December 5, 2019

Federal Reserve Beige Book: Observations on the Ag Economy

Today the Federal Reserve Board released its Summary of Commentary on Current Economic Conditions.  Commonly referred to as the “Beige Book,” the report included the following observations with respect to the U.S. agricultural economy:

Fifth District- Richmond: “Unseasonably mild temperatures, coupled with below-normal precipitation held back crop yields in some areas of the District. In North Carolina, tobacco and cotton yields reached only 50% of historical averages as a result of damage caused by severe weather last summer. In South Carolina, dry weather late in the season significantly reduced what was previously expected to be an outstanding cotton crop. Moreover, results of our recent agricultural credit survey indicated that farmland values were slightly below the previous quarter and year-ago levels. In contrast, ample amounts of rain throughout Virginia, combined with above-normal temperatures, resulted in above-average yields and near-record commodity prices for most grain producers. An analyst in the Commonwealth described 2011 as a solidly profitable year for most grain producers due to increased export demand.”

Sixth District- Atlanta: “Significant rains have eased drought conditions in parts of Alabama, Mississippi, and Louisiana, while parts of Georgia and Florida have seen drought conditions worsen. Mild temperatures throughout the region are of concern to peach and other fruit crop growers hoping for adequate conditions for the current growing season. On a year-over-year basis, prices received by farmers were higher for many of the region’s agricultural products. Contacts reported that some farmers in Alabama and Georgia were reviewing their planting plans in light of their concerns of labor shortages.”

Seventh District- Chicago: “Corn, soybean, wheat, hog, and cattle prices rose during January and early February. Input costs for agriculture continued to increase, led by sharply higher rental rates for cropland. The increases in these costs have pressured farmers’ margins. In order to offset the risks of price declines or poor harvests, farmers have been willing to spend more on revenue insurance policies. Estimates of corn stocks have come down and are below where they were a year ago. Given current rates of use, the expected supply of corn in stock just before the next harvest is around three weeks, about as tight as last year. Cattle operations are working to build herd sizes, even though bid prices for cattle are very high. Contacts expected farmers to boost their capital expenditures in 2012 compared with 2011.”

Eighth District- St. Louis: “Yields for corn, sorghum, hay, soybeans, and cotton were lower in 2011 compared with 2010, while yields for winter wheat, rice, and tobacco showed positive gains. Monthly output of commercial red meat for December 2011 decreased compared with November 2011; the District’s total live weight and number of chickens slaughtered also decreased during the same period.”

Ninth District- Minneapolis: “Agriculture remained strong. January prices received by farmers for corn and cattle increased. Prices declined somewhat for wheat, soybeans, hogs, dairy products, eggs and poultry, but all prices were above their January 2011 levels. According to preliminary results from the Minneapolis Fed’s fourth-quarter (January) survey of agricultural credit conditions, 67 percent of District lenders reported that farm incomes increased in the previous three months; 10 percent reported decreases. However, drought conditions spread in Minnesota, the Dakotas and District portions of Wisconsin. Low snowfall combined with erratic temperatures were having an uncertain effect on the District’s winter wheat crop.”

Tenth District- Kansas City: “Agricultural growing conditions fluctuated with precipitation levels. After warm, dry weather in January, recent precipitation kept agricultural growing conditions from deteriorating further. The winter wheat crop remained in fair to good condition. Soil moisture levels were low across the District with western Oklahoma and Kansas experiencing severe drought. Ranchers in the southern Plains continued to liquidate herds due to poor pasture conditions and record high cattle prices. In the northern Plains, the lack of harsh winter weather allowed cattle feedlot operators to reduce feed usage and still maintain livestock growth. District contacts expressed concerns about 2012 profit margins due to rising feed, fuel, and fertilizer costs. Still, a rebound in crop prices fueled additional gains to record high farmland values and more bankers expected farmland prices to move higher in the next few months.”

Eleventh District- Dallas: “Recent rainfall eased drought conditions in several areas, particularly in the northeastern parts of the District. The rain helped refill stock tanks and benefitted pasture conditions. Farmers were a little more optimistic about spring planting. Demand for agricultural products remained strong. Contacts said cattle prices climbed to record levels, largely due to tight supplies. High commodity prices have helped agricultural producers’ margins, but elevated input costs have erased some of those gains.”