FarmPolicy

October 21, 2017

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

Yesterday, 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– “Agricultural activity increased modestly since our previous Beige Book report, according to sources. Cotton, corn, and peanut planting are underway. However, a few Virginia and North Carolina farmers reported delayed planting and harvesting of some crops because of a protracted period of rain. South Carolina planters continued to report more labor-intensive field preparation work because of last year’s flooding. According to agribusiness contacts, input prices remained unchanged in recent weeks while crop prices and beef prices declined slightly.”

* Sixth District- Atlanta– “Agricultural conditions across the District were mixed. While most of the region remained drought free, abnormally dry to moderate drought conditions were reported in parts of Florida, Georgia, Tennessee, and Alabama. Contacts continued to focus on efficient production and controlling input costs to optimize income in a low commodity price environment. However, low feed prices benefited protein producers relying on grain for feed. On a year-over-year basis, monthly prices paid to farmers for corn, cotton, rice, soybeans, beef, broilers, and eggs declined, although on a month over month basis prices increased for soybeans, beef, and broilers.”

* Seventh District- Chicago– “Contacts expect the growing season to get off to a decent start in most of the District, even though wet, cool weather meant that both the planting and emergence of corn and soybeans were behind the pace of last spring. Corn and soybean prices rose during the reporting period, but soybean prices rose more, which may cause farmers to plant more soybeans at the expense of corn. At current prices, contacts believe that farms can cover this year’s costs for soybean production but not for corn. Many farmers took advantage of the price rally and boosted their working capital by selling old crops and locking in prices on new crops. Milk and dairy product prices moved lower, as production remained strong. Cattle prices were down as well. Hog prices increased however, helped by solid demand from China, and there was one report of new construction of hog facilities.”

* Eighth District – St. Louis– “The District row crop outlook has slightly improved: Corn, cotton, rice, and soybeans were, as of early May, ahead of their respective five-year average levels of planting progress, and crop prices have risen from their lows. However, contacts note that, even with a near-perfect year in the field, most row crop operations will struggle to break even unless a crop price rebound is sustained and significant.”

* Ninth District- Minneapolis– “District agricultural conditions remained weak, despite favorable weather going into the growing season. Nearly all respondents to the Minneapolis Fed’s first quarter survey of agricultural credit conditions reported that farm incomes were down from a year ago, and more than 80 percent expected them to fall further in the second quarter. Planting progress and early emergence for corn, soybeans, sugar beets, and small grains as of mid-May were well ahead of five-year averages in most of the District. Prices received by farmers fell in March from a year earlier for corn, wheat, soybeans, hay, hogs, cattle, chickens, eggs, and milk; prices increased for turkeys.”

* Tenth District- Kansas City– “Despite a moderate increase in soybean and hog prices in May, District contacts reported that most commodity prices remained below levels considered to be profitable, and generally at or below year-ago levels. Low commodity prices and low farm income weighed on credit conditions, and bankers reported further reductions in loan repayment rates and a significant increase in the number of farm borrowers with increased carry-over debt. District contacts expected demand for short-term financing to remain strong amid a relatively pessimistic outlook for farm income. Alongside low farm income, farmland values and cash rents also declined slightly from a year ago.”

* Eleventh District- Dallas– “Favorable weather and good soil moisture improved production prospects for 2016 crops. Contacts noted that above-average yields, if materialized, would help offset some of the negative impact of low crop prices on farm income. Cattle prices declined sharply in April, partly a result of higher beef production, but recovered some of the loss in early May as retail beef demand increased in anticipation of the Memorial Day holiday. Milk prices plummeted from already-low levels over the past six weeks, putting further pressure on dairies’ profit margins.”

* Twelfth District- San Francisco– “Activity in the agriculture sector expanded somewhat over the reporting period. Domestic demand and sales continued to grow for a wide variety of crops. Contacts reported that an oversupply of potatoes from the 2015 harvest has created excess inventories and led some growers to switch acreage to wheat production. The strong dollar continued to hold down agricultural exports in general, although overseas sales of pork products registered further strong growth. Demand for poultry exports was robust as pent-up demand from last year’s avian flu outbreak persisted and lower input prices helped exporters remain competitive globally. By contrast, activity in the cattle industry declined further, and feedlots faced challenges to remain profitable.”

Keith Good