Crop conditions are promising in many Fed bank districts, but low commodity prices continue to pressure agricultural incomes, according to the latest Fed Beige Book report. Favorable weather has gotten the growing season off to a solid start in the St. Louis and Minneapolis Fed District regions and improved production prospects in the Dallas Fed District. However, wet, cool weather in the Chicago District has put planting behind last spring’s pace, and rain has also delayed planting and harvesting in the Richmond District.
In contrast, parts of the Atlanta District have been experiencing abnormally dry to moderate drought conditions. Though prices for soybeans and hogs have increased recently from their low points, most crop and animal product prices remain below year-earlier levels. Chicago, St. Louis, and Kansas City note that prices are below profitable levels for some producers
Prepared at the Federal Reserve Bank of Minneapolis and based on information collected through May 22, the Beige Book summarizes comments received from business and other outside contacts.
The following is a Fed region-by-region summary of farm sector economic conditions, starting in the Mid-Atlantic and moving west:
Richmond – Agricultural activity increased modestly since the April 7th Beige Book report. Cotton, corn, and peanut planting are underway. However, Virginia and North Carolina farmers report delayed planting and harvesting due to protracted rains. South Carolina planters continue to report more labor-intensive field prep work due to last year’s flooding. Input prices have remained unchanged while crop prices and beef prices have fallen slightly.
Atlanta – Most of the region remains drought free. However, parts of Georgia, Tennessee, and Alabama are experiencing abnormally dry to moderate drought conditions. Farmers continue to focus on efficient production and controlling input costs to optimize income in a low commodity price environment. Low feed prices are benefiting poultry and other protein producers who rely on grain for feed. On a year-over-year basis, monthly prices paid to farmers for corn, cotton, rice, soybeans, beef, broilers, and eggs declined, although on a month over month basis prices rose for soybeans, beef, and broilers.
Chicago – The growing season across most the Midwest is expected to get off to a decent start, even though wet, cool weather has put both the planting and emergence of corn and soybeans behind the pace of last spring. Corn and soybean prices rose since early April, but soybean prices rose more, which is expected to prompt farmers to plant more soybeans at the expense of corn. At current prices, farmers can generally cover this year’s costs for soybean production but not for corn. Many farmers took advantage of the price rally and have boosted their working capital by selling stored grain from last year and locking in prices on new crops. Milk and dairy product prices have moved lower, as production remains strong. Cattle prices are down as well. Hog prices have increased, helped by solid demand from China.
St. Louis – The row crop outlook across the southern Midwest and northern Mid-South has slightly improved: Corn, cotton, rice, and soybeans were, as of early May, ahead of their respective five-year average levels of planting progress, and crop prices have risen from their lows. However, even with a near-perfect year in the field, most row crop farmers will struggle to break even, absent a significant and sustained crop price rebound.
Minneapolis – Agricultural conditions remain weak, despite favorable weather going into the growing season. Nearly all respondents to the Minneapolis Fed’s first quarter survey of agricultural credit conditions report that farm incomes are down from a year ago, and more than 80% expect them to fall further in the second quarter. Planting progress and early emergence for corn, soybeans, sugar beets, and small grains as of mid-May were well ahead of five-year averages in most of north central region. Farmer prices for corn, wheat, soybeans, hay, hogs, cattle, chickens, eggs, and milk were lower in March versus a year ago; turkey prices were higher.
Kansas City – Farm sector credit conditions deteriorated further, with weak farm income and low commodity prices. Despite a moderate increase in soybean and hog prices in May, contacts report that most commodity prices remain below levels considered to be profitable, and generally at or below year-ago levels. Low commodity prices and low farm income are weighing on credit conditions. Bankers report further reductions in loan repayment rates and a significant increase in the number of farm borrowers with increased carry-over debt. Contacts expect demand for short-term financing to remain strong amid a relatively pessimistic outlook for farm income. Alongside low farm income, farmland values and cash rents also fell slightly from a year ago.
Dallas – Favorable weather and good soil moisture have improved production prospects for 2016 crops. Above-average yields would help offset some of the negative impact of low crop prices on farm income. Cattle prices fell sharply in April, partly due to higher beef production, but recovered some of the loss in early May as retail beef demand increased in anticipation of the Memorial Day holiday. Milk prices have plummeted from already-low levels over the past six weeks, putting further pressure on dairies’ profit margins.
San Francisco – Activity expanded somewhat as domestic demand and sales continue to grow for a wide variety of crops. A surplus of potatoes from the 2015 harvest has created excess inventories and led some growers to switch planting plans to wheat. The strong dollar continues to crimp agricultural exports in general, although overseas sales of pork products continue to post strong growth. Demand for poultry exports has been robust as pent-up demand from last year’s avian flu outbreak persisted and lower input feed prices help exporters remain competitive globally. ■