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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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Agricultural activity was mixed but improving on average. Most Federal Reserve reporting Districts noted higher prices for their respective major crops at the time farmers were able to lock-in for the fall harvest, while Cleveland, Richmond, and Chicago reported that some crop prices have declined recently.

U.S. Federal Reserve System Districts

Planting for key crops compares favorably with historical progress. Most reporting Districts noted that growing conditions are currently good, but Richmond reports flood damage in West Virginia and Atlanta reports varying degrees of drought. Farm income is expected to improve from very low levels in Chicago, St. Louis, Minneapolis, Kansas City, and Dallas. Livestock prices were mixed in the reporting Districts.

Prepared at the Federal Reserve Bank of St. Louis and based on information collected through July 1, 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 increased modestly since the May 23d Beige Book report. Farmers report that spring planting of cotton, peanuts, and corn is complete. Farm input prices have remained unchanged in recent weeks while prices of grains, cotton, and corn declined. While the damage has yet to be assessed, West Virginia contacts expect that recent severe flooding will force farmers in some areas of the state to plow under their crops in the weeks ahead.

Atlanta – Conditions across the District are mixed. Drought conditions spread through much of the region, ranging from abnormally dry to severe drought. Nonetheless, by mid-June, District cotton, soybean, and peanut planting were close to their five-year averages and nearing completion. On a year-over-year basis, prices paid to farmers for corn, cotton, rice, soybeans, beef, broilers, and eggs declined, although on a month-over-month basis, prices increased for corn, cotton, soybeans, and broilers.

Chicago – Prices for corn and soybeans rallied through the reporting period, though corn prices gave back all of their gains in the second half of June. The price gains led more farmers to lock in prices for the fall harvest, though the increases are not enough to change expectations for weak farm incomes this year. Corn and soybean stands were generally in good shape in most of the District, though if the hotter- and drier-than-normal weather persists much longer, yields could drop. Margins for dairy and beef producers continue to be tight because of low prices. Hog producers, on the other hand, are doing better due to higher-than-expected prices.

St. Louis – Most fields were unscathed by the heavy rain in May and early June. About 94% of both District corn and soybeans were rated fair or better as of mid-June, which is around five percentage points higher than the five-year averages for both crops. Among major District row crops, rice is the only crop with a lower rating than its five-year average. With healthy fields and the recent crop price rally, row-crop farmers are set to experience significant income improvements relative to 2015.

Minneapolis – Conditions improved slightly, thanks to strong growing conditions and small increases in some commodity prices from their recent lows. Coming off an early start to planting, most of the District’s corn, soybean, and wheat crops were rated in good or excellent condition as of late-June. Chicken processor Gold’n Plump is investing up to $80 million in a Minnesota processing plant as part of a major expansion. Prices received by farmers increased in May from a year earlier for corn, soybeans, and turkeys; prices for wheat, hay, cattle, hogs, chickens, eggs, and milk fell from a year earlier.

Kansas City – Farm revenue improved modestly from the previous reporting period. Despite market volatility, corn and soybean prices rose modestly due to international production concerns, providing some relief to persistently weak profit margins in the District’s farm sector. Wheat prices remain flat compared to the previous survey period, and profit margins remain tight even though early reports of harvested yields have been strong. In the livestock sector, hog prices rebounded to year-ago levels and were generally above the breakeven cost of production. Conversely, cattle prices have declined slightly from the previous reporting period due to slightly softer demand which continues to suppress profits in the cattle sector.

Dallas – Production prospects for crops remain strong across most of Texas thanks to good soil moisture and favorable weather. Crop prices generally improved over the reporting period and, while still fairly low, some pushed above break-even levels. Developments on the livestock side were mixed. While measurable rainfall across the state continued to benefit pasture conditions, cattle prices fell and feed costs rose.

San Francisco – The agriculture sector picked up over the reporting period. Increased water supply following a wet winter has improved growing conditions in California and other states, boosting yields and quality for various crops. Demand for beef cattle strengthened; ranchers are beginning to realize profits after a prolonged period of losses. Overall, the strong dollar continues to hold down exports for most goods. However, strong demand from Asia has boosted exports of pork products, while lingering overseas supply shortages from last year’s avian influenza outbreak has boosted exports of poultry products. ■

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