U.S. producers wary of trade war

02.05.2018

U.S. producer sentiment toward the agricultural economy took a hit in April amid trade war concerns, according to the Purdue University/CME Group Ag Economy Barometer.

The April barometer reading was 125, down 10 points from the previous month and down 15 points from February. The barometer is based on a monthly survey of 400 agricultural producers from across the United States.

The drop in producer sentiment was driven by declines in both the Index of Current Conditions, which fell 11 points to 123, and the Index of Future Expectations, which fell 9 points to 126. The Index of Current Conditions was at its lowest level since May 2017, while the Ag Economy Barometer and the Index of Future Expectations were at their lowest levels since March 2017.

Producers’ weakening perceptions of current conditions in the production agriculture sector, along with a decline in their expectations for future economic conditions, were the main drivers of the barometer’s overall decline, said James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture.

“There seems to be a spillover effect that is driving concern among agricultural producers,” Mintert said. “Negative perceptions about exports spill over into lower expectations for commodity prices, and then that changes producers’ views about farmland prices.”

The trade dispute with China continues to be an area of concern. The biggest issue is the possible impact on U.S. soybean exports, 30% of which go to China. A majority of producers said they expect a sharp decline in the November soybean futures contract price, possibly to below breakeven.

The April survey also showed a decline in the number of producers expecting good times for the livestock sector, with just 45% saying they felt optimistic about the future compared to 59% a month earlier. This is the largest one-month drop since data collection began in fall 2015.

“There was already a sharp drop in hog prices that took place from mid- to late- winter, then add to that the impact of China’s 25% tariff on U.S. pork imports,” Mintert said. “It adds a layer of doubt regarding the profitability of pork production and appears to be affecting producers’ plans to increase hog production.”

The survey also asked producers about their perspectives on farmland values. There was a noticeable decline from mid-winter, with 46% feeling optimistic about higher land values in five years compared to 53% in February.


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