Read the latest in ag finance. This insights summary breaks down the newly released Federal Reserve Beige Book.

July Federal Reserve Beige Book Released

Coming out of a pandemic, the ag financial landscape looks pretty good, according to Federal Reserve Beige Book report which is issued by the banks that make up the Federal Reserve System. However, there are more wild cards out there than up a riverboat gambler’s sleeve. “Labor, especially in the segment that affects agriculture, is problematic,” says Tom Stenson, executive vice president at Conterra Ag Capital. In addition, producers face supply disruptions in a number of sectors.

The Fed’s report is not an official outlook or statement of ag policy. Rather, it is a broad-based market compendium based on input of the several companies and institutions that provide data to the Fed about agriculture. Known as the Federal Reserve Beige Book, the report looks at current economic conditions in each Federal Reserve Bank District as determined by reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and others. The most recent report is based on data collected before July 2, 2021 and the long Fourth of July weekend.

“There is nothing in the report that hasn’t been lifted up recently,” Stenson says. “In my view it is more moderating than the Wall Street Journal or MSNBC.”

$3.5 trillion question

The biggest unknown at the moment is uncertainty about President Joe Biden’s proposed $3.5 trillion stimulus package. What amendments will be offered in committee? Will the finished package get the votes needed to pass?

“We’re also watching things buried inside the incentives and waiting for there to be more clarity overall,” Stenson added.

Meanwhile, agriculture stayed on course to earn higher market-based income relative to last year in the Chicago District which covers Iowa, Northern Illinois and Indiana, and Southern Wisconsin. Most product prices remained high enough to offset increased costs for freight, energy, fertilizer and labor.

On net, corn prices were little changed. Soybean prices were a bit lower over the reporting period. Although planted corn and soybean acreage was up from last year, it was lower than expected earlier in the growing season. This helped maintain prices. Crop conditions for corn and soybeans were mixed. Some parts of the Chicago District were in excellent shape. Others were stressed by drought.

Energy costs

No matter the location, Stenson hears complaints about feed and energy costs, especially on dairy and poultry operations. That is coupled with hog and milk prices easing off highs during the reporting period. Cattle prices, too, were flat in the Midwest. One contact noted that a lack of workers in slaughterhouses had led to the suspension of some contracts with poultry producers. Area farmland values moved higher.

A bit farther West, the St. Louis Federal Reserve saw conditions decline modestly relative to its early June reporting period but remain steady relative to the same period last year. Between the end of May and end of June, percentages of corn, cotton, rice and soybeans that rated fair or better decreased modestly across the reporting area which includes Arkansas, most of Missouri, Southern Illinois and Indiana, and parts of Tennessee and Northern Mississippi.

The Tenth District, headquartered in Kansas City, saw strength in the ag sector through June, with profit margins for most major commodities relatively high. Covering Nebraska, most of the wheat belt, and Oklahoma west into Colorado, Kansas City noted prices of most crops were still near multi-year highs, although had declined slightly since the previous Federal Reserve Beige Book. Hog prices also remained strong.

The winter wheat harvest was delayed slightly in parts of the District but crop quality was not expected to be hindered. Higher production was anticipated throughout the region. In addition, the District’s corn and soybean crop was in slightly better condition than the nation in all states except Missouri.

In contrast to other commodities, profitability for cattle producers continued to be limited. Drought persisted in some portions of the District and remained a concern for both crop and livestock producers.

West Coast outlook

All along the West Coast, ag activity increased somewhat. The California market faces an on-going need to monitor water, labor and the ebb and flow of environmental demands. The Federal Reserve Beige Book said eased local restrictions led to generally increased domestic demand for agricultural and resource-related products. The San Francisco District reports on all states West of the Rockies including the rich California valleys, the Pacific Northwest, Arizona, Utah, Hawaii and Alaska. Across the region, contributors saw international demand for logs, fruits, vegetables, seafood and other products increase over the reporting period despite an appreciating dollar.

Producers noted reduced but still adequate supply and inventory levels of fruits, raisins and nuts. Supply chain disruptions continued to cause costly delays with trade from Asian markets in particular. Growers in western States reported drought conditions and increased costs associated with irrigation. This led some farmers to leave a portion of their acreage fallow, prioritizing water usage on more profitable crops.  Wildfires stemming from the drought conditions and forest management are a top-line concern in California, Oregon and Washington.

Why can’t rainfall ever be nicely distributed? On the opposite coast, the Atlanta, Georgia District reported mixed conditions. Widespread rain across parts of the region resulted in abnormally moist to excessively wet conditions. On the flip side, much of Florida and southern Georgia experienced abnormally dry to moderate drought conditions, mirroring California.

Planting progress for much of the region’s cotton, soybean and peanut crops was on par with the five-year average. On a month-over-month basis, the production forecast for Florida’s orange crop was up in June while the grapefruit production forecast was down; both forecasts remained below last year’s production levels.

The USDA reported year-over-year prices paid to farmers in May were up for corn, cotton, soybeans, cattle, broilers, eggs and milk, but down for rice. On a month-over-month basis, prices were up for corn, rice, soybeans, broilers, eggs and milk, but down for cotton. Cattle prices were unchanged.

In the far North, the Minneapolis District reports severe drought conditions across most of the area. Many crop producers said they are concerned about yields, as most corn, soybean, and wheat acres ranged downward from fair to poor condition.

If the weather is unsettled, so is the nation’s financial policy. “Though the Fed has been consistent in its historically low rate targets and terms inflationary numbers as transitory, inflation concerns are increasing”, Stenson warns. He suggests producers look to stock market performance as an early warning. “The market is usually out in front reading the tea leaves,” he advises.

Have questions about July’s Federal Reserve Beige Book? Our ag lending team at Conterra would love to chat. Get in touch today.

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