Federal Reserve Beige Book: Observations on the Ag Economy- October ’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 picked up slightly. Weather conditions improved recently, which allowed farmers to begin harvesting corn and peanut crops. The dry summer, however, delayed the maturation of cotton crops, leading to some harvesting delays. According to a South Carolina farmer, the financial loss from last year’s flood was suppressing capital investments this year. No changes to input prices were reported. Prices of beef, corn, and soybeans declined.”

* Sixth District- Atlanta– “Agriculture conditions across the District were mixed. Drought conditions persisted throughout much of the District, ranging from abnormally dry conditions to areas of extreme drought. The USDA designated many counties in Alabama, Georgia, Mississippi, and Tennessee as natural disaster areas due to damages and losses attributed to drought conditions, while several counties in Louisiana were designated as natural disaster areas due to damages and losses attributed to severe storms and flooding. On a year-over-year basis, prices paid to farmers for rice, soybeans, and broilers increased, while corn, cotton, beef, and egg prices decreased. However, on a month-over-month basis, prices paid to farmers for cotton, rice, and eggs were up, while prices for corn, beef, and broilers were down.

* Seventh District- Chicago– “Low expectations for farm incomes continued over the reporting period. The consensus among contacts was that for most farms a profitable soybean harvest would not be enough to offset an unprofitable corn harvest. Corn prices were unchanged and lower than last year; while soybean prices moved down again, they remained higher than last year. Both the corn and soybean crops were still on track to set records for the District, although problems with disease lowered yield expectations for corn a bit. Even though crops were more mature than normal in late September, harvesting was behind its typical pace because above-average precipitation slowed field work. Milk prices were up some, but only enough to ‘slow the bleeding’ for most producers. Hog and cattle prices were lower once again, as meat supplies have continued to build.

* Eighth District – St. Louis– “Contacts expect yields of corn, cotton, and soybean crops to be at record levels across the District as a result of timely rains during the growing season. Meanwhile, rice yields are projected to increase only slightly. Sorghum is the only major District crop that is expected to have a production decline, but this stemmed largely from reduced plantings because of pest issues and lower prices in 2015. While the general outlook for the fall crops is strong, one contact has noted that some areas in the District have recently experienced flooding that may reduce yields and production by more than expectations.”

* Ninth District- Minneapolis– “District agricultural conditions weakened since the last report. Harvests of corn and soybeans were on schedule overall in much of the District, though heavy rains delayed progress in some areas. Wheat and small grain production for 2016 was generally down in many areas from a year earlier in spite of strong yields due to farmers planting fewer acres. Contacts reported that the extended period of low crop prices continued to put pressure on farm incomes and that this was beginning to spill over to rural areas more broadly. Prices received by farmers decreased in August from a year earlier for corn, soybeans, wheat, hay, cattle, hogs, chickens, eggs, and turkeys; prices for milk increased from a year earlier.”

* Tenth District- Kansas City– “District farm income remained subdued as low crop and livestock prices weighed on revenue expectations. Inventories of wheat remained high, and expectations of a strong corn harvest held grain prices below the previous year. Soybean production was also expected to be at or above record levels, but relatively steady demand has kept prices slightly above a year ago. Crop production costs have decreased modestly, but at a slower pace than crop prices, keeping profit margins relatively weak. In the livestock sector, both cattle and hog prices decreased in September, and were lower than a year ago, primarily due to strong production. Persistently weak farm income and reduced cash flow in both the crop sector and livestock sector have continued to reduce borrower liquidity and has continued to drive demand for agricultural production loans.”

* Eleventh District- Dallas– “Crop production prospects for 2016 remained strong across the district, with increases over 2015 production expected for most crops. Ample rainfall provided favorable pasture conditions and abundant forage, although it hampered the cotton crop in some areas. Already-low crop prices generally fell over the reporting period, and cattle prices dropped as well. Contacts continued to note that farmers were concerned about their finances and their ability to get adequate financing for next year.

* Twelfth District- San Francisco– “Activity in the agricultural sector expanded at a moderate pace. Harvest yields of pistachios, almonds, and walnuts are expected to reach record levels. Contacts reported that both yields and quality of this year’s grain harvest were high. Potato producers noted average yields and flat to slightly decreasing demand for processed potato products. Profitability improved slightly in the dairy industry, although feedlot owners face challenges. On balance, the elevated dollar continued to slow most exports, particularly for raisins, where global inventories remain elevated.”

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