By James Mintert, David Widmar and Michael Langemeier
The Purdue/CME Group Ag Economy Barometer slipped 5 points in March, down to 135, which is the same as January’s result.
The decline in the sentiment index, which is based upon a monthly a survey of 400 agricultural producers from across the U.S, was attributable to ag producers’ weakening perceptions of current conditions and a decline in their expectations for the future.
The Index of Current Conditions fell to 134 in March, a 9-point drop from February, and the Index of Future Expectations slipped to 135, down 4 points compared to a month earlier. Despite the decline in March, the barometer’s first quarter average was unchanged from 2017’s first quarter and was nearly 50% higher than during the first quarter of 2016.
Good time to make large investments?
The March survey suggests there is an undercurrent of concern among producers regarding the ag economy. Each month, producers are asked if they think now is a good time or bad time to make large investments in assets, such as machinery or buildings. In March, fewer producers indicated now is a good time, and more producers said it is a bad time, to make large farm investments than one month earlier. The percentage of producers indicating now is a bad time to make large investments – 68% – is the highest level observed since May 2017.
Concern about a trade war
Two questions were included on the March 2018 survey to learn more about producers’ perspectives on agricultural trade, especially in light of the Trump administration’s announcements regarding tariffs on steel and aluminum.
Producers were asked about the likelihood that a trade war would significantly reduce U.S. agriculture’s exports:
- One-fourth of survey respondents provided a neutral rating (a rating of 5 on a 1 to 9 scale), suggesting much uncertainty among producers regarding a possible trade war and its impact on agriculture.
- 47% indicated that a trade war negatively impacting ag exports was somewhat likely (a rating of 6 or higher on a 1 to 9 scale).
- 28% of survey respondents indicated a trade war negatively impacting agricultural trade was unlikely (a rating of 4 or less on a 1 to 9 scale).
Future of NAFTA
Producers were about evenly split on whether or not the U.S. would withdraw from NAFTA.
- More than one-third of respondents provided a neutral response (rating of 5 on a 1 to 9 scale), suggesting they think the likelihood of staying in and withdrawing from NAFTA are about equal.
- 28% expect the U.S. to remain in NAFTA.
- 34% expect the U.S. to exit NAFTA.
When comparing results from the two trade questions, a larger share of respondents (47%) reported a significant decline in ag exports from a trade war was more likely than was the likelihood of the U.S. withdrawing from NAFTA (34%).
These results are important for two reasons. First, nearly half of producers rated the risk of a trade war as at least somewhat likely. Second, producers’ concerns about risks to agricultural trade are broader than just the ongoing NAFTA situation. Taken a step further, these results indicate there is a good deal of uneasiness among producers regarding ag trade prospects, which in turn could be one reason behind the recent downturn in the percentage of producers indicating now is a good time to make large investments on their farms.
Source: Purdue/CME Group