FarmPolicy

November 13, 2018

Recent Highlights from USDA’s Economic Research Service, U.S. Agricultural Economy

The USDA’s Economic Research Service (ERS) noted in its Feed Outlook report this week that, “A 75-million-bushel increase in forecast 2014/15 corn use for ethanol boosts expected supplies of distillers’ grains reducing the outlook for feed and residual use and leaves ending stocks 50 million bushels lower this month…Higher reported cattle inventories increase grain consuming animal units. The midpoint of the projected range for the corn price received by farmers is unchanged at $3.65 per bushel.

And in its chart of the day report on Friday, ERS explained that, “Strong feeder cattle prices and declining feed costs are supporting high returns for cow-calf producers. The price of 750-800 lb. feeder steers at the Oklahoma National Stockyards exceeded $220 per hundredweight at the end of 2014, up $65 since January and over $100 since May 2013. At the same time, the price of corn (a major component of cattle feed) fell from above $7.00 per bushel in mid-2013 to under $4.00 per bushel by December 2014, reflecting a record 2014 crop projected at 14.4 billion bushels. Despite weaker demand, beef prices are at record high levels due to tight supplies and historically low cattle inventories. Expanding the cattle herd is a long-term process due to the time it takes cattle to mature, and requires holding some heifers off market for breeding purposes.”

ERS added that, “Recently released data from USDA’s Cattle report suggests that inventories are beginning to grow, and cattle prices have begun to retreat. With corn prices forecast by USDA to average around $3.50 per bushel for the 2014/15 marketing year, returns to cow-calf operators should remain favorable into 2015.”

In its Oil Crops Outlook this week, ERS stated that, “Last fall, high meat prices encouraged livestock and poultry producers to keep more breeding animals. The expected expansion of livestock and poultry output would boost 2014/15 domestic soybean meal consumption to 30.5 million short tons, compared to 30.2 million last month.”

With respect to soybean oil, the report noted that, “Despite a higher soybean crush, 2014/15 soybean oil production is forecast up only marginally from last month. Extraction rates for soybean oil this year have been below average and could fall to a 5-year low for the whole season. A brisk processing pace and lower oil content of this year’s soybean crop are responsible for the reduction in oil yields.”

In its Wheat Outlook report this wee, ERS pointed out that, “U.S. wheat ending stocks for 2014/15 are projected 5 million bushels higher as reduced exports more than offset an import reduction. Projected imports are lowered 20 million bushels to 160 million on pace to date. Projected exports are lowered 25 million bushels to 900 million due to increased competition from the European Union (EU) and the recent strengthening of the dollar (which makes U.S. exports less competitive). Ending stocks are increased to 692 million bushels. The season-average farm price is lowered 5 cents on the low end and 15 cents on the high end to $5.85 to $6.15 per bushel. The reduction reflects prices received to date as well as a loss of competitiveness for U.S. wheat.”

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Farmland Values- Federal Reserve Bank of Kansas City

Following Thursday’s reports on farmland values from both the Federal Reserve Banks of Chicago and St. Louis, on Friday, the Federal Reserve Bank of Kansas City indicated on Friday that, “Farmland values in the Tenth District generally held steady in the fourth quarter of 2014 despite further declines in farm income. Most bankers surveyed, however, said they expect cropland values to fall in 2015 alongside reduced expectations for farm income. Amid shrinking profit margins, demand for operating loans to pay for crop inputs is expected to remain elevated, and some bankers expressed concern that loan repayment rates might deteriorate if weak profit margins persist.”

Chart- Tenth District Farmland Values, Annual Gains

The report noted that, “Cash rental rates also had moderated only slightly from a year ago despite prospects of lower crop revenue in 2015. While tenants were concerned about weaker profit margins due to low crop prices and high input costs, landlords cited high property taxes during rent negotiations as justification for keeping rents steady.”

Chart- Tenth District Farmland Cash Rental Rates, Annual Gains

The Kansas City Fed added that, “Although overall farm income continued to soften, livestock producers have experienced record profits. Profit margins remained particularly strong for cow/calf operators due to low feed costs and persistently high feeder cattle prices, which have been supported by reduced U.S. cattle inventories. U.S. cattle inventories have yet to return to pre-drought levels, and the USDA National Drought Mitigation Center recently reported that about 26 percent of the current cattle inventory is in regions hampered by drought. In the Tenth District, large portions of the major cattle producing areas in Oklahoma and Kansas are still affected by moderate to exceptional drought.”

Reuters writer Christine Stebbins reported on Friday that, “But the [Kansas City Fed] bank noted sharp variations based on farm income trends. Nebraska, the region’s top corn producer, saw non-irrigated land values drop 3.4 percent from a year ago. In Oklahoma, with more grazing land, those values jumped 19 percent.”

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Policy Issues; Ag Economy; Biotech; Trade; and, CFTC

Policy Issues

A news release yesterday from the House Ag Committee stated that, “Today the House Committee on Agriculture sent its Budgets Views and Estimates Letter for Fiscal Year 2016 to the House Budget Committee. In the letter, Committee members urged Budget Committee Chairman Tom Price to take into account that with the Farm Bill the Agriculture Committee made a significant contribution to deficit reduction with the passage of the Farm Bill, which Congressional Budget Office (CBO) estimated at the time would save $16 billion over 10 years. Despite a steep decline in commodity prices the CBO estimates that taxpayer savings remain intact.

“‘The Farm Bill is working as it was intended to work, meeting our objectives with substantially fewer resources,’ Committee members wrote in the letter. ‘From our perspective, we believe that the Committee on Agriculture has done its duty for now with respect to deficit reduction and that areas constituting the other 98 percent of the Federal budget ought to be looked to first for any additional savings being sought this Congress.’”

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