reconciliation services through TriOptima, and trade processing services through Traiana.

CME Group, the Globe logo, CME, Chicago Mercantile Exchange, Globex, and E-mini are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of Board of Trade of the City of Chicago, Inc. NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. BrokerTec, EBS, TriOptima, and Traiana are trademarks of BrokerTec Europe LTD, EBS Group LTD, TriOptima AB, and Traiana, Inc., respectively. Dow Jones, Dow Jones Industrial Average, S&P 500, and S&P are service and/or trademarks of Dow Jones Trademark Holdings LLC, Standard & Poor's Financial Services LLC and S&P/Dow Jones Indices LLC, as the case may be, and have been licensed for use by Chicago Mercantile Exchange Inc. All other trademarks are the property of their respective owners. 

Writer: Kami Goodwin, 765-494-6999, kami@purdue.edu  
Source: James Mintert, 765-494-7004, jmintert@purdue.edu

Related websites:

Purdue University Center for Commercial Agriculture: http://purdue.edu/commercialag
CME Group: http://www.cmegroup.com/

Photo Caption: Ag Economy Barometer rises to record high on improving financial conditions. (Purdue/CME Group Ag Economy Barometer/James Mintert)

A publication-quality photo is available at https://www.purdue.edu/uns/images/2020/AgEconomyBarometer_Oct2020LO.jpg.

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SOURCE CME Group

FAQ

What was the Ag Economy Barometer reading in October 2020 for CME?

The Ag Economy Barometer reached a record high of 183 in October 2020.

How much did the Current Conditions Index increase in October 2020?

The Current Conditions Index rose by 36 points to a reading of 178.

What percentage of farmers expect higher farmland values in the next 12 months?

27% of producers expect farmland values to rise over the next 12 months.

What were the factors contributing to the optimism in the Ag Economy Barometer?

Factors included rising commodity prices, government payments from CFAP 2, and good crop yields.

What percentage of producers expect to increase machinery purchases in the upcoming year?

14% of producers expect to increase their purchases of machinery.