WEST LAFAYETTE, Ind. – After three months of decline, farmer sentiment improved 13 points in July thanks to higher corn and soybean prices, according to the latest Purdue University-CME Group Ag Economy Barometer. Indices gauging current conditions and future expectations also increased.

“This isn’t a story about farmers losing confidence,” explained Michael Langemeier, director of Purdue’s Center for Commercial Agriculture. “It’s really a story about recognizing where the biggest challenges are likely to come from. Even with better sentiment, producers understand that long-term profitability depends heavily on managing through volatile commodity markets.”

Langemeier discussed the barometer’s results during the Aug. 4 Purdue Commercial AgBrief, released the same day as the July barometer. For the latest barometer, 405 farmers were surveyed nationwide July 13-17.

Farmer sentiment rose to 126 in the July barometer. A value of greater than 100 shows positive sentiment toward the economy, while values lower than 100 indicate negative sentiment. The current conditions index was up 20 points to 122 and the future expectations index increased 11 points to 129.

The improvement in farmer sentiment is “certainly good news but what caught our attention wasn’t the improvement in sentiment, it was what farmers identified as the biggest challenge facing their operations over the next five to 10 years,” explained Langemeier, also a professor of agricultural economics. “Thirty percent said crop and livestock prices. That’s an important shift because it tells us where producers think profitability will be won or lost in the years ahead.”

After commodity prices, producers listed farm transition (17 percent), cost control (16 percent), financial considerations (13 percent) and weather (13 percent) as concerns.

“That doesn’t mean that those (other) issues aren’t important but producers are telling us that maintaining profitable prices or managing their periods of lower prices is there biggest concern,” he said. “Given today’s margin environment, that’s very understandable. We’re in a period where costs remain historically high while commodity prices, particularly those for crops, have come off the highs we saw a few years ago. That combination leaves much less room for error.”

The survey asked producers what type of risk management education would help them the most in the upcoming year. Forty-four percent named marketing over such options as financial management (17 percent) and strategic planning (14 percent).

“That was true for both crop and livestock producers but it was particularly true for crop producers,” Langemeier pointed out. “When farmers identified commodity prices as their biggest long-term challenge, it makes sense that improving marketing decisions becomes their highest educational priority. Marketing is one of the few tools producers have to actively manage price risk. You can’t control the market but you certainly can try to mitigate risk associated with the market.”

Producers can control such things as when they market grain, how they spread sales over time and whether they use contracts or other marketing tools like options, he said. Those decisions become increasingly important when profit margins are tight, Langemeier added.

The barometer’s farm capital investment index also improved, “suggesting producers felt somewhat more comfortable making major investments than they did just a month earlier,” he said.

“Higher grain prices helped sentiment this month but the question is whether stronger prices can be sustained and whether they increase even more,” Langemeier said. “The July Ag Economy Barometer reminds us that confidence can improve quickly when markets move in the right direction but it also highlights something much more fundamental.

“Farmers believe the biggest challenge over the next decade isn’t simply producing a good crop, it’s earning a profitable price for it. And that’s why marketing continues to be one of the most valuable management tools producers can develop.”