SOURCE: DTN/The Progressive Farmer

DTN/The Progressive Farmer

September 08, 2015 10:25 ET

Low Prices, High Costs and Large Crop Contribute to Ag Producer Pessimism

Agribusiness Confidence Index Reaches Historic Low

OMAHA, NE--(Marketwired - Sep 8, 2015) - Crop and livestock producers' concerns over their present economic situation continue to worsen as unstable commodity prices and uncertain farm incomes linger, according to the latest DTN/The Progressive Farmer Agriculture Confidence Index (ACI).

Producers' perceptions over their current situations have dropped steadily, if not dramatically, from 118.0 last August to 109.1 in March to 101.5 now, remaining just in the optimistic range but at the lowest level since the ACI started in 2010. The value of 100 is considered neutral. Values above 100 indicate optimism, whereas values below signify pessimism.

The confidence index, which surveyed 500 crop and livestock producers Aug. 5-17, measures the sentiments of crop and livestock producers on their overall agriculture sector impressions. DTN/The Progressive Farmer conducts the ACI three times a year -- before planting, prior to harvest and after harvest. Producers also rate current and long-term input prices and net farm income to gauge their attitudes toward the present situation and future expectations.

Since last year's record harvest, producers have encountered falling commodity prices. This combination continues to weigh on producers' overall confidence about the agriculture industry. Last August, producers' confidence for the ag industry crossed into the pessimistic range for the first time at 99.8, followed by an all-time confidence index low of 98.8 in March. Producer confidence rose slightly to 99.4 in August.

"Producers' sentiments on their current situation have eroded the past year," said DTN Markets Editor Katie Micik, director of the confidence index. "Commodity prices have not rebounded while costs continue to rise, causing farm incomes to drop. Yet, producers think things can't get any worse."

Recent ACI results back up Micik's thinking. Last August, the rating for producers' expectations for the future stood at 87.8. A year later, producers rated their future expectations at 98.0, still in the pessimistic range but the highest rating in three years.

Seventy percent of the producers in the survey believe farm income will stay the same or improve the next 12 months. According to Micik, this number is up from 58 percent in March and from 60 percent last August. However, 36 percent rated their current net farm income bad, while 44 percent consider it normal. USDA recently estimated 2015 net farm income at $58 billion, down 36 percent from last year.

As for input prices, nearly 49 percent of the producers surveyed consider current prices as bad, with 80 percent expecting those costs to remain the same or get worse over the next year.

While producers overall are pessimistic, crop and livestock producers have different perspectives. Crop producers' confidence levels stand at 97.9 compared with 102.5 for livestock producers. Given low commodity prices, crop producers are disappointed with their current economic situation (92.3) but believe the issue will improve in a year (102.5). Conversely, livestock producers are considerably optimistic (122.2) about their current economics, but expect the next year will get worse (89.3).

Regional differences also stood out in the recent ACI survey. Midwestern farmers are the most pessimistic about their current situation and future expectations. Micik said this is understandable given low commodity prices for a region with such heavy row crop production. Plus, poultry and egg producers in the Midwest have had to deal with the avian flu outbreak. Producer sentiments in the Southwest are mixed. They remain pessimistic overall and for the future but optimistic about their current situation, which has been bolstered by improving water conditions, strong cow/calf operations and better returns on alternate crops like sorghum. Producers in the Southeast are optimistic overall and positive about their current situation, but they are pessimistic about their future expectations.

Agribusiness Confidence Index
According to the DTN/The Progressive Farmer Agribusiness Confidence Index, which measured the sentiments of 100 agribusinesses Aug. 3-12, agribusiness confidence has dropped significantly during the past year. Last August, agribusiness confidence stood at 106.1. It then fell to 105.5 last December and followed by 104.7 in March 2015 before bottoming out at an all-time low of 92.0 in August.

"Agribusinesses are substantially more negative than a year ago, both for their current situation and for their future expectations," said Micik. "Their present situation rating of 108, while still in the optimistic range, fell by 6.1 points since March to the lowest level since the survey began in April 2010. Over the next 12 months, agribusinesses surveyed expect circumstances likely won't get any better."

Agribusiness expectations for the upcoming year came in at 80.9, nearly equaling the all-time ACI record low of 80.5 set during the 2012 drought year. This marks a 17-point drop since March. Agribusinesses cited ongoing market volatility and reduced input purchases by producers as contributing factors. In fact, almost one-fourth of the agribusinesses surveyed expect their sales to be worse in the year ahead, which is up significantly from 10 percent in March.

"Only 15 percent of agribusinesses think they will be more profitable a year from now, while 62 percent think profitability will remain the same. The remaining 23 percent say profits will be worse next year," said Micik. "As producers find ways to cut their per acre costs, agribusinesses will continue to feel the impact of those operational decisions on their bottom line."

Visit dtnprogressivefarmer.com for more on the DTN/The Progressive Farmer Agriculture/Agribusiness Confidence Index. Follow DTN/The Progressive Farmer on Twitter at @DTNPF or on Facebook at facebook.com/dtnprogressivefarmer.

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