FarmPolicy

August 20, 2019

Federal Reserve Beige Book: Observations on the Ag Economy- March ’16

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– “Commodity prices remained depressed.”

* Sixth District- Atlanta– “On a year-over-year basis, monthly prices paid to farmers for corn, cotton, rice, soybeans, beef, broilers, and eggs have declined.”

* Seventh District- Chicago– “Crop farmers continued to cut capacity following another year of low incomes coupled with unexpectedly small declines in input costs. There were reports of major downsizings of large operations and of some farms going out of business. Farmers are also cutting capacity by purchasing cheaper but lower-yielding seeds and by selling machinery. Correspondingly, prices for used farm machinery are low because of plentiful supply. Corn, soybean, and wheat prices moved higher during the reporting period, but remained quite low compared to their five-year averages. Dairy, egg, hog, and cattle prices were up from the prior reporting period, but remained low.”

* Eighth District – St. Louis– “As of the end of January, almost 93 percent of the District winter wheat crop was rated fair or better. Red meat production in 2015 was 6 percent higher than in the previous year, an increase that has been explained, in part, by lower feed costs, although meat prices also fell during the year.”

* Ninth District- Minneapolis– “District agricultural conditions remained weak. A majority of respondents to the Minneapolis Fed’s fourth quarter (January) survey of agricultural credit conditions reported that farm incomes and capital spending fell in the previous three months compared with a year earlier. An animal feed dealer reported that after several years of strong sales, its revenue outlook was flat due to recent declines in the prices of livestock. Prices received by farmers fell in December from a year earlier for corn, wheat, soybeans, hay, hogs, cattle, chickens, eggs, and milk; prices for turkeys increased from a year earlier.”

* Tenth District- Kansas City– “Tenth District farm income weakened further since the last survey period, and cropland values declined modestly. Persistently low crop prices and sharp declines in cattle prices contributed to lower farm income in all District states. District cropland values continued to decrease slightly, while ranchland values levelled off. Similarly, cash rental rates on all types of farmland moderated and were expected to fall further in the next three months. Alongside lower farm income, farm loan repayment rates weakened further, and demand increased for new loans as well as loan renewals and extensions. Looking forward, District contacts expected modest declines in cropland values as well as continued pressure on credit conditions amid tighter profit margins for crop and livestock producers.”

* Eleventh District- Dallas– “Soil moisture conditions remained healthy, with only 2 percent of Texas considered abnormally dry in February, compared with 56 percent last year in some level of drought. While prospects for 2016 crop production are strong, farmers face low prices and downward pressure on exports because of the strong dollar. Industry contacts said many producers will not be able to cover their production costs at the current crop price levels, and some have received calls from their lenders voicing concern. Cotton—Texas’ top crop—has seen prices push even lower with risks to the downside. Contacts reported that low prices and weakening demand will likely result in fewer cotton acres planted this year. Milk prices continued to drift unprofitably low, despite the supply disruption in the wake of winter storm Goliath, which killed roughly 30,000 dairy cows in West Texas and New Mexico. Cattle prices were lower than the record levels posted a year ago but are still relatively high.”

* Twelfth District- San Francisco– “Activity in the agriculture sector was flat over the reporting period. Continued dollar appreciation slowed agricultural exports in general, although exports of pork products rose as demand from Asia strengthened. Contacts reported that domestic demand from restaurants slowed for some vegetable products. Despite an unusually wet winter, overcoming prior drought conditions remains a costly challenge for growers and ranchers in much of the District. Contacts expect conditions in the agriculture sector to remain roughly the same over the coming year as commodity prices remain soft and exports continue to be subdued.”

Keith Good

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