Today's release of DTN/The Progressive Farmer Ag Confidence Index points to an interesting trend in results of U.S. producers (see Ag Confidence Index Results by Greg D Horstmeier, DTN Editor-in-Chief in today's top stories). December results report an Ag Confidence Index of 98, a further move towards a neutral reading of 100 and a stark improvement from the 72 reported in August and the 75.1 reported in December 2015.
DTN's index is calculated using a baseline of 100, with results above 100 indicating a period of optimism while indices below 100 reflect pessimism, with indices since March 2014 showing below 100 or pessimistic levels. The interesting point made in the December results is that the data for the current situation is becoming increasingly pessimistic, with the December 2016 index calculated at the lowest level in the history of the calculation, which began in 2010. At the same time, the study points to a divergence when considering respondent's views of the future, which resulted in a level not seen since 2010 when U.S. farm incomes were at historically high levels.
The attached graphic highlights the December release of the Canadian Federation of Independent Business (CFIB) Agriculture Business Barometer Index for the Canadian industry. The CFIB explains their index as follows:
"On a scale between 0 and 100, an index above 50 means owners expecting their business' performance to be stronger in the next year outnumbering those expecting weaker performance. One normally sees an index level of between 65 and 70 when the economy is growing at its potential."
The December index increased for a second straight month to 56.8, the second-largest two-month move seen in 32 consecutive months after being reported at 47 in the month of October. This is also higher than the 53 reported in December 2015 although remains below the 12-month high recorded in June of 62.5.
Of the 13 industries analyzed, the December index for agriculture was the third lowest, with only the retail and transportation industries showing a lower index for the month of December. As recently as October, the ag index was the lowest of the 13 selected industries in Canada.
The attached graphic shows the overall linear trend of the ag index since January 2010 trending lower, although when asked about the general state of business health, 48% of respondents responded with "Good" this month. While this is down from the more than 60% of respondents that chose "Good" just a few months back, the percentage responding with this answer has trended higher overall since 2009. In the month of December, the construction industry was the only industry of the 13 listed which showed a higher response to this question than agriculture.
When asked about the limitations faced on production growth, the most popular responses were 1) a shortage of unskilled labor, at 34% of responses and 2) shortage of skilled labor, indicated in 32% of responses. Of the 13 industries analyzed, the ag industry was unique in choosing a shortage of unskilled labor as their top concern. Also, of the 13 industries, six reported a higher response to the need for skilled labor than the ag industry.
When asked about the major cost constraints faced, 66% of ag respondents chose taxes and regulations while 64% chose fuel and energy, a common theme across many of the industries listed.
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