August 29, 2016

Ahead of Government Estimates, Surveys Show More Corn and Soybeans Planted in 2016

Jesse Newman reported yesterday at The Wall Street Journal Online that, “U.S. farmers are expected to plant more corn and soybeans this year even as their storage bins remain stuffed with rising inventory, according to analysts surveyed by The Wall Street Journal.

“The U.S. Department of Agriculture on Thursday will release two closely watched reports on domestic crop stockpiles and farmers’ planting intentions, against a backdrop of historically high global supplies and pressure on U.S. exports caused in part by the strength of the U.S. dollar.”

Ms. Newman noted that, “Analysts expect USDA to estimate that farmers will plant 90.05 million acres of corn, up about 2% from nearly 88 million last year.

“The USDA likely will peg soybean acres at 82.95 million acres, up 0.4% from 82.65 million last year, while all-wheat acreage likely will be estimated at 51.66 million acres, down 5% from 54.64 million in 2015, according to the survey.”

With this background in mind, Bloomberg writer Alan Bjerga indicated yesterday that, “Illinois farmer David Erickson admits that what he and many U.S. farmers are about to do doesn’t seem to make much sense. With bulging stockpiles of corn and soybeans left over from last year’s harvest, they’re planting more in 2016 — even though the crops probably won’t be profitable.”

The Bloomberg article noted that, “After record prices in 2012 sparked a boom in output, corn and soybeans in the Midwest now fetch less than the cost to produce them, and U.S. farm income is headed for a 14-year low. While the market has improved in recent months, researcher AgResource Co. still estimates a $50 loss for every acre sown on average. As they seed more, growers have cut spending and hope better-than-normal yields will help them at least break even.

“Farmers in the U.S., the world’s biggest grower, will expand corn planting to 89.998 million acres, up 2.3 percent from a six-year low in 2015, and soybeans will be sown on 83.07 million acres, the second-most ever, a Bloomberg survey of 33 analysts showed. The U.S. Department of Agriculture will disclose its planting and stockpile estimates on Thursday.”

Mr. Bjerga added that, “With few appealing options, David Seil chose to expand corn planting on his 1,300-acre farm near Gowrie, Iowa. Rather than sacrifice productive land by using it as pasture for his cattle, he’s cutting back on spending for seed and fertilizer and hoping that weather damages crops somewhere else so that prices go up.”


Not the 1980s, But More Tough Times Ahead

Pat Westhoff, the director of the Food and Agricultural Policy Research Institute at the University of Missouri, indicated in a column on Saturday that, “In the 1980s, farm financial stress was severe. Farm income was low, debt rose to unsustainable levels and a wave of bankruptcies contributed to a crash in farmland values.

This is not the 1980s. The ratio of farm debts to farm assets is much lower now than it was in 1985. Interest rates are far lower, and very few farms are behind on debt payments.

“However, these are difficult times for many U.S. farmers and ranchers. Net farm income is less than half the record level of 2013. Prices are down for almost every major farm commodity, from corn, soybeans and wheat to cattle, hogs and milk.”

Dr. Westhoff added that, “Each year, our institute puts together a 10-year outlook for the U.S. farm economy. Our March 2016 outlook tells the same story we’ve been telling for some time — more tough times are ahead.

“After peaking at $6.89 per bushel for the crop harvested in the drought year of 2012, corn prices have averaged less than $4 per bushel for the past two years. We expect more of the same. Similar stories hold true for soybeans, wheat, sorghum, cotton, rice and almost every other major crop grown in this part of the country.”

Saturday’s column also noted that, “[R]eductions in production costs and the increase in [federal government] payments are not nearly enough to offset the decline in sales receipts. That’s why net farm income has decreased so sharply.”

In a related item regarding the 1980s, DTN Farm Business Advisor Danny Klinefelter noted in an article this week that, “Financial watchdogs are still smarting from the 2008 financial crisis and don’t want to be behind the curve this time. They’ve imposed stricter risk-based capital requirements, more burdensome documentation and more proactively aggressive monitoring. Risk can originate from weaker borrower financial condition, more carryover debt, concentration in the lender’s portfolio and increased counter-party risk (say when a vendor or supplier fails, causing a domino effect on customers).

“Fortunately — as opposed to the 1980s farm financial crisis — ag banks and the Farm Credit System haven’t been responsible for overly aggressive lending. Many have required down payments as large as 50% on farm mortgages. Much of what caused land values rising above amounts lenders would finance has been the result of borrowers pledging other debt-free assets to secure the loan; they’ve used their own money (liquidity) to pay prices above the lendable value of the land purchased.”

Meanwhile, Reuters writers Tom Polansek and Karl Plume reported today that, “Three years into a grain market slump, U.S. farmers are set to plant more corn, taking a calculated gamble that higher sales will help them make up for falling prices without triggering even more declines.

“Forecasts suggest that at current prices growers will be able to cover their variable expenses such as seed and fertilizer. By planting more and scrimping on everything from labor to crop chemicals, farmers hope to cover a portion of hefty fixed costs, including land rents.

“Their strategy marks a reversal from the last time that prices for corn, soybeans and wheat fell for three years running in mid-1980s. At that time, farmers cut production and prices began rising.”

The Reuters article added that, “Barring a weather disaster, more corn planted means a bigger harvest that will add to massive global crop inventories that have kept prices below break-even levels. The swollen stockpiles also make any price recovery unlikely even if U.S. output were to decline.

“With no rebound in sight, cranking up production might be the best shot U.S. farmers have at balancing their books in a falling market, economists say.”


DTN Index- Dim Outlook on Ag Economy

DTN Markets Editor Katie Micik reported today that, “Farmers’ feelings about the ag economy continue to fade while agribusinesses’ sentiment took a steep dive, according to the latest results of the DTN/The Progressive Farmer Agriculture and Agribusiness Confidence Indexes.
“The latest reading of the DTN/The Progressive Farmer Agriculture Confidence Index came in at 91.5, the lowest since DTN began surveying farmers in 2010.  

“That compares to an index value of 92.7 in December and 98.8 in March 2015. An index value of 100 is considered neutral, while higher values indicate optimism and lower values reflect pessimism.”

The DTN article stated that, “Experts estimate the average Kansas farmer’s net income for 2015 will see a loss of $30,000. The forecast is for more of the same in 2016.”

Ms. Micik added that, “The Agribusiness Confidence Index came in at 83.4, down more than 15 points from December’s 98.3 reading and more than 21 points from the previous March’s 104.7 reading.”


Cash Rent Issues, While Producers Cope with Lower Commodity Prices

University of Illinois agricultural economist Gary Schnitkey indicated recently at the farmdoc daily blog (“Downward Pressures on 2016 and 2017 Cash Rents“) that, “Cash rents on professionally-managed farmland decreased in 2016. In 2017, pressures to lower cash rents will intensify if commodity prices do not increase. In this article, a table is presented that summarizes cash rents for professionally managed and ‘average’ farmland in Illinois for 2014 through 2016. The 2016 cash rents for ‘average’ farmland is a projection.”

In his farmdoc update, Dr. Schnitkey explained that, “Downward pressures will be placed on 2017 cash rents, particularly if commodity prices remain low. Professional farm managers were asked how much they anticipated cash rents to change in 2017 if conditions remain the same as they are currently. When asked, corn prices were near $3.60 per bushel and soybean prices were near $8.70 per bushel. Of the farm managers responding to the survey, 41% expected cash rents to decrease between $25 and $50 per acre while 50% expected decreases in the $5 to $25 per acre range. Only 9% expected cash rents to remain the same, and none expected rents to increase. These expectations point to larger increases in 2017 than in 2016.

Much of the reason for this downward pressure is because farmers are projected to have losses in 2017 on cash rent farmland.”

Recall that earlier this month, The Des Moines Register reported that, “Faced with declining profits, some Iowa farmers are defaulting on cropland rents — a largely unheard of move given the intense competition for the state’s fertile farmland and a sign that financial pressure and debt are mounting.

“With farm real estate debt across the United States at its highest levels since the farm crisis years of the early ’80s, farmers are increasingly nervous about trying to turn a profit while paying sky-high rents.”

In a related item, a news release earlier this week from AgriBank stated that, “Commodity prices are the greatest challenge facing agricultural producers in 2016, according to a poll of Farm Credit directors from America’s heartland.”

Meanwhile, DTN Special Correspondent Elizabeth Williams provided an interesting look at how some producers are coping with lower commodity prices in an article from yesterday (“The Hunt for Profits“).

Ms. Williams stated that, “Tumbling commodity profits have producers scurrying for ways to pump up their bottom line. After controlling costs and better marketing, conventional farmers are looking at other alternatives to bring in extra cash. Organic crops perhaps?”

The DTN article added that, “You can get $8.50 per bushel for organic corn (when conventional corn is selling for $3.80). Organic soybeans can bring $20 per bushel and organic wheat is currently priced around $8 per bushel, according to the Agricultural Marketing Service’s latest bi-weekly report. Those prices have plunged significantly since 2014, but still appear enough to encourage more organic acres.

“Compared with conventional farming, the cost of production for organic commodities can run as low as $5 to $10 per acre more, reported Lynn Clarkson of Clarkson Grain, which buys organic grain and oilseeds, in Cerro Gordo, Illinois. (However, total economic costs of organic compared with conventional production were roughly between $83 and $98 per acre higher for corn, a national 2015 USDA study estimated.)”

The DTN article also pointed out that, “Because organics are still a niche market, you should price your grain or oilseed before you plant it. There are several companies that work on a broad scale such as Clarkson Grain, Scoular Grain, SunOpta and SK Food. You can contact the Organic Trade Association at for resources in your area.”


Cuba Trade and U.S. Agriculture

Financial Times writer Shawn Donnan reported today that, “Barack Obama’s historic visit to Cuba this week has been rich in symbolism, but even as the president has lifted restrictions on American companies to do business with the Caribbean nation, one key constituency remains frustrated: the powerful US agriculture lobby.

“Agriculture-related exports to the island, which sits just 90 miles off the Florida coast, have been allowed under US law since 2001 and with Cuba importing 80 per cent of its food, Washington is eager to penetrate a market officials say is worth $2bn a year.”

The FT article explained that, “But after peaking at more than $710m in 2008, US agricultural exports to the country have been steadily falling ever since. Last year they were worth just $180m, according to US trade statistics, giving the US less than 10 per cent market share and leaving it behind Brazil, the EU and Argentina as a source for food in Cuba.

“In an effort to turn that round, the US and Cuba on Monday are set to agree to increase their co-operation on agriculture and improve their technical links. The US is also due to lift restrictions on growers using special research and marketing bodies to pitch their products in Cuba.”

Today’s article pointed out that, “However, the steps do not address the financial restrictions that remain on Cuban buyers of US agricultural products and are thus unlikely to do much in the short term to increase US exports to the Caribbean island.

“Although Cuban buyers have since January been able to use US banks to finance purchases of other imports, those wanting to buy crops or meat produced in the US still have to pay cash up front or use a third-party bank.

Such restrictions are codified into US law and cannot be lifted by executive order, the tool on which Mr Obama has relied to push through his change in Cuba policy. With the Republicans who control Congress determined not to remove the longstanding US trade embargo, that has left the Obama administration’s hands tied and the US agriculture lobby frustrated.”

In conclusion, today’s article stated that: “Mr Obama is making history and US chicken, pork, wheat and soyabean farmers are eager to take advantage. But for the time being, Republicans seem distinctly unwilling to play along.”


Farmland Values Steady, DTN

DTN Executive Editor Marcia Zarley Taylor reported today that, “Despite serious erosion in farm incomes since 2013, farmland markets across the Corn Belt held amazingly steady this winter.

“Peak Soil Index sales data through February 2016 shows six states it monitors below all-time records set in the last few years. But select counties in Wisconsin are averaging $4,361 per acre, only 2% below their high of a year ago; irrigated Nebraska farmland ran $7,055, about 4% below its 2015 peak; Minnesota crop counties averaged $5,641, off 8% from their 2014 peak; Illinois averaged $7,591, off 8% from its 2104 peak; and Indiana at $6,782 per acre recorded the steepest tumble, off 14% from its peak a year earlier.

“Such adjustments so far seem modest, even miniscule, compared to the collapse in commodity prices the past three years. Overall net farm incomes (including livestock, crops and government payments) could run about 40% below 2014 levels this year, USDA estimated in February. That would be the lowest farm income level since 2002.”

The DTN article noted that, “In contrast, good-quality Iowa farmland averaged $8,123 per acre through February, according to Peak Soil. That’s down about 11% from the state’s all-time high in May 2013.”

Today’s article added that: “The shock to farmland markets typically lags farm incomes by several years: Studies by Iowa State University Economist (Emeritus) Mike Duffy show for every 2% drop in gross farm income, you’d expect cropland values to dip 1%. It’s worked to forecast nearly every period in modern history except the 1970s, when Duffy believes inflation expectations distorted land markets.”

Recall that The Des Moines Register indicated today that: “Faced with declining profits, some Iowa farmers are defaulting on cropland rents…”


Call For Federal Action on Bee Health

A news release yesterday from Senator Dianne Feinstein (D., Calif.) indicated that, “Senators [Feinstein], Barbara Boxer (D-Calif.) and Kirsten Gillibrand (D-N.Y.) today urged the U.S. Department of Agriculture and Environmental Protection Agency to better protect bee populations.

“The senators’ recommendations include improving data collection, better identifying unregistered mixtures of pesticides and reducing unnecessary pesticide use. The letter follows the release last week of a Government Accountability Office report that detailed the collapse of pollinator populations in the United States.

The senators wrote: ‘Despite their irreplaceable contribution to the health of agriculture and the environment, domestic and wild bees are under serious threat. From 2006 to 2014, beekeepers reported honeybee colony losses averaging 29 percent annually, an unsustainable rate of loss well above normal levels. The U.S. Department of Agriculture reports that bee populations face increasing risks from parasites, disease, lack of adequate nutrition, and sub-lethal pesticide exposure.'”


Farmers Hurting From Lower Profit Margins

Donnelle Eller reported on the front page of today’s Des Moines Register that, “Faced with declining profits, some Iowa farmers are defaulting on cropland rents — a largely unheard of move given the intense competition for the state’s fertile farmland and a sign that financial pressure and debt are mounting.

“With farm real estate debt across the United States at its highest levels since the farm crisis years of the early ’80s, farmers are increasingly nervous about trying to turn a profit while paying sky-high rents.

“As a result, more growers are severing ties on rented land that some have farmed for decades — and they’re doing it with the spring planting season nearly upon them.”

The Register article explained that, “”We had someone call today and say ”Don’t cash that check right away,” said Mark Gannon, owner of Gannon Real Estate & Consulting in Des Moines, on March 1. ‘Another farmer called, wanting to renegotiate their lease. … There’s some stress out there.’

“Farmers tell managers and landowners that bankers are tightening credit, with growing losses and dwindling reserves built up during farming’s boom driving lending decisions, experts say.”

Ms. Eller added that, “U.S. farm income in 2016 is projected to fall for the third year in a row, with farmers squeezed between tumbling corn and soybean prices and stubbornly high costs for land, seed, fertilizer and other inputs needed to grow a crop, experts say.

Grain prices have sunk 50 percent or more since 2012, when drought drove prices to record highs.”

Today’s Register article also noted that, “Dermot Hayes, an ISU agricultural economist, said land rents and other costs need to drop more, given where commodity prices have landed.

“‘Cash rents haven’t declined in proportion with revenue,’ he said. ‘That adjustment needs to occur.'”

Also, today’s article stated that: “[Dale Kooima, president of Peoples Bank in Rock Valley in northwest Iowa] said losses for corn and soybean growers are being exacerbated by a downturn for livestock producers. Cattle producers have struggled to post a profit, while pork producers have seen mixed results, he said.”


FAPRI Baseline Update

The Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri released its U.S. Baseline Briefing Book today.

The FAPRI report noted that, “Lower agricultural commodity prices have contributed to a sharp reduction in net farm income. The outlook for the next several years suggests continued pressure on farm finances is likely.”

The report added that, “Projected corn prices average $3.75 per bushel for the 2016/17 marketing year, up only slightly from 2015/16. Corn prices average less than $4.00 per bushel for the 2017-2025 period.

“Other crop prices also remain well below recent peak levels. Soybean prices average $8.73 per bushel in 2016/17, while wheat averages $4.97 per bushel and upland cotton averages 56.9 cents per pound.”

“With farm income well below recent peak levels and if interest rates increase as forecasted, there will be continued pressure on farm finances and farm real estate values,” the report said, while adding that, “Crop insurance net outlays are projected to average about $8 billion per year for fiscal years 2017-2025.”


Cargill to Reduce Antibiotics in Beef

Jacob Bunge reported earlier this week at The Wall Street Journal Online that, “Cargill Inc. plans to scale back antibiotics use in its U.S. cattle supply, one of the most significant steps yet among beef processors to reduce reliance on drugs used to treat human illnesses.

“The suburban Minneapolis company said it would eliminate one-fifth of such medically important antibiotics from cattle that Cargill processes into ground beef and steaks, affecting an estimated 1.2 million cattle annually.

“Cargill, which has previously taken steps to reduce antibiotics use in its U.S. turkey supply, is making the move in beef as more restaurants have announced plans to serve meat raised without antibiotics. Companies are responding to pressure from consumer groups and public health officials who have warned that widespread antibiotics use in animal agriculture and human medicine have helped bacteria evolve to resist antibiotics, potentially leaving doctors with fewer tools to treat some illnesses.”

For additional background on this issue, see this FarmPolicy update from last month.


Quick Take: March WASDE Update

Yesterday, the World Agricultural Outlook Board (WAOB) released its monthly World Agricultural Supply and Demand Estimates (WASDE), which stated in part that, “The midpoint for the projected corn price remains $3.60 per bushel.”

The report added that, “The U.S. season-average soybean price for 2015/16 is projected at $8.25 to $9.25 per bushel, down 5 cents at the midpoint.”

Jesse Newman reported yesterday at The Wall Street Journal Online that, “U.S. federal forecasters on Wednesday boosted their outlook for domestic soybean stockpiles while trimming estimates for global grain and soybean reserves.

“The Agriculture Department said in its monthly crop report that U.S. soybean inventories would reach 460 million bushels at the end of the 2015-16 season on Aug. 31, 10 million more than its February forecast and slightly above analysts’ expectations.

“‘Bigger picture, we’re swimming in corn, beans and wheat,’ said Doug Bergman, an analyst at investment firm RCM Asset Management in Chicago.”

Ms. Newman explained that, “​The muted reaction to Wednesday’s report comes as grain and oilseed prices have languished for months due to abundant global supplies, a robust U.S. dollar and stiff competition among exporters.

“While the report avoided piling on more bearish news, it didn’t provide much positive momentum for low crop prices that have pressured profits for farmers, seed companies and tractor makers, said Dan Cekander, president of market-research firm DC Analysis. The USDA in February projected U.S. farm incomes would fall to the lowest level since 2002 because of the continued slump in crop prices.”

University of Illinois agricultural economist Darrel Good also provided a brief recap of yesterday’s WASDE update:


Cotton Oilseed Issue- Continues

Forrest Laws reported yesterday at the Delta Farm Press Online that, “Secretary Tom Vilsack’s answer to the question was short and to the point.

After he was asked during a news briefing why he couldn’t designate cotton as an ‘other oilseed,’ a request made by the cotton industry and a number of farm-state congressmen, he replied: ‘Because I can’t.'”

For more detail on this issue, see this backgrounder.

Mr. Laws added that, “But [Sec. Vilsack] went on to explain USDA does want to help cotton producers and two possible avenues for that. One would be to provide a Cotton-Transition-Assistance-Payment-type program, using Commodity Credit Corp. funding. The other would be a cost-share for cotton ginning through marketing assistance funding.

“The latter is being explored through negotiations with the cotton industry aimed at determining the costs and the mechanics of how such a program would work. Vilsack has mentioned a figure of $300 million for the total cost of ginning while the cotton industry estimated the total could be closer to $800 million.”

Recall also that The Wall Street Journal recently looked closer at the issue of Chinese cotton stocks and the market price of cotton.

Keith Good

Cotton Issues Persist

Recall that back in December, at a House Agriculture Subcommittee hearing on the current state of the U.S. cotton industry, Shane Stephens, the Vice Chairman of the National Cotton Council, explained that: “Current stocks-to-use ratios stand in stark contrast to historical stocks that generally ranged between 50 and 60 percent of total use. The recent increase in stocks was the direct result of policies in place in China for the 2011 through 2013 crops. During those years, China supported its cotton farmers by purchasing vast amounts of its production into government reserves at prices well above the world market.”

Rep. Rick Crawford (R., Ark.), the House Ag Subcommittee Chairman on General Farm Commodities and Risk Management, noted at the December hearing that, “In the not too distant past, we lost to China most of what was once the largest manufacturing sector in America, our textile industry. Now, I believe we are in grave danger of losing the vast majority of our production to China, India, and other countries that are employing anticompetitive trade practices that no American farmer can match.”

Lucy Craymer reported in Friday’s Wall Street Journal that, “Global cotton prices have plunged in recent weeks as speculation mounts that China is getting ready to sell some of its 11 million-metric-ton stockpile—enough to make 10 billion pairs of jeans.

“Commodity analysts expect China to conduct a cotton auction in the next few months, its first since the end of August.

“While the government sells nearly all of its cotton at home, it is such a big player in the market that unloading a chunk would depress global prices by reducing how much foreign cotton Chinese businesses buy. China holds about 60% of the world’s cotton stockpiles and is responsible for slightly less than a third of global consumption.”

The Journal article added that, “The expectation of a new round of selling by China has pushed down prices on the Zhengzhou Commodity Exchange to their lowest levels since 2004. Meanwhile, the benchmark ICE Futures U.S. exchange has cotton trading near its lowest since 2009, dropping about 12% since the beginning of the year; the May contract settled at 56.41 cents a pound on Thursday.”

Ms. Craymer explained that, “One factor putting pressure on China to sell is that cotton deteriorates, so it can’t simply hold supplies for years in hopes the price will rise.

The stockpile dates back to a government program introduced in March 2011 to improve the livelihoods of domestic cotton farmers by setting a floor for prices. But with global cotton prices dropping, China chose to store the cotton rather than sell it on the global market.

The result, according to the USDA, was a doubling of the world’s stockpiles, which further depressed prices. USDA estimates of cotton stockpiles are slightly above China’s.”

The Journal article added that: “China has since ended the price-support program for cotton. But that won’t help it with its huge stockpile—which is enough to make three times more jeans than the total sold globally in 2015, according to Euromonitor.”

Lower cotton prices for U.S. producers, and international policies, such as those implemented by China, have been an impetus for cotton farmers to ask the USDA to “use legal authority provided under the 2014 Farm Bill” to provide additional federal assistance to struggling cotton farmers.

So far, Agriculture Secretary Tom Vilsack has indicated that the USDA does not have the authority to make this change.

A backgrounder on the cotton Farm Bill issue is available here.

Keith Good

World Food Prices Remain Steady

A news release today from the Food and Agriculture Organization of the United Nations stated that, “The FAO Food Price Index was stable in February, as falling sugar and dairy prices offset a substantial jump in vegetable oil prices from the previous month.

“Averaging 150.2 points for the month, the FAO Food Price Index was virtually unchanged from a revised 150.0 points in January and down 14.5 percent from a year ago.”

Today’s update also noted that, “FAO also issued its first forecast for the world’s 2016 wheat harvest, projecting 723 million tonnes of total production, about 10 million tonnes below last year’s record output.”

Reuters writer Isla Binnie reported today that, “World food prices stabilised in February near a seven-year low as rising vegetable oil and meat prices offset declines in cereals, sugar and dairy, the United Nations food agency said on Thursday.

Food prices have fallen for four straight years and remain under pressure from ample agricultural supply, a slowing global economy and a strengthening U.S. dollar.”

And, Bloomberg writer Whitney McFerron reported today that, “Wheat prices are near a five-year low as large harvests around the world are set to boost grain stockpiles to the highest in three decades. The FAO expects wheat production to drop in the next season because farmers in Ukraine and Russia, two of the top exporting countries, reduced planting of winter crops because of dry weather.”

Keith Good

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

Ag Economy: Senate Ag Appropriations Subcommittee Roundtable

Yesterday, the Senate Agricultural Appropriations Subcommittee, which is chaired by Sen. Jerry Moran (R., Kans.), held a roundtable discussion on the state of the farm economy.

In prepared remarks, Dr. Patrick Westhoff, the Director of the Food and Agricultural Policy Research Institute at the University of Missouri, indicated that, “Farm commodity prices have declined sharply after reaching record highs in recent years. For example, the marketing year average price for corn fell from $6.89 per bushel in the drought year of 2012/13 to an estimated $3.60 per bushel just three years later (Table 1). Wheat, soybean and cotton prices have also declined. The high prices of the 2010-2012 period and more favorable weather conditions resulted in a large increase in U.S. and global crop production, while a variety of factors limited demand growth, so carryover stocks increased. Crop cash receipts fell by 17 percent between 2012 and 2015.”

Dr. Westhoff added that, “The decline in crop and livestock receipts has resulted in a dramatic reduction in net farm income relative to the record level of 2013. Lower fuel, fertilizer and feed prices helped reduce production costs by about $10 billion in 2015 and another reduction is expected in 2016, but the projected cost reductions are not nearly enough to offset revenue losses.

“Given all the assumptions of our analysis, net farm income remains well below recent peak levels.”

At the conlcusion of his prepared remarks yesterday, Dr. Westhoff indicated that, “If these projections prove correct, it suggests an extended period of financial stress in U.S. agriculture. Not only are farm incomes expected to remain well below recent peaks, but businesses that sell machinery and inputs to farmers are also likely to be negatively affected. Farm asset values are likely to be under pressure, especially if interest rates increase.

“However, it is also important to maintain perspective. While rising debt is a serious concern, debt-asset ratios remain low by historical standards. Even if interest rates increase from current levels, they are likely to remain well below the levels that prevailed during the farm crisis of the 1980s. While commodity prices are well below recent peaks, they remain high by pre-2007 standards.”

Meanwhile, Nathan S. Kauffman from the Federal Reserve Bank of Kansas City observed that, “Corn prices, for example, dropped by more than 50 percent from the peak in 2012 to the latter part of 2014. Since 2014, prices have fluctuated some, but have largely remained flat over the past 18 months. Soybean prices also dropped significantly from 2012 to 2014 and have continued to fall over the past year. The prices for other major crops, such as wheat, sorghum and rice, have experienced similar declines in varying degrees. Input costs for crop production have declined somewhat over the past 12 to 18 months due to lower fuel costs and modest reductions in fertilizer prices. However, costs have generally remained high, and many producers have continued to report negative profit margins, with crop prices below their breakeven cost of production.”

Dr. Kauffman also noted that, “The persistent declines in farm income and poor profit margins have reduced cash flow and increased short-term lending needs in the farm sector.”

The prepared remarks also included this graph depicting regarding land values:

Keith Good