Market Matters Blog

One of the big conversations in the newsroom surrounding Monday's release of the DTN/The Progressive Farmer Agriculture Confidence Index focused around one word: normal.

The survey that generates the index data asks farmers to rate their current input prices and current net farm income as good, bad or normal. More than half of the survey respondents considered their current income normal. It's only the second time since DTN began conducting the survey that more than 250 of the 500 survey respondents said income was normal. The survey sample roughly reflects the 2007 Ag Census, if you're curious.

It's perplexing. USDA projects farmers will earn the second highest net farm income since 1973 at $120.6 billion, which seems higher than what a five or ten year average might suggest "normal" is.

After last year's historic drought, could farmers just be feeling that it’s a return to a more normal income pattern? USDA's noted in its farm income assessment that a lot of what it considers 2013 income will actually be made when farmers sell the grain in 2014. By putting a crop in the bin instead of collecting an insurance check to help cover forward contracts that can't be filled, are farmers feeling like they're back to business as normal?

Could it also have something to do with prices? Perhaps a five or ten year average doesn't reflect current demand. Over the past year, I've had several conversations with economists who think the 4 to 5 billion bushel per year demand for corn by the ethanol industry has fundamentally changed the marketplace and will buoy its price going forward. Even though new-crop corn futures closed a bit below $4.70 last Friday, the question as to whether $5 corn is the new normal is a valid one.

The index doesn't answer these questions. In fact, I usually have more questions after I spend a week going through the data, interviewing farmers and writing the story. But to me, it reinforces the Agriculture Confidence Index's real value: what it tells over time. For instance, the numbers in 2012 showed us how farmers' attitudes shifted because of the drought. Pre-planting, farmers were exuberant about their current situation. They were going to plant a lot of acres and expected high prices. By the time we conducted the pre-harvest survey, the hot and dry summer sucked the enthusiasm from the air. After harvest, when folks figured out what their crop insurance payments were going to look like, they breathed a sigh of relief.

How will 2012's results compare once the index has 10 years of data? Will it reflect the huge abnormality of the year, or will yet-to-be seen data make 2012 look like it wasn't all that bad? Will it look "normal?"

Looking over the nearly four complete years of data, I noticed another trend, and I'm starting to wonder if it can be classified as "normal."

The confidence index really has two parts: ratings of the present situation (there here and now) and expectations for the future. We compute a present situation and an expectation index, which together create the overall index value. A value over 100 is considered optimistic or positive while a lower value is considered pessimistic.

Since we began the survey, farmers' expectations for the year ahead have never been positive. The closest it came was before harvest last fall, when the expectations index was 99.8. When you're staring at a cornfield that didn't develop ears and burned up by the end of July, it's hard not to think next year HAS to be better.

Farmers are a naturally conservative bunch, especially when it comes to making bold statements about what the future holds. They know Mother Nature has an arsenal of tools she can use to dash the highest of hopes.

The index is inherently comparative, and that's where it value lies. Read it like you would someone's pulse. Is it racing? Or can you barely feel it? Monday's results show an industry that's getting over one of the toughest crop years in decades. It's showing signs of strength and hope that wild swings in input prices and incomes might be leveling off.

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