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Agricultural producers are facing mixed conditions as lower crop and livestock prices have pushed down revenue despite growth in volumes, according to the latest Beige Book report from the Federal Reserve.

U.S. Federal Reserve System Districts

In the Midwest, already low expectations for farm incomes deteriorated further, as the potential for a record national harvest has pushed down crop prices further. Above-average water availability translated into record yields for almonds and walnuts in the San Francisco District. Contacts in several Districts report strong yields for corn and soybeans.

Severe flooding in parts of the Atlanta District has lowered harvests somewhat, but cotton production is expected to expand relative to last year. Excess inventories of selected crops continue to contribute to weak pricing trends.

Growth in the price of agricultural products has been flat to declining in many Districts, and contacts in Chicago report that ample supplies of wheat, dairy, and some meat products have fueled price declines. In contrast, dairy producers in the Dallas District have benefited from a price rally over the past six weeks. In Kansas City, bankers report that, while agricultural loan delinquencies remain low, requests for loan extensions are increasing and loan repayment rates weakening.

Prepared by the Federal Reserve Bank of San Francisco and based on information collected through August 29, 2016, 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 July report. The poultry industry is expanding. Farm input prices have been unchanged in recent weeks, while prices of grains, cotton, soybeans, and corn ended the reporting period at low levels.

Atlanta - Damage and losses from drought conditions in the region caused the USDA to designate many counties in Alabama, Georgia, Mississippi, and Tennessee as natural disaster areas. Additionally, parts of southern Louisiana have experienced severe flooding and there are preliminary reports of crop damage. Compared with last year, Cotton production in the Mid-South/Southeast region is forecast to be higher, while soybean and peanut production is expected to be lower. On a year-over-year basis, prices paid to farmers for corn and soybeans have increased, while cotton, rice, beef, broilers and egg prices have decreased. However, on a month-over-month basis, prices for corn, cotton, soybeans, and broilers are up, while prices for beef and eggs are down.

Chicago - Already low expectations for farm incomes have deteriorated over the reporting period as the potential for a record national harvest has pushed prices down further. Midwest and Lake States corn and soybean growing conditions are better than a year ago (with the exception of Michigan), and the U.S. Department of Agriculture (USDA) forecasts near record yields for corn and soybeans for most District states. Corn and soybean prices have moved lower, although soybean prices remain above last year’s level. Strong supplies also resulted in declines for wheat, egg, dairy, hog, and cattle prices. The USDA announced limited purchases of dairy and egg products to help address excess supplies.

St. Louis  - Though the quick return to low crop prices has weakened the near-term outlook for farm income, crop conditions bode well for strong yields. The proportions of corn, cotton, rice, and soybeans rated fair or better were roughly the same as in the July report, but the proportion of crops rated excellent has increased. Contacts also report good conditions. The prospect of strong yields, both in the District and elsewhere, are likely playing a role in the return of low prices.

Minneapolis - Strong growing conditions are helping to offset low commodity prices. District crops were mostly in good condition as of mid-August, with record harvests expected in some cases; parts of western South Dakota and Montana suffering from severe drought were an exception. Winter and spring wheat harvests are progressing ahead of schedule, but high yields are not expected to fully offset the effect of low prices on income. Prices received by farmers increased in July from a year earlier for soybeans, dry beans, hogs, chickens and turkeys; prices for corn, wheat, oats, sunflower, hay, cattle, eggs, and milk fell from a year earlier.

Kansas City - Farm income and agricultural credit conditions softened moderately since the July survey. Following an early June rally, crop prices declined in late July and August due to expectations that a strong wheat harvest and favorable growing conditions for fall crops would generate excess supply. Cattle prices also remain well below year ago levels, despite a slight uptick in early August.

Although agricultural loan delinquency rates remain low, bankers report increased demand for farm loan extensions and weaker loan repayments rates. Additionally, District bankers report modest increases in the severity of agricultural loan repayment problems. Financial strain is particularly high in the western portion of the District due to the combination of subdued commodity prices and increased drought stress. Lower commodity prices, softer farm income and weaker credit conditions continue to push farmland values lower throughout the District when compared with a year ago.

Dallas – Above-average yields are expected for several crops, with double-digit increases forecast for the 2016 cotton, corn and soybean crops. This will help offset some of the negative impact of low crop prices for farmers. Livestock grazing conditions have been very good this year, which, coupled with low grain prices, has reduced feed costs. Dairy producers have benefited from a marked rally in dairy prices over the past six weeks.

San Francisco – Agricultural activity is expanding modestly. Above-average water availability has boosted harvests, generating record yields for almonds and walnuts, but contacts are concerned that a return to earlier weather trends will hurt yields over the near term. On balance, increased foreign production, the elevated dollar, and flat overall demand increased inventories of many agricultural goods. Dairies continue to operate at a loss despite lower input prices, while ranchers are benefiting from somewhat firmer cattle prices. ■

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