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Wednesday, July 17, 2013

The Federal Reserve Is Watching Agriculture Closely


It is hard to find someone not watching the Federal Reserve’s Open Marketing Committee, which sets interest rates.  The FOMC has been completely focused on the US economy to identify all of the pluses and minuses that will help it determine the direction of monetary policy.  One of the issues it watches is the state of the agricultural economy and its asset base, and reports that in the Beige Book, which contains the economic research of the various Federal Reserve Banks that is conveyed to the Central Bank.


 In the Beige Book released on July 17, the Fed summarized the state of the farm economy, saying, “Agricultural conditions varied across the Districts because of differing weather conditions. Crop conditions improved in the Chicago and St. Louis Districts, while agricultural production increased in the San Francisco District and is expected to improve in the Kansas City District. Extremely wet conditions delayed planting and even resulted in some farmers in the Richmond and Minneapolis Districts planting soybeans instead of corn. Excessive rains in the Richmond District also damaged the wheat crop in some areas. Contacts noted persistent drought conditions in some areas of the Kansas City and San Francisco Districts and in most of the Dallas District. Winter wheat harvest output yields were highly variable because of crop damage from freezing and drought in the Dallas and Kansas City Districts. The condition of pastureland in the Atlanta and St. Louis Districts improved since the previous report.”


The Federal Reserve Banks that service the bulk of the Cornbelt include:


Seventh District at Chicago

“Crop conditions improved over the course of the reporting period, with the crop ending the period in better shape than a year ago. District farmers managed to get their crops in the ground despite additional planting delays caused by the unseasonably wet weather. Only a small percentage of acres will not grow a crop, where water pooled in low-lying areas and replanting was not possible. Fruit crops could produce record yields this year, in sharp contrast with the large losses seen a year ago. With stocks of corn and soybeans expected to remain at very low levels until the fall harvest, corn and soybean prices moved higher. The increase in feed costs negatively affected livestock operations, and contacts noted that it would lead to careful management of feed purchases until anticipated declines in crop prices are likely to materialize following a potentially record fall harvest. The first cutting of hay was mostly complete and was much better than last year. Supported by rejuvenated pastures, milk output also increased. Milk prices were roughly unchanged during the reporting period, while hog prices surged, and cattle prices were lower.”


Eighth District at St. Louis

“At the end of June, the condition of over 90 percent of the cotton, corn, soybeans, sorghum, and rice crops was rated as fair or better in all the District states. Furthermore, at least 70 percent of total pastureland across the District states was rated in good or excellent condition. The winter wheat harvest was behind its 5-year average and behind the progress made by the same time last year.”


Ninth District at Minneapolis

“The agricultural sector weakened since the last report. District farmers made progress after a late spring, but remain behind the five-year average for corn and soybean plantings due to recent heavy rains. In some areas, farmers are expected to switch from corn to soybeans due to the weather. Prices increased from a year earlier for wheat, corn, soybeans, chickens, milk, hogs, cattle and eggs; prices fell for turkeys and dry beans. The late plantings, along with concerns about warmer and drier weather later this summer, caused the USDA to increase its corn price forecast slightly, though prices are still expected to decrease from current levels.”


Tenth District at Kansas City

“Agricultural production expectations improved somewhat with recent rains, but varied regionally. Summer storms eased dry conditions in eastern parts of the District, though drought persisted in western regions. The winter wheat harvest was underway or complete in Oklahoma and Kansas with highly variable yields depending on the extent of drought and freeze damage. Despite expectations of a poor wheat harvest in some areas, wheat prices fell since the last survey period. The corn and soybean crops, however, were rated in mostly good or better condition with the improved soil moisture. Although corn and soybean prices remained historically high, improved growing conditions led to a drop in expected harvest prices for both crops. Feedlot operators struggled with high input costs and falling cattle prices, but losses narrowed for hog producers after a rebound in hog prices. Cropland values moved higher but were expected to hold steady during the growing season.”



The regional Federal Reserve Bank economists all reported that delayed planting has created some crop production uncertainty, and highly variable weather has challenged crops further with excess heat and excess moisture.  The economists also noted that crop prices and other commodity prices have fallen from the highs of 2012.  While crop production was shaping up to be better than last year, livestock production would benefit from lower feed prices.  Very little was said about land prices or other measures of the farm economy.

Posted by Stu Ellis on 07/17 at 10:46 PM | Permalink

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