Perhaps it’s tariffs, low prices or the government shutdown, but the agriculture business is hitting a rough patch, according to a producer survey. Will a new trade deal with China turn things around?
Right now, farmers aren’t happy, and they don’t see exports growing in the next five years, according to the just-released December Purdue University/CME Group Ag Economy Barometer. The survey of 400 agricultural producers across the country show a deepening malaise taking hold of the sector. Agriculture added roughly $1 trillion to the U.S. GDP in 2016.
Producer sentiment dropped to 127, seven points off November levels, seen as a modest drop.
However, other indicators show disturbing trends. For one, the Index of Current Conditions fell six points, which puts the index substantially lower than a year ago and indicates a weakening condition.
“Over the course of the last year, producers’ impression of current economic conditions on their farms had declined markedly,” said James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture, in a statement. He added that expectations for the future have held steady. “As a result of this mixed view, farmers appear to be cautious about making large investments in their farming operations.”
Although the survey was done prior to the signing of the 2018 farm bill, certain responses indicated a downturn in the sector. For example, although 59% of respondents noted that they expect agricultural exports to increase over the next five years, that number is down seven points from November.
Mintert writes, “Trade disputes with key ag trading partners, including Mexico, Canada and China, continue to be a concern among producers. Starting in midsummer 2018 and prior to the December survey, producers showed signs of becoming more optimistic about future ag exports, but that changed on the December survey with the percentage of producers expecting U.S. ag exports to decline over the next five years increasing from just 10% in November to 26% in December.”
Another bad sign: When producers were asked whether the next 12 months looked good or bad financially for the sector as a whole, 59% said bad, up from 54% in the previous survey, while 31% said good, the same as the previous month. Looking at the next five years, 48% thought there would be more good times than bad, versus 40% bad. But that might be changing, as the good times number dropped three percentage points in the last month while the share who expect bad times rose nine percentage points.
Another negative indicator was revealed when producers were asked whether now is a good time to bring the next generation into farming, and only 42% respondents said yes, down from 50% just two years ago.
The current U.S.-Chinese trade talks could turn things around, says Price Group grains analyst Jerry Gidel. “This week’s extended talks in Beijing are positive,” he says, although the trade and farmers are concerned President Donald Trump may overplay his hand and harm the deal. That said, “solid performance was accomplished the past three days in Beijing by middle-level trade people on both sides — not the bigwigs — between the U.S. and China.”
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