Federal Reserve Beige Book: Observations on the Ag Economy

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 picked up slightly. According to a Virginia farmer, weather conditions in recent weeks were excellent for harvesting. In the Carolinas, some harvests were delayed by Hurricane Matthew. The biggest impact on international trade was in the poultry industry, with the loss of four to five million birds killed by the hurricane and related floods. Crop prices remained low.”

* Sixth District- Atlanta– “Agriculture conditions across the District were mixed. Drought conditions expanded and deepened throughout much of the District, with conditions ranging from abnormally dry to exceptional drought and contributed to many wildfires across the region. Due to damages and losses attributed to drought conditions, the USDA designated many counties in the District as natural disaster areas. Nevertheless, harvesting was ahead of the five-year average for soybeans in Louisiana, Mississippi, and Tennessee; peanuts in Alabama, Florida, and Georgia; corn in Tennessee; and the District’s cotton crop. Florida’s November orange forecast was up from last month, but remained below last season’s production. Low agriculture prices continued to challenge District producers.”

* Seventh District- Chicago– “Record corn and soybean yields, combined with stable corn prices and rising soybean prices, implied that more crop operations than previously expected would at least break even this year. However, some operations were unlikely to be able to cover their costs, resulting in further refinancing of loans and some asset sales. Government assistance based on poor 2015 farm revenues supplemented incomes in certain counties. Corn yields were high enough in some locales to exceed storage and transportation facilities’ capacity, forcing some crop to be stored in the open air. Strong production levels for livestock products continued to boost supplies. Nonetheless, some prices seemed to have bottomed out: dairy, egg, and cattle prices were up modestly, whereas hog prices continued to fall.”

* Eighth District – St. Louis– “Forecasted corn and rice production are now slightly lower than projected in September. Meanwhile, cotton and soybean production forecasts are up slightly. Overall, contacts believe production levels will not provide any relief from the environment of low crop prices, which means farmer solvency issues will only worsen heading into the next crop year.”

* Ninth District- Minneapolis– “District agricultural conditions remained weak overall. Among respondents to the Minneapolis Fed’s third quarter (October) survey of agricultural credit conditions, 85 percent reported that farm incomes decreased from a year earlier, with the remainder reporting flat incomes. District states saw strong harvests of corn and soybeans, hitting records in some cases, but these were generally not expected to offset the impact of continued low commodity prices. Prices received by farmers decreased in September from a year earlier for corn, wheat, hay, cattle, hogs, turkeys, eggs, and milk; prices for soybeans increased from a year earlier.

* Tenth District- Kansas City– “Low commodity prices continued to weigh on farm income in the Tenth District. Prices for most agricultural commodities were slightly less than a year ago due to strong production expectations for 2016. Amid persistently low farm prices and incomes, farmland values of all types declined moderately, capital spending and household spending fell slightly, and demand for farm loans increased modestly when compared with a year ago. Farm loan repayment rates were expected to decline further in the coming months alongside relatively weak profits for many agricultural producers in the Tenth District. Due to weaker agricultural credit conditions and increased risk in the farm sector, District contacts reported notable increases in collateral requirements and slight increases in interest rates on farm loans.

* Eleventh District- Dallas– “Harvest season wrapped up for many crops, and the latest USDA estimates for Texas suggested 2016 production of cotton, corn, and soybeans was up from last year while sorghum production declined. With prices for these crops, in addition to wheat prices, remaining at mostly sub-profitable levels, there is continued worry about low producer revenue, loan repayment for the current year, and financing for the coming year. Livestock conditions remained positive across the District, with abundant forage due to good pasture conditions. Cattle prices continued to slide lower, which contacts attributed to recent financial losses at cattle feedlots and an increase in domestic beef production.”

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