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Farmer sentiment soars on China trade progress

February 5, 2020

Krissa Welshans

Agricultural producer sentiment rose sharply in January as the Purdue University/CME Group Ag Economy Barometer, which is based on a mid-month survey of 400 U.S. agricultural producers, saw a 17-point increase from December to a reading of 167. Although the Index of Current Conditions was essentially unchanged, rising just one point to a reading of 142, the Index of Future Expectations jumped significantly, gaining 24 points since December to a reading of 179.

The sentiment improvement was attributed to progress on the global trade front, specifically the signing of the phase one trade agreement between the U.S. and China in mid-January.

"The phase one trade agreement has largely been considered a win for U.S. exporters, although few details are available regarding how the additional $200 billion in purchases by China will be distributed over the next two years and how much impact it will have on the U.S. farm sector," said James Mintert, the barometer's principal investigator and director of Purdue University's Center for Commercial Agriculture.

One topic that was not directly addressed in the phase one agreement was the soybean trade dispute. Despite that, producers remain optimistic about the dispute's resolution. In January, 69% of those surveyed felt that the soybean trade dispute would be settled soon, up from 54% in December, and 80% felt that the outcome will be favorable to U.S. agriculture, up from 72% in December.

At the same time, producers' expectations for an increase in U.S. agricultural exports over the next five years has steadily improved. As recently as October 2019, only 55% of producers expected agricultural exports to increase; however, starting in November 2019 and continuing through January 2020, about 70% of those surveyed expect to see an increase in U.S. agricultural exports in the next five years.

At the farm level, the survey asks producers each winter about the rate of growth they expect for their farming operation over the next five years. Since the question was first posed in 2015, there has consistently been a small percentage of farmers who plan to grow rapidly and a relatively large group that either has no plans to grow or plans to exit or retire from farming. However, those who indicated that they have no growth plans and/or expect to exit/retire has been rising steadily since 2018. For example, in January 2020, a combined 56% of farmers said they have no plans to grow or plan to exit/retire, up from 50% in 2019 and up from 39% in 2018.

"The tremendous volatility the ag sector has experienced the last couple of years could be interpreted as a signal to producers to be more cautious regarding future expansion plans," Mintert stated.


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