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Purdue University’s Center for Commercial Agriculture and the derivatives marketplace CME Group are partnering to produce the Purdue/CME Group Ag Economy Barometer, a monthly nationwide measure of the health of the U.S. agricultural economy.
The introduction of this new economic indicator underscores the importance of the agricultural economy and its participants - food producers and agribusinesses - to the overall U.S. and global economies, Purdue and CME Group said Tuesday (May 3) in announcing the partnership.
“Agriculture is a critical component of the global economy and has been the cornerstone of CME Group’s business for nearly 170 years,” said CME Group Executive Chairman and President Terry Duffy. “By providing financial tools to help producers and agribusiness participants manage the risks they face, they are better able to focus on what they do best - feeding the world. We believe this collaboration with Purdue University to create the Purdue/CME Group Ag Economy Barometer will provide an essential resource for monitoring the health of the food industry and vital insight into the global economy.”
Purdue President Mitch Daniels said, “Purdue’s College of Agriculture has a long tradition of pushing us toward better food security, safety and sustainability with its cutting-edge research. We can imagine no better partner than CME Group to help us analyze and report the real-time economic health of U.S. agriculture, on which literally every citizen and the rest of the economy depends.”
Each month, the Ag Economy Barometer will provide a sense of the agricultural economy’s health with an index value. Results to calculate the index are obtained through a survey of 400 large agricultural producers on economic sentiment. In addition, Purdue will bring its research and agricultural economics expertise to measure producers’ expectations of key farm economy drivers such as farm profitability; farmland prices; capital expenditures; row crop, livestock and dairy prices; and seasonal drivers such as seed, fertilizer and feed ingredient prices.
The barometer provides a value for each month that is relative to the base period, which is the winter and spring months of 2015 and 2016, explained Jim Mintert, director of the Center for Commercial Agriculture, professor of agricultural economics and the barometer’s principal investigator. A score of 100 would mean that the sentiment is unchanged from the base period values. Higher than 100 means sentiment improved from that period, whereas lower values would indicate sentiment declined.
Quarterly, the index will be accompanied by a webinar and in-depth thought leader survey. The 100 agricultural thought leaders surveyed include agricultural lenders, business professionals, academics, consultants and commodity association representatives. This survey is separate from the results of the producer survey but serves as a supplement to the barometer.
“The barometer is the only ongoing monthly measure of the health of the agricultural economy,” Mintert said. “Also unique is that the index is calculated based on producer sentiments about both current conditions and future expectations.”
April survey results
The agricultural sentiment of U.S. producers increased to 106 in April 2016, which was an improvement in producer sentiment compared to the base period of October 2015 through March 2016. The increase was driven in part by strengthening corn, soybean and wheat prices. After months of trending lower and a sharp drop in corn prices following the USDA’s March Prospective Plantings report, crop prices moved up during April. In addition, general weather conditions across the Plains and Midwest were favorable for crop development and planting and likely contributed to the improved sentiment.
“While the most recent data show an uptick in producers’ sentiment, it is important to keep the situation in perspective,” said David Widmar, senior research associate for the Center for Commercial Agriculture and lead researcher on the Ag Economy Barometer. “Overall, the general agricultural outlook is still difficult. A strong majority of respondents, from both the producer and quarterly Agricultural Thought Leaders survey, reported expectations of the next 12 months being ‘bad times’ financially across the agricultural sector.”
A website with more information on the Ag Economy Barometer is at www.purdue.edu/agbarometer.
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The price of corn in Chicago increased about $0.90 per bushel from mid-June to mid-July. The increase was driven by a combination of a smaller-than-expected USDA estimate of June 1 stocks and production concerns stemming from record June rainfall in much of the eastern Corn Belt. Over the past two weeks, corn futures prices have declined nearly $0.80 per bushel as production concerns have subsided. Today the trade thinks, based on price, the amount of corn available for the next year will be more than needed.
|CME Group December Corn Futures - Daily Chart
Darrel Good - Based on the current pace of ethanol production, for example, the use of corn for ethanol production during the current marketing year (ending August 31) could be about 10 million bushels more than the current USDA projection of 5.2 billion bushels. Similarly, exports could be slightly larger than the projection of 1.85 billion bushels if Census Bureau export estimates for June, July, and August exceed the USDA export inspection estimates as was the case in the first nine months of the marketing year. However, for carryover stocks to be lower than the current projection of 1.79 billion bushels by enough to meaningfully alter the 2015–16 supply and demand balance would require larger than expected feed and residual use of corn during the final quarter of the marketing year.This won’t be known until the Grain Stocks report is released September 30th. A tighter supply and demand balance sheet for corn could also result from larger than expected consumption during the year ahead. Such a development would obviously take time to unfold, but opportunities for consumption to exceed the current projection appear to be limited thinks Good. This leaves the size of the crop in the ground as the primary lever by which prices might be pushed higher.
Darrel Good - The trade's average yield expectation appears to be near 165 bushels, 1.8 bushels less than projected in the July 10 USDA WASDE report. The August production forecast will also reflect the estimate of harvested acreage, but a large change from the June acreage forecast is not expected. Based on the projection of 81.1 million acres harvested for grain, a yield of 165 bushels would result in a crop of 13.38 billion bushels, about 150 million bushels less than projected in the July WASDE report. Still, if 2015–16 marketing year consumption is near the current USDA projection of 13.735 billion bushels, year-ending stocks would be abundant at about 1.45 billion bushels. On the other hand, a yield forecast of 161 bushels or less would likely be sufficient to push prices back to the mid-July highs.Recent corn price declines indicate, says Darrel Good, that the market is removing the production risk premium from the price structure in anticipation of another year of surplus. The question is whether that removal is premature. The USDA’s Crop Production report to be released on August 12 will contain the first survey-based yield and production forecasts for the 2015 crop.
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Futures prices were limit-down for 5 days in a row in mid-December 2014, the most limit-move days in a livestock contract since the BSE (mad cow) selloff in December 2003. Daily price limits in feeder cattle futures were increased from 3 cents per pound ($3/cwt) to 4½ cents per pound ($4.50/cwt), with provisions for additional expansions if needed; complete details are presented here.
So why have feeder cattle prices been so volatile lately? It helps to think about feeder cattle prices as the "shock absorber" between fed cattle prices on one end, and corn prices on the other. When buying feeder cattle, feedlots look at the gross feeding margin, which is
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If corn farmers want a break even price for their crop next year, they’ll need to plant fewer acres of it. Todd Gleason has more on how one ag economist has forward figured the number of corn acres needed in 2015 to push cash prices back above four dollars a bushels.