Anxiety Rollercoaster

It seems that U.S. Agriculture has been overwhelmed with negative news in the last several months.  Concerns about trade tariffs, renegotiation of NAFTA, and implementation of the new Farm Bill have dominated  discussions in social media and news outlets.  This, in addition to the usual concerns over weather and commodity prices. I wanted to revisit, the sentiment analysis that I performed regarding U.S. agriculture that demonstrated the extreme negative reaction when trade tariffs were first announced back in March.    Scraping the recent news headlines (Yahoo News and Google News) for May 25 suggests that the same concerns remain (Figure 1).

FIgure 1. Word cloud from May 25, 2018 news headlines relating to U.S. Agriculture.

When examined for polarity, this day’s headlines scored 0.149 suggesting neutral to slightly positive sentiment (0.33 is the threshold for strong positive). The polarity scores for news headlines during the last several months ranged from a low of 0.005 on June 8 to a high of 0.39 on June 30 and exhibited extreme volatility during this period (Figure 2).  News headlines such as: “Agriculture caught in US-China trade dispute” , “Mexico Retaliates With Tariffs on US Agriculture” and “Canada to US: Explain that $30 billion farm spending war chest” are what drove the sentiment index to its lowest levels.  In contrast, the prominent stories that help push the index to its highest level had to do with renewed efforts to push a Farm Bill through the Senate.

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Figure 2. Polarity Scores for U.S. Agriculture News Headlines.

Sentiment expressed in social media regarding U.S. agriculture exhibits the same volatility (Figure 3).  The longer-term view of twitter sentiment scores pertaining to U.S. agriculture show that for most days during the last several months viewpoints were neutral to moderately positive.  There were three brief periods of extreme negativity.  On or around April 2, 2018 having to do with trade concerns,  on May 17, 2018 in relation to the failure to pass the Farm Bill in the House of Representatives, and on June 20, 2018 as there was heighten concerns regarding the escalation of U.S.-China trade disputes.  Similarly, there were a few brief periods when sentiment moved towards strongly positive (above 0.50).  The monthly trend in the hybrid sentiment score was 0.37 for March, 0.27 for April,  0.34 for May, and 0.45 for June.  All four months were neutral-to-slightly positive and trending towards slightly positive.  Later we will look at alternative sentiment measures for U.S. agriculture to see if this positive trend is further substantiated.

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Figure 3. Sentiment Scores for U.S. Agriculture Tweets, March-July, 2018

Most of the tweets had a well defined emotional content., with the most dominant emotion being anticipation (Figure 4).   Despite the high level of anxiety, positive emotions outnumbered negative emotions by nearly 2-to-1. Trust and joy were the most common positive emotions. The predominant negative emotions were fear, sadness, and disgust.

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Figure 4. U.S. Agriculture Tweet Emotion, March – July, 2018

Alternative Agriculture Sentiment Measures

The Purdue/CME Group has, for several years, conducted monthly opinion surveys of agriculture producers to gauge economic sentiment.   The results are used to calculate an index called “The Ag Economy Barometer.”  It is designed to be a comprehensive measure of the health of the agricultural economy. In a recent report it was noted that “producers’ weakening perceptions of current conditions in the production agriculture sector, along with a decline in their expectations for future economic conditions” led to a sharp drop in the ag producer sentiment index in April 2018 and the second month in a row of declines.   The report also postulates that “the undercurrent of concern expressed by producers in March became more pronounced in April as the trade dispute with key export customer China continued.”  It was also noted that “the attitude shift identified in the survey extended beyond crops into animal agriculture.”

Looking at the recent history of monthly index values reveals that the largest monthly increase occurred in November 2016 (Figure 5).  Coincidently, a Presidential election was settled during the same time frame.  The May reading of the Purdue University/CME Group Ag Economy Barometer was 141, 16 points higher than in April 2018 and the highest barometer value since January 2017.

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Figure 5. Purdue/CME Group Ag Economy Barometer Monthly Index Change, October 2015-June 2018.

To get a sense of what is driving the sentiment indicated in the Ag Economy Barometer, I examined the correlation with monthly indices of major commodity profit developed for Iowa  and the general prices received and paid indices from NASS (Figure 6).  The Ag Economy Barometer is most strongly correlated with the profitability of corn and soybeans and had a strongly negative correlation with cattle profitability.  No relationship was evident with the general prices revived index, while prices paid was negatively correlated.

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Figure 6. Correlation Between Purdue/CME Ag Barometer and Commodity Indices

What about monthly changes? There are periods where the Ag Economy Barometer tracks closely with indices for several commodities (March 2016) and periods where they seem to be moving the opposite direction (Figure 7).

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Figure 7. Comparison of the Purdue/CME With Iowa Commodity Profit Indices

The Ag Economy Barometer was found to be most closely associated with  corn and soybean profitability (Figure 8).  Corn profitability was nearly four times more influential in explaining the Ag Economy Barometer.   The results of the regression indicated that the model explained 66 percent of variance and that the model was a significant predictor of the Ag Economy Barometer, F(6,25) = 10.85.

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Figure 8. Model Coefficients (PAB ~ CORN + SOYB + CATT + HOGS + PREC + PPAY)

Sentiment analysis is the measurement of positive and negative language. It is a way to assess written or spoken language to gauge if the expression is favorable, unfavorable, or neutral, and to what degree.   It provides one approach to discerning opinions of individuals or groups.  When done consistently, it provides a way to evaluate changes in topic views over time.  At least as it pertains to U.S. agriculture, I have demonstrated that sentiment does reflect changes in the underlying economic fundamentals (commodity prices, expenses, etc…) to some degree and that news headlines seem to strongly influence sentiment.  More importantly, sentiment about U.S. agriculture is extremely turbulent, which may not be surprising for an industry that is known for economic volatility.

Earth Day, Farm Bills, and the Future of Conservation Programs

The day was first celebrated on April 22, 1970.  Today marks the forty-eighth observation of Earth Day.  An opportunity to raise awareness for the need to protect the environment and promote circumstances for environmental conservation.  I thought it appropriate to reflect on how farmers and ranchers have contributed to environmental stewardship and the role of USDA conservation programs.

Investment in agricultural conservation has come a long way since the 1985 Farm Bill first added a Conservation Title. The Farm Bill conservation programs, taken in total, are the largest single source of funding for land conservation. Farm bill programs create significant opportunities for land trusts to protect high-priority farm and ranch lands, grasslands, wetlands, and forests. Today, there is a portfolio of payment programs and other policy instruments designed to encourage better environmental performance and accountability on U.S. farms.

Perhaps one of the more well-known and controversial programs is the CRP. The primary purpose of the Conservation Reserve Program (CRP) is to conserve and improve soil, protect water quality, and provide wildlife habitat by establishing long-term cover on highly erodible land or land in need of conservation buffers that was previously in row crop production. The CRP program offers 10–15 year contracts for the retirement of land from crop production using submitted bids subject to field specific caps. In exchange for cost-share and rental payments, agriculture producers remove environmentally sensitive land from production and plant resource-conserving land cover to protect soil, water, and wildlife habitat.

Congress created CRP in the 1985 Farm Bill due to increased concern over unacceptably high levels of soil erosion. The 1985 Bill authorized USDA to enroll up to 45 million acres, though actual enrollment has never exceeded 37 million acres. Between 1985 and 2008, the enrollment cap was reduced to 36 million acres before being increased to 39 million and then reduced again to 32 million acres. The 2014 Farm Bill gradually lowered the CRP acreage cap from 32 million acres under the 2008 Farm Bill to 24 million acres in 2018.

Source: Farms Service Agency, USDA. (https://www.fsa.usda.gov/programs-and-services/conservation-programs/reports-and-statistics/conservation-reserve-program-statistics/index)

Despite substantial changes in producer preferences and  program design; fluctuations in total acres enrolled; and tremendous technological advancements in agricultural production (many of the arguments used for lower support in the 2014 Farm Bill), payments per acre enrolled have generally declined over time and remained remarkably steady in recent years.  This suggest, that at least in relative terms, the CRP program is operating with greater economic efficiency today than when its was first developed.

I offer 2 alternative methods for inflation adjusting federal CRP outlays.  I first use a more traditional chain-type GDP deflator (2018=100).  I also deflate expenditures by the farm real estate value index (2018=100), since the primary focus of the program and it’s instruments are farmland. Although eligibility is centered on highly erodible land, most CRP land is selected from producer offers using the Environmental Benefits Index (EBI), a benefit–cost index that accounts for a broad range of environmental concerns and the cost of the contract to the government.  Compensation is meant to capture the opportunity cost of foregone production on that specific land  and its ownership and maintenance costs.

In addition to reducing  the acreage cap to achieve cost savings, several other modifications were made as part of the 2014 Farm Bill.  This included three transition options for expiring CRP land. First, within the 2 million-acre reservation for grassland enrollments, expiring CRP acres are prioritized; the land will remain in CRP but the economic use of the land for grazing and haying is greatly expanded. Second, it allowed producers with expiring CRP land to enroll in the Conservation Stewardship Program in the final year of their CRP contract. Third, it provided two years of extra rental payments to owners of expiring CRP land who rent or sell their land to a beginning, socially disadvantaged, or veteran producer who will practice conservation on the land through the Transition Incentives Program.  These program refinements are potentially at odds with the direction of the current Farm Bill discussions.

America’s farmers and ranchers have a proud tradition of conservation stewardship working in concert with the federal government to develop innovative approaches and sustainable practices that benefit the land, water, and wildlife for future generations.  The next farm legislation will have an important impact on whether this stewardship legacy is maintained.   The signals, so far, are not encouraging.

The House Agriculture Committee’s proposed Farm Bill reauthorizes the conservation reserve program increasing acreage from 24 million acres to 29 million acres. It limits CRP rental payments to 80 percent of established local rental rates, with a 15 percent reduction for first re-enrollment and 10 percent thereafter. But working lands conservation is cut by 25 percent over the next 5 years with the Conservation Stewardship Program (CSP) being rolled into the Environmental Quality Incentives Program. Overall, conservation takes a nearly $1 billion cut over 10 years.