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Dec. 2, 2010 Source: DTN/The Progressive Farmer As the 2010 harvest wrapped up, outlook among American agribusinesses has become even more optimistic, according to the latest DTN/The Progressive Farmer Agribusiness Confidence Index. The year-end DTN/The Progressive Farmer Agribusiness Confidence Index is a very positive 120. Rising corn and soybean prices and weather that favored a quick harvest meant farmers had the cash to spend and the opportunity to complete fall field work, such as anhydrous applications, unlike a year ago when there were delays in many parts of the country. The agribusiness index now stands at 120, up from the initial survey in August, which was set to 100 to serve as the baseline for future reference. The Present Situation Index, which reflects current sentiment regarding sales to farmers and ranchers and current profitability, is 122, or 22 points above that August baseline. The Expectations Index, which measures sentiment on business activity 12 months from now, is 118. The agribusiness index is a companion to the DTN/The Progressive Farmer Agriculture Confidence Index, which was launched last April. Both indexes will be published three times a year, before planting, before harvest and at year's end. "This solidifies what we saw during harvest, that conditions continued to improve beyond our wildest dreams," said Robert Hill, an economist and the owner of Caledonia Solutions, the research and consulting firm for agribusinesses that designed the Agriculture Confidence Index for DTN. "Now, what we don't know is how much this normally occurs anyway," Hill said. "Do retailers feel great after harvest in a normal year regardless of general conditions?" To compile the index, DTN contacted owners or managers of 100 agribusinesses -- including elevators, ag retailers, livestock companies, food product manufacturers, ag services, bankers, cotton buyers, seed companies -- across 23 states, asking about current and future sales of products and services to farmers and ranchers, current and future profitability and overall business prospects for the next 12 months. As the owner of a trucking company that hauls everything from grain to boxed beef, Ray Myers may be in a unique position to observe how things are going. Speaking to DTN from I-70 as he was driving toward Salina, KS, just before Thanksgiving, Myers said being diversified helped his company, Myers Transport of Goodland, KS, stay profitable throughout the economic crisis. Now he thinks the economy has turned around a little, and people in general are beginning to feel more positive. "People are starting to spend a little, invest a little ... It was an outstanding fall harvest and prices stayed up," Myers said. The fall's favorable harvest was not a factor for Larry Hicks, owner and CEO of Cattle Hedging Com LLC in Centennial, CO. Hicks said his business is thriving because it provides risk management for feedlots, and the current volatility is making his services very important. "Feedlots cannot afford not to manage risk, something made clear in 2008 and 2009, when feedlots that were not hedged lost equity," Hicks told DTN. "Now there are such high breakevens, if they are not hedged and prices get down even into the mid-90s they will be in trouble. These are volatile times, and you can't bet on exports being strong enough to carry you through." Hicks said he tells his clients there are opportunities now to manage and protect the balance sheet and retained earnings. "Agribusinesses have to consider the production side, but also the revenue side. Feedlots can still look at buying cattle, but they can't buy cattle without buying corn. Those who did that this summer thinking corn prices would be lower now are upside down," Hicks said. Looking at the components of the agribusiness confidence index, one feature of note is that the Present Situation Index, at 122 is higher than the Expectations Index, at 118, perhaps reflecting the uncertainty of what the economy may do in the next 12 months. "Probably the biggest risk to the farm economy is that something bad happens to the general economy," says Pat Westhoff, ag economist at the Food and Policy Research Institute at the University of Missouri. "An unexpected slowdown in world economic growth or a sudden rise in the value of the dollar could sharply reduce agricultural export sales and commodity prices. A sudden spike in interest rates could increase financial stress and drive down land values. Higher energy prices might boost biofuel demand, but would raise input costs. These things are unlikely to all happen at the same time -- all else equal, for example, a weaker global economy would lower energy prices -- but each has the potential to be disruptive. I won't even try to speculate what might be the root cause(s) of these possible macroeconomic outcomes, other than to note that our level of confidence in the future of the global economy is not great right now." Changes in policy could affect ag business profits as well. In that area, the biggest uncertainty at the moment may be what Congress will do about ethanol tax credits set to expire at the end of the year. And there are perennial uncertainties about export demand, the strength of the dollar, and, of course, the weather. Look for the next update of the DTN/Progressive Farmer Agriculture Confidence Index, which will be released Dec. 20. Details for the index are at: http://www.agricultureconfidenceindex.com Tweet |
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