Agricultural economic conditions have been flat to moderately down across the Federal Reserve Districts since mid-January. Low commodity prices and weak global demand continue to pressure farm income. The Federal Reserve Bank of Minneapolis reports weaker farm incomes and lower prices for all commodities except turkeys.
Farmers in the Chicago District are adjusting to the dip in commodity prices by turning to cheaper seed varieties and selling equipment. Kansas City reports weakening credit conditions and modest declines in farmland values amid tighter profit margins for crop and livestock producers. In the Richmond, Dallas, and San Francisco Districts, agricultural exports are slowing alongside the strengthening dollar.
In agricultural production, Richmond reports limited activity due to typical seasonal slowdowns, while St. Louis reports an increase in red meat production compared with the previous year. Growing conditions in the Dallas District are improved from the previous year due to increased soil moisture, and most of the Atlanta District was drought free by mid-February. However, San Francisco farmers and ranchers continue to struggle with persistent drought, despite above-average winter rainfall.
Prepared at the Federal Reserve Bank of Kansas City and based on information collected through February 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 – Underlying agribusiness conditions are unchanged since the January report, even as contacts cite a typical seasonal slowdown. Farmers reported limited planting and harvesting in the past six weeks. Most sources note that input prices are unchanged. However dairy farmers say that input prices continue to decrease. Commodity prices remain depressed.
Atlanta – With the exception of Florida, where rainfall has been much above normal, the southeastern U.S. saw January rainfall totals ranging from near average to below average. However, by mid-February the region was drought free with only a small portion of Georgia characterized as abnormally dry. In parts of Florida where rainfall was excessive, there were reports of flooding, damaged fields, and delayed fieldwork. Florida’s orange forecast remains unchanged from January and down from last season. On a year-over-year basis, monthly prices paid to farmers for corn, cotton, rice, soybeans, beef, broilers, and eggs have declined.
Chicago – Midwest crop farmers continue to cut capacity following another year of low incomes coupled with unexpectedly small declines in input costs. There were reports of major downsizings of large operations and of some farms going out of business. Farmers are also cutting capacity by purchasing cheaper but lower-yielding seeds and by selling machinery. Correspondingly, prices for used farm machinery are low because of plentiful supply. Corn, soybean, and wheat prices moved higher during the reporting period, but remain quite low compared to their five-year averages. Dairy, egg, hog, and cattle prices were up from the prior reporting period, but also remain low.
St. Louis – As of the end of January, almost 93% of the southern Midwest and northern Mid-South region’s winter wheat crop was rated fair or better. Red meat production in 2015 was 6% higher than in the previous year, an increase that has been explained, in part, by lower feed costs, although meat prices also fell during the year.
Minneapolis - District agricultural conditions remain weak. A majority of respondents to the Minneapolis Fed’s fourth quarter (January) survey of agricultural credit conditions reported that farm incomes and capital spending fell in the previous three months compared with a year earlier. An animal feed dealer reported that after several years of strong sales, its revenue outlook was flat due to recent livestock price declines. Prices received by farmers fell in December from a year earlier for corn, wheat, soybeans, hay, hogs, cattle, chickens, eggs, and milk; prices for turkeys increased from a year earlier
Kansas City – Farm income weakened further since the last survey period, and cropland values fell modestly. Persistently low crop prices and sharp declines in cattle prices are cutting farm income in all District states. District cropland values continue to decrease slightly, while pasture values have leveled off. Similarly, cash rental rates on all types of farmland moderated and are expected to fall further in the next three months. Alongside lower farm income, farm loan repayment rates weakened further, and demand increased for new loans as well as loan renewals and extensions. Looking forward, District contacts expect modest declines in cropland values as well as continued pressure on credit conditions amid tighter profit margins for crop and livestock producers.
Dallas – Soil moisture conditions remain healthy, with only 2% of Texas considered abnormally dry in February. A year ago, 56% of Texas was in some level of drought. While prospects for 2016 crop production are strong, farmers face low prices and downward pressure on exports due to the strong dollar. Industry contacts say many producers will not be able to cover their production costs at current crop price levels, and some have received calls from their lenders voicing concern. Cotton—Texas’ top crop—has seen prices fall even lower with risks to the downside. Contacts report that low prices and weakening demand will likely result in fewer cotton acres planted this year. Milk prices continue to drift unprofitably low, despite the supply disruption in the wake of winter storm Goliath, which killed roughly 30,000 dairy cows in West Texas and New Mexico. Cattle prices were lower than the record levels posted a year ago but are still relatively high.
San Francisco – Farm sector activity is unchanged since the reporting period. Continued dollar appreciation has slowed agricultural exports in general, although exports of pork products increased as demand from Asia strengthened. Contacts report that domestic demand from restaurants slowed for some vegetable products. Despite an unusually wet winter, overcoming prior drought conditions remains a costly challenge for growers and ranchers in much of the region. Contacts expect conditions in the agriculture sector to remain roughly the same over the coming year as commodity prices remain soft and exports continue to be subdued. ■