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.”

LISTEN – 2016 Gross Farm Revenue & Income | an interview with Gary Schnitkey https://t.co/4PcEUGAS23 on #SoundCloud

— Todd E. Gleason (@commodityweek) November 29, 2016

University of Illinois agricultural economist Gary Schnitkey indicated yesterday at the farmdoc daily blog (“2016 Gross Revenue and Income Projections for Corn and Soybeans in Central Illinois“) that, “U.S. Department of Agriculture projects 2016 yield for Illinois at 202 bushels per acre, the highest yield on record, which is 2 bushels higher than the 200 bushel Illinois yield in 2014. Farm reports suggest that central Illinois is having yields near those of 2012. As a result, a 231 bushel per acre yield is used for central Illinois, high-productivity farmland, the same yield for this group in 2014. A $3.30 corn price is used in making 2016 projection.

“A 231 yield and a $3.30 price results in $762 of crop revenue, slightly higher than 2015 crop revenue of $759 per acre…[T]he 2016 ARC-CO payments — which will be received in the fall of 2017 – are projected at $20 per acre…[and]… [C]rop insurance is estimated to be $10 per acre. This is the same as the average for 2014.”

The farmdoc update noted that, “Given these estimates, gross revenue for corn is estimated at $792 per acre, down by $38 per acre from the 2015 level of $830 per acre (see Figure 1). Since a high of $1,192 per acre in 2012, gross revenue for corn has decreased by $400 per acre.”

Fig 1 – farmdoc

Yesterday’s update also pointed out that, “Gross revenue is projected below average costs on cash rent farmland. In 2016, costs are projected at $811 per acre, $19 higher than gross revenue. If projections hold, 2016 will be the third year in a row where total costs exceed gross revenue.”

With respect to soybeans, Dr. Schnitkey stated that, “…2016 gross revenue is projected to be $718 per acre, up by $66 per acre from $651 per acre in 2015 (see Figure 2)…[U]nlike corn, soybeans are projected to be profitable in 2016. Total costs are projected at $608 per acre, $110 lower than gross revenue.”

Fig 2 – farmdoc

Finally, yesterday’s update indicated that, “Figure 3 shows gross revenues and costs for a blended acre of corn and soybeans given that 60% of the acre is in corn and 40% are in soybeans. Gross revenue in 2016 is projected at $762 per acre, $3 per acre higher than gross revenue in 2015. Costs are projected at $729 per acre in 2016, $32 per acre lower than the $762 of gross revenue. This suggests positive returns of $32 per acre in 2016, which is higher than the -$19 return for 2015. While positive, returns for 2016 are relatively low.”

Fig 3 – farmdoc

The Congressional Research Service (CRS) recently released a report titled, “What is the Farm Bill?”

The report explained that, “The farm bill is an omnibus, multi-year law that governs an array of agricultural and food programs. Titles in the most recent farm bill encompassed farm commodity price and income supports, agricultural conservation, farm credit, trade, research, rural development, bioenergy, foreign food aid, and domestic nutrition assistance. Because it is renewed about every five years, the farm bill provides a predictable opportunity for policymakers to comprehensively and periodically address agricultural and food issues.

Fig. 3-  CRS

Also with respect to nutrition spending, the report noted that, “Projected five-year SNAP outlays rose at an annualized rate of 13% per year from enactment of the 2008 farm bill to the 2014 farm bill. This $202 billion increase was entirely from changing economic expectations, since legislative changes in the 2014 farm bill scored a $3.2 billion reduction [See Table 2]”

The CRS report added that, “Projected five-year crop insurance outlays rose at an annualized rate of 11% per year from 2008 to 2014—nearly the same rate as SNAP, though smaller in dollars. The $20 billion increase was mostly from changing economic expectations rather than the $1.8 billion increase that was legislated in the farm bill.

“Projected five-year farm commodity program outlays fell at an annualized rate of 9.1% per year between the 2008 and 2014 farm bills, given the $18 billion reduction that was scored from restructuring program payments.”

Table 2 – CRS

The CRS report added that, “The farm bill also extends authority for outreach and technical assistance programs for socially disadvantaged farmers and ranchers and adds military veteran farmers and ranchers as a qualifying group.”

The Associated Press reported today that, “California is taking its fight against global warming to the farm. The nation’s leading agricultural state is now targeting greenhouse gases produced by dairy cows and other livestock.

“Despite strong opposition from farmers, Gov. Jerry Brown signed legislation in September that for the first time regulates heat-trapping gases from livestock operations and landfills.

“Cattle and other farm animals are major sources of methane, a greenhouse gas many times more potent than carbon dioxide as a heat-trapping gas. Methane is released when they belch, pass gas and make manure.”

The article noted that, “In the nation’s largest milk-producing state, the new law requires dairies and other livestock operations to reduce methane emissions 40 percent below 2013 levels by 2030. State officials are developing the regulations, which take effect in 2024.”

The AP article explained that, “But dairy farmers say the new regulations will drive up costs when they’re already struggling with five years of drought, low milk prices and rising labor costs. They’re also concerned about a newly signed law that will boost overtime pay for farmworkers.

“‘It just makes it more challenging. We’re continuing to lose dairies. Dairies are moving out of state to places where these costs don’t exist,’ said Paul Sousa, director of environmental services for Western United Dairymen.”

Today’s article added that, “State regulators want more farmers to reduce emissions with methane digesters, which capture methane from manure in large storage tanks and convert the gas into electricity.

“The state has set aside $50 million to help dairies set up digesters, but farmers say that’s not nearly enough to equip the state’s roughly 1,500 dairies.”

The Associated Press reported today that, “A bill creating a tax break for New York state farmers who donate food to food banks is awaiting action by Gov. Andrew Cuomo.

“Farmers already donate millions of pounds of food every year, but say the credit of up to $5,000 annually would reduce the costs of harvesting and transporting surplus crops that would otherwise go to waste.

“The Hunger Action Network of New York State has made the bill a priority, saying it will address a growing hunger problem around the state.”

The AP article noted that, “It’s also supported by environmentalists and agriculture groups who say it will reduce food waste and help poor New Yorkers get access to healthy fruits and vegetables.”

A news release on Tuesday from USDA’s Risk Management Agency (RMA) indicated that, “[RMA] today announced updated factors for prevented planting coverage that will strengthen the integrity of the federal crop insurance program. The updates were made to address the recommendations of a 2013 USDA Office of Inspector General (OIG) report, and are supported by the data from a subsequent third-party study commissioned at the urging of the OIG. These improvements will ensure that the program continues to be a well-run program that provides a strong safety net for producers.

Donnelle Eller reported on the front page of yesterday’s Des Moines Register that, “Renewable fuel advocates applauded the federal government’s decision Wednesday to boost the amount of ethanol that must be blended into the nation’s fuel supply next year.

The U.S. Department of Agriculture’s Economic Research Service (ERS) recently provided an update to the 2014 Farm Bill, “Projected Spending Under the 2014 Farm Bill.”

The update explained that, “The Agricultural Act of 2014 (2014 Farm Bill) is made up of 12 titles governing a wide range of food- and agriculture-related policy areas. The Congressional Budget Office (CBO) projected that the total cost of the new Farm Bill would be $489 billion over 5 years (2014-2018). Nutrition programs account for about 80 percent of this total, with projected outlays for crop insurance, conservation, and commodities representing another 19 percent.”

The ERS item also noted that, “Crop insurance program expenditures, which have been a growing share of Farm Bill program spending, are projected to make up 8 percent of the 5-year outlays under the 2014 Farm Bill. While some of those expenditures reflect support to crop insurance companies for delivery and underwriting, subsidies for farmer premiums have been increasing in recent years and are expected to increase further with new crop insurance products authorized under the new Farm Bill. In part, premium and subsidy increases have been the result of rising crop prices, since premiums are based partly on expected prices and premium subsidies are set as a percentage of the premium. Premiums and subsidies declined in 2014 from the high levels of 2011-2013, reflecting the effect of falling crop prices.

“Another factor behind rising premiums and subsidies has been increasing adoption of crop insurance by producers, both in number of acres insured and in levels of yield or revenue covered.”

Meanwhile, ERS pointed out that, “Commodity program payments are projected to make up 5 percent of outlays under the 2014 Farm Bill over the 2014-2018 period. With repeal of fixed direct payments, commodity payments are designed to respond to variable market and weather events, making payment levels more uncertain. While CBO projections at the time the 2014 Farm Bill was enacted suggested total payments would be lower than under the 2008 Farm Bill, actual future price and yield could differ from these projections and result in higher or lower payments than projected.”

“Mandatory conservation program expenditures are projected to account for 6 percent of outlays under the 2014 Farm Bill. Details on conservation program spending are provided on the ERS topic page Conservation Programs: Background,” the ERS item said.