The University of Michigan developed its consumer sentiment index in the late 1940s and now it is a widely followed leading indicator of consumer behavior. Purdue University and CME Group hope to have come up with a similar indicator with the release of their Ag Economy Barometer.

“We felt that there was an information void with respect to sentiment of producers in the agricultural sector and that coincided with what CME was looking for — they wanted something that matched up with what takes place in the macro economy,” said Jim Mintert, Purdue’s director of the Center for Commercial Agriculture and lead researcher for the Ag Economy Barometer. “So, we patterned what we do after the University of Michigan survey of consumer sentiment.”

With so many different indexes and indicators churning around the market, it is surprising that there is not a widely distributed reading of producer sentiment.

“You can obviously look at our futures prices that go out one, two, three years in the future and have an idea of where the market expects commodity prices to be, but that only tells one side of the story,” said David Lehman, CME Group managing director of commodities research and product development. “It doesn’t really give you information about the expense side of production.”

The Ag Economy Barometer, launched in early May, is derived from a five question telephone survey of 400 producers in agribusiness. The questions are simple, like, “Now, looking ahead, do you think that a year from now your operation will be better off financially, worse off, or just about the same as now?” The survey, conducted by an outside company, takes less than five minutes to complete — keeping it short is key for consistency.     

The methodology was developed over 12 to 18 months with data from October 2015 to March of this year providing the baseline period from which current readings are compared. A reading above 100 means that producer sentiment improved during the month, while below 100 means sentiment declined. April’s reading was 106.

With the release of each month’s indicator comes analysis from Purdue to contextualize the reading. For example, researchers were quick to point out that this month’s 106, while indicating a positive change from March’s 85 reading, came amid a grain market rally but still challenging times for producers in an uncertain economy.

While the five questions will always form the basis for the Ag Barometer, supplemental questions are asked as well. Those questions, related to seasonal factors or some newsworthy event that impacts agriculture, will also be in the reports released the first Tuesday of every month. There will also be a quarterly release of a survey of agribusiness thought leaders.

The survey respondents are stratified to correspond to the USDA’s Census of Agriculture, so, type of commodity and value of farm production are taken into consideration. Because there are more corn than cotton producers, more corn producers are interviewed. And since 49 percent of producers have a value of production between $500,000 to $999,999, 49 percent of respondents are pulled from that range.

Looking forward, CME Group and Purdue hope that this will, besides providing general context for market participants regarding producer psychology, prove to be a leading indicator. But for the moment, everyone is in wait and see mode. There needs to be much more data before any sort of correlations can be made.

 

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