Market Matters Blog
Katie Micik DTN Markets Editor

Tuesday 09/04/12

Crop Insurance Buoys Confidence

The latest results of the DTN/The Progressive Farmer Agriculture Confidence Index surprised me a little bit: Farmers still tallied an overall optimistic score despite this summer’s crippling drought. I’ve talked to the farmers. I’ve seen the crops. It’s a sad sight.

But I’ve also talked to several crop insurance agents, and there’s no denying that crop insurance buoyed farmers’ expectations of their farm income and profitability this year.

The Agriculture Confidence Index came in at 107, which is considered an optimistic sentiment since it’s a value over 100. But when you break that number down into expectations of the present and 12 months down the road and compare it to our March survey data, it shows that farmers do feel let down about this crop. Expectations fell by 20 points.

Farmers are less pessimistic about what the business environment will look like a year from now. The reading of future expectations came 11 points higher than they did in March.

The pre-harvest release of data marks the start of our third year of attempting to quantify how farmers feel about their business’s economic prospects. And for most of last year, farmers felt pretty good about the crops and prices. But when we designed the index, we knew it’d be most interesting during years when the unexpected happened. As with any reliable data set, the longer you track the numbers, the more valuable it becomes.

But our numerical interpretation of farmer sentiment is only as good as the economic context that informed our 500 survey participants. Last year around this time, the Euro zone debt crisis roiled the markets, swinging the Dow like a pendulum back and forth between triple digit gains and losses. So while farmers felt good about how their crops were growing and the prices they’d be paid, the macroeconomic environment caused worry. That showed up in our index.

And in this survey, it shows us that while expectations for this year’s crops shriveled, crop insurance lifted much of the financial burden of a drought from farmers’ shoulders. That’s the kind of stress that makes a farmer worry about his farm’s future. Meanwhile, the drought exacerbated the world’s short supply problem, keeping futures prices at historically high levels through next year’s crop. I can see why that prospect would support farmers’ belief that next year has potential to be a money maker.

You can see the difference crop insurance payments and production cycles play when you compare readings from livestock producers to crop growers. Livestock producers’ overall response was about 7 points lower than crop producers. Livestock producers feel better about right now that row crop farmers do, but they don’t expect to see stronger retail prices for at least another year. That’s why their future expectations are 13 points lower than row crop farmers (89 vs. 102.4).

Short crops have a long tail, and it’s the dairy farmers, hog producers and cattlemen dealing with a shortage of high-quality feed that will be feeling the drought for a long time. The livestock production cycle is much longer than a single crop’s growing season, and I’ll be interested in seeing what our post-harvest confidence index results show in these two sectors. DTN will release those numbers in January, 2013.

Posted at 8:53AM CDT 09/04/12
Comments (1)
I bet that tail will be shorter this time. Many livestock producers still railing from milk blood bath of 2009 and continued pressure from ethanol dating back to 2005. People expect lag in products but the seriousness of many out here is critical and for some terminal.
Posted by Frank Thomas at 7:09AM CDT 09/05/12
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