FarmPolicy

February 25, 2017

Federal Reserve Beige Book: Observations on the Ag Economy- August ’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– “Agricultural activity increased modestly since our previous Beige Book report. Farming contacts reported flat demand in the timber and forestry industries, but noted expansion in the poultry industry. Farm input prices were unchanged in recent weeks, while prices of grains, cotton, soybeans, and corn ended the reporting period at low levels.”

* Sixth District- Atlanta– “Agriculture conditions across the District were mixed. Damage and losses from drought conditions in the region caused the USDA to designate many counties in Alabama, Georgia, Mississippi, and Tennessee as natural disaster areas. Additionally, parts of southern Louisiana experienced severe flooding and there are preliminary reports of crop damage. Compared with last year, District cotton production is forecasted to be higher, while soybean and peanut production is expected to be lower. On a year-over-year basis, prices paid to farmers for corn and soybeans increased, while cotton, rice, beef, broilers and egg prices decreased. However, on a month-over-month basis, prices for corn, cotton, soybeans, and broilers were up, while prices for beef and eggs were down.”

* Seventh District- Chicago– “Already low expectations for farm incomes deteriorated over the reporting period as the potential for a record national harvest pushed prices down further. District corn and soybean growing conditions were better than a year ago (with the exception of Michigan), and the U.S. Department of Agriculture (USDA) forecasted near record yields for corn and soybeans for most District states. Corn and soybean prices moved lower, although soybean prices remained above last year’s level. Strong supplies also resulted in declines for wheat, egg, dairy, hog, and cattle prices. The USDA announced limited purchases of dairy and egg products to help address excess supplies.”

* Eighth District – St. Louis– “While the quick return to low crop prices has weakened the near-term outlook for farm income, crop conditions bode well for strong yields. The proportions of corn, cotton, rice, and soybeans rated fair or better were roughly the same as in our previous report, but the proportion of crops rated excellent increased. Contacts also reported good conditions. Multiple contacts noted that expected strong yields, both in the District and elsewhere, are likely playing a role in the return of low prices.”

* Ninth District- Minneapolis– “District agricultural conditions were mixed, with strong growing conditions offset by low commodity prices. District crops were mostly in good condition as of mid-August, with record harvests expected in some cases; parts of western South Dakota and Montana suffering from severe drought were an exception. Winter and spring wheat harvests were progressing ahead of schedule, but high yields were not expected to fully offset the effect of low prices on income, according to contacts. Prices received by farmers increased in June from a year earlier for corn, soybeans, hogs, and turkeys; prices for wheat, hay, cattle, chickens, eggs, and milk fell from a year earlier.”

* Tenth District- Kansas City– “District farm income and agricultural credit conditions softened moderately since the last survey period. Following an early June rally, crop prices declined in late July and August due to expectations that a strong wheat harvest and favorable growing conditions for fall crops would generate excess supply. Cattle prices also remained well below year ago levels, despite a slight uptick in early August. Although agricultural loan delinquency rates remained low, bankers reported increased demand for farm loan extensions and weaker loan repayments rates. Additionally, District bankers reported modest increases in the severity of agricultural loan repayment problems. Financial strain was particularly high in the western portion of the District due to the combination of subdued commodity prices and increased drought stress. Lower commodity prices, softer farm income and weaker credit conditions continued to push farmland values lower throughout the District when compared with a year ago.”

* Eleventh District- Dallas– “Strong crop production prospects materialized into above-average yields for several crops, with double-digit increases expected for the 2016 cotton, corn and soybean crops. This will help offset some of the negative impact of low crop prices for farmers. Livestock grazing conditions have been very good this year, which, coupled with low grain prices, has reduced feed costs. Dairy producers benefitted from a marked rally in dairy prices over the past six weeks.”

* Twelfth District- San Francisco– “Activity in the agricultural sector expanded modestly. Above-average water availability boosted harvests, with record yields recorded for almonds and walnuts, but contacts expressed concern that a return to earlier weather trends would hurt yields over the near term. On balance, increased foreign production, the elevated dollar, and flat overall demand increased inventories of many agricultural goods. Contacts reported that dairies continued to operate at a loss despite lower input prices, while ranchers benefited from somewhat firmer cattle prices.”

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