Federal Reserve bank districts report that agricultural sectors have weakened overall since November, and that farm incomes are stressed. Flooding and drought in various regions are aggravating the effects of already low and falling prices for farm commodities, caused in part by weak global demand and the strong dollar.

U.S. Federal Reserve System Districts

With few exceptions, commodity prices for crops and livestock have remained low or have fallen since November. Regional Fed banks in Chicago, Kansas City, and Dallas report that conditions are not profitable for some producers, as farm input prices have not fallen as fast. These three Districts also cite large harvests as a factor in keeping commodity prices low, while Kansas City and San Francisco reported that weak global demand and the strong dollar held down livestock exports. Drought remains a problem in parts of the San Francisco District for some producers, while heavy rain and flooding impacted harvests in the Richmond, Atlanta, St. Louis, and Dallas Districts.

Prepared by the Federal Reserve Bank of Philadelphia and based on information collected through January 4, 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 – Agribusiness activity remains soft. Farmers in Virginia, North Carolina, and South Carolina continue to report delayed harvesting from the wet fall, and more South Carolina contacts report poor crop quality as a result of flooding. Some South Carolina farmers have reported ruined cotton crops. Moreover, continued rain following the floods in South Carolina left other establishments unable to harvest soybeans for animal feed. A South Carolina sod farmer said he had only one week of good harvest days during the past month. In contrast, a Maryland contact report that farming was stable across the state, with continued strength in the poultry sector. Cotton prices decreased and farm input prices were unchanged since the December report.

Atlanta – Most of the District is drought free, but as a result of excessive rain, winds, and flooding earlier in the year, the U.S. Dept. of Agriculture declared several counties in Alabama, Florida and Georgia as natural disaster areas. Florida’s orange forecast was down both from last month’s forecast and last season’s production. On a year-over-year basis, prices paid to farmers for cotton, rice, soybeans, beef, and broilers have declined while corn’s price rose slightly.

ChicagoFarm incomes declined as the large harvest pushed product prices down faster than input costs. Most contacts expect that Midwest farmers will face tighter (and possibly negative) margins this year. Many farmers are holding on to much of their corn and soybean harvest, hoping that prices will go up before they need to sell them to fund 2016 operations. Many are also waiting on purchasing inputs, anticipating that seed and fertilizer prices may decline further. One contact reported that more farmers are testing fields for nutritional deficiency before applying fertilizer to reduce input costs. Dairy, egg, hog, and cattle prices moved lower, although cattle prices rallied some toward the end of the reporting period.

St. Louis – As of late November, the region’s winter wheat crop was roughly 95% planted, which is consistent with recent history. More than 94% of the winter wheat crop is rated fair or better. However, due to warmer weather about 86% of the crop had already emerged—a proportion that is notably higher than recent averages. Moreover, late December flooding has led to concerns about significant crop damage.

Minneapolis – Agricultural conditions softened since the December report. Crop prices remain low, and farm incomes for 2015 are expected to be at their lowest levels in a decade. District sugar beet growers are concerned about reduced demand, as candy producer Hersey Co. switched last year to cane sugar due to consumer concerns about genetically modified ingredients. Several District cattle producers reported that a sharp drop in prices late in the year substantially downgraded their financial outlook. Prices received by farmers fell in November compared with a year earlier for wheat, soybeans, hay, milk, chickens, hogs, and cattle; corn prices were unchanged, while prices increased for eggs and turkeys.

Kansas City – Agricultural commodity prices generally remained low since November, keeping farm income expectations subdued. Although crop prices increased slightly in December, a strong fall harvest kept corn prices near year-ago-levels, with soybean prices significantly less than a year ago. Wheat prices also remain lower than year-ago levels alongside solid winter growing conditions throughout the west central Plains region. In the livestock sector, both cattle and hog prices are significantly below year-ago levels in the face of increasing supplies and relatively weak global demand. Both crop and livestock prices remain below the cost of production for some producers, continuing to strain farm income and cash flow. District contacts expect income to remain relatively soft in the coming months.

Dallas – The region continues to receive ample rainfall, keeping drought conditions at bay and providing good soil moisture going into the spring planting season. Last year’s crop harvest was above the five-year averages for most crops. However, crop prices are generally low, even sub-profitable for some producers, and much of the cotton crop has been discounted further because of damage from excess rain. The low prices are leading to some financial stress among agricultural producers. Cattle prices are well below year-ago levels but are still quite strong historically.

San Francisco – Activity in the agriculture sector has been flat since November. Despite an unusually wet early winter, drought conditions remain a challenge for growers and ranchers in much of the region. Shortages in water reserves have reduced the size and weight of some nut harvests and raised production costs by forcing producers in parts of California to pump more water. Inventories for dairy products and beef cattle rose as the elevated dollar held down exports. By contrast, dollar effects on exports of pork products were partially offset by rising demand from East Asia. ■

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Rainfall helped alleviate drought conditions in the Atlanta and Dallas Districts in recent weeks, while in the Richmond and St. Louis Districts crops suffered from too much moisture.

U.S. Federal Reserve System Districts

In the Atlanta District, heavy showers eased drought conditions although soybean, cotton and peanut harvests were behind the five-year average. Rain improved conditions in the Dallas District, where domestic demand for grains and cattle was solid, but export demand was weak. San Francisco Fed contacts report modest growth, with strong yields in areas less affected by drought.

The condition of the Chicago District’s corn and soybean crops improved mildly since October, with a record soybean harvest expected.In the Minneapolis District, corn, soybean, and sugar beet production hit new records in some states. In contrast, conditions weakened in the Richmond District. In South Carolina, farmers said conditions deteriorated due to flooding in early October and recent wet weather has delayed harvesting of soybeans, peanuts, cotton, and vegetables, and crimped crop yields.

Additionally, the St. Louis and Kansas City Districts report a moderate decline in agribusiness. St. Louis District farmers note that extensive rainfall cut crop production levels relative to last year, and farm sector contacts maintain a mostly negative outlook for farm income.

Prepared by the Federal Reserve Bank of Richmond and based on information collected through November 19, 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 – Activity has softened since October. Severe flooding in South Carolina in early October delayed harvesting of soybeans, peanuts, cotton, and vegetables, and cut crop yields. One South Carolina farmer reported catastrophic crop losses. He said the ground was too wet to harvest and that he was in salvage mode with crops not yet harvested. Additionally, a South Carolina sod grower reported late harvesting and a drop in sales since October. A firm in North Carolina also reported delayed harvesting and lower yields. Virginia growers report good hay quality and production but were worried that recent rains may have damaged some crops still in the ground. Prices for cotton and cattle fell slightly since October, and some farmers reported a slight increase in input prices.

Atlanta – Heavy showers improved drought conditions in much of the District. Rains led to the removal of Abnormally Dry ratings in northwestern Alabama and in south Florida. Louisiana and Mississippi’s soybean harvests were behind their five year averages. Cotton harvesting is behind the five-year average in much of the District with the exception of Alabama’s crop, which is on par with the five-year average. Peanut harvesting was behind the five-year average. On a year-over-year basis, many agriculture product prices are lower, and concern about the strong dollar and its effect on agriculture exports persists.

Chicago – Both the corn and soybean harvests exceeded expectations, and most agricultural commodity prices fell. A record harvest is anticipated for soybeans, while corn yields are down from last year. The Midwest harvest progressed quickly, which reduced drying costs for most producers. Corn, soybean, and wheat prices all fell, and some growers are storing more of their harvest on their farms in the hope of a pick up in prices down the road. Even with these declines, crop prices are high by international standards (due to the strong U.S. dollar), damping export demand. Overall, crop operations face somewhat better prospects than previously expected due to higher-than-anticipated yields and lower-than-expected costs. Nonetheless, contacts remain concerned about an increasing number of crop operations coming under financial stress over the coming year. Hog and cattle prices fell over the reporting period, while milk prices remain too low to cover production costs.

St. Louis – As of mid-November, more than 90% of the southern Midwest/northern Mid South region’s corn, rice, sorghum, and soybean crops had been harvested, while cotton was just over 80% harvested. Excess rainfall has trimmed crop production levels relative to last year. Corn, cotton and rice production are forecast more than 15% below last year’s levels. Sorghum production is forecast at double a year ago, but it is a relatively small share of overall production. Because of relatively low production levels and low crop prices, the outlook for farm income remains mostly negative.

Minneapolis – Farmers were buoyed by favorable weather during harvest, which was completed well ahead of the typical schedule. Corn and soybean production hit new records in some of the region’s states; sugar beet producers in Minnesota and North Dakota also saw record yields and good quality. However, crop prices remain low and farm incomes are expected to be weak. According to the Minneapolis Fed’s October survey of agricultural credit conditions, 83% of lenders report that incomes fell from a year earlier, and 79% expect them to be down in the fourth quarter. Prices fell in September compared with a year earlier for wheat, soybeans, hay, milk, chickens, hogs and cattle; prices increased for corn, eggs and turkeys.

Kansas City – Conditions continue to weaken as commodity prices remain relatively low. Despite expectations of strong crop yields and government farm program payments, contacts look for further declines in farm income in the months ahead for both the crop and livestock sectors. Crop prices generally remain flat since October and livestock prices are substantially below year-ago levels. Farm credit conditions also deteriorated further as repayment rates edged lower, credit availability declined slightly, and expectations of future financial stress increased somewhat. Amid the weaker farm economy, farmland values of all types were expected to decline in the coming months.

Dallas – Abundant rainfall since October further alleviated drought conditions. Less than 1% of the region was in drought in mid-November, compared with more than a third at the end of September. The wet weather improved soil moisture for crops and replenished ponds for grazing cattle. That said, Texas is likely to have an average cotton production year rather than the bumper crop thought possible in early summer. Cotton yields were hindered by a hot and dry August and the quality was diminished by too much rain just before harvest. Domestic demand for grains and cattle remained solid but export demand was weak. Grain prices fell slightly and cattle prices declined but remained at high levels. Retail beef prices were down from a year ago.

San Francisco – Output in the agriculture sector expanded modestly over the reporting period. Yields in areas less affected by drought were strong, while elevated price levels for some products helped maintain revenue in drought-stricken areas with lower yields. Similarly, drought conditions have reduced cattle herd sizes; however, supply shortages have boosted meat prices and helped keep profit margins steady. Restaurant demand for agricultural staples grew modestly, and contacts expect this to continue along with stable growth in consumer demand. ■

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Growing conditions and farm output are solid in some Districts, but drought in the South and excessive moisture in the Mid-Atlantic and Mid-South have hampered production. Lower crop and livestock prices continue to raise concerns that farm income will weaken.

U.S. Federal Reserve System Districts

Drought conditions exist in parts of the Atlanta and Dallas Districts, and excessive rainfall occurred in the Richmond and St. Louis Districts. Corn and soybean crops are in excellent shape in the Chicago, Minneapolis and Kansas City Districts, and the San Francisco District reports that grain yields have been excellent.

Prepared by the Federal Reserve Bank of New York and based on information collected through October 5, 2015, 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 – Corn harvesting is finished. However, farmers report that dry conditions earlier in the season have resulted in low, and in some cases zero, corn crop yields. Cotton and peanut harvesting are underway. In early October, extended rainfall in South Carolina caused severe flooding in some areas. One peanut farmer says that he expects much of his crop is affected by mold due to the flooding. A sod farmer reports he will have to replant a recently sown crop. Cotton prices have been decreasing since the last report. Farmers’ input prices are unchanged.

Atlanta - Drought conditions expanded in the District since the last report. Most drought-affected areas were categorized as abnormally dry to severe, and parts of Mississippi experienced extreme drought conditions. Mississippi’s rice harvest is well underway although slightly behind its five-year average, while in Louisiana, the harvest was almost completed and on par with its five-year average. Both Louisiana and Mississippi’s soybean harvests were well underway and ahead of their five-year averages. Cotton and peanut harvesting were in the early stages throughout the District.

Chicago - The condition of the corn and soybean crops improved over the August 24 – October 5 reporting period. Relative to last year, crop conditions are better in Iowa and Wisconsin, mixed in Michigan, and worse in Illinois and Indiana. Harvesting is somewhat behind the normal pace, especially for corn, which is maturing late. Overall, yield reports suggest that the corn harvest won’t reach last year’s record level, while the soybean harvest may surpass last year’s record. Corn prices have moved up and were higher than a year ago, while soybean prices have drifted down and were lower than a year ago. Because of a wide range in yields and differing rental arrangements, the profitability of crop operations ranges from substantial losses to just break-even.

This month, rural bankers reported that annual cash rental rates across 10 mostly Midwest and Plains states averaged $229 per acre, well below rents recorded six months ago, according to a survey by Creighton University.

Wheat prices recovered some, as did milk prices. Hog and cattle prices were lower. Poultry operators continue to rebuild from the avian influenza outbreak, and egg prices have eased as production recovered. Producers, however, are concerned about a repeat outbreak as the fall migration of wild birds began.

St. Louis  - Row crop yields are expected to be about 10% below 2014 levels due to extensive wet weather. Many contacts believe that crops with earlier planting seasons, such as corn, will suffer yield cuts up to 30% in the most rain-ridden areas. With the recent decline in crop prices and stickiness of some input prices, production levels are not expected to be high enough to prevent a decline in net farm income. While most livestock-related prices are also trending downward, the recent bird flu outbreak has had a mixed impact on poultry prices.

Minneapolis - While growing conditions have been good, the income outlook for agricultural producers remains weak. District crops have been in mostly good or excellent condition, with wheat and small grains harvests progressing well ahead of average; record corn and soybean yields are expected in some areas.  The prospects of a very good production year will help make up for low prices, but break-even will be a stretch for many, notes a banker. Prices received by farmers fell in August compared with a year earlier for soybeans, wheat, hay, milk, chickens, hogs, and cattle. Prices increased for corn, eggs, calves, and turkeys. In other news, Syngenta announced a $20 million expansion to its seed research facility in Goodhue County, Minnesota.

Kansas City - Farm income expectations remain subdued as low crop prices have persisted and livestock prices declined since the last survey period. With corn and soybean crops in good-to-excellent condition throughout most of the District, expectations of a large harvest have kept prices near last year’s level and slightly less than year-ago levels this past summer. In addition to strong production expectations, sluggish export demand for agricultural products has put further downward pressure on crop and livestock prices, as both fed and feeder cattle prices decreased significantly in September. The cow-calf sector is an exception, where calf prices and profits remain strong. Weaker farm income and reduced cash flow continue to drive demand for additional short-term financing.

Dallas - Drought conditions have worsened in East Texas and northern Louisiana over the August 24 – October 5 reporting period. Texas wheat production was average this year, and wheat prices continue to slide, largely due to weak global demand. While the El Nino weather pattern—expected this winter—would be good for 2016 wheat crop production, prices are below break-even for producers. The latest estimates for Texas cotton production are lower than expected due to weak yields. Cotton export sales are weak, with demand from China—a major importer of Texas cotton—down year over year. Cattle prices dropped sharply over the last six weeks, causing Texas feedlots to lose money.

San Francisco - Agricultural activity expanded slightly during the reporting period. Contacts note that grain yields have been excellent, although ample supply has held down profits for individual growers. Higher-than-normal temperatures helped boost potato yields but cut crop quality somewhat. Some contacts cite concern that the strong dollar has been restraining agricultural exports, and producers have not yet adjusted crop plans to account for slower demand growth from China.  ■

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