Federal Reserve: Observations on the Ag Economy- November 2022

On Wednesday, the Federal Reserve Board released its November 2022 Beige Book update, a summary of commentary on current economic conditions by Federal Reserve District. The report included several observations pertaining to the U.S. agricultural economy.

* Sixth District- Atlanta– “Agricultural conditions remained mixed. Cotton growers reported further softening of demand from textile manufacturers. Tariffs imposed on rice from India kept demand for domestic rice strong. Demand for chicken and cattle exceeded supply. In Florida, Hurricane Ian destroyed several herds of livestock and numerous crops, and citrus industry contacts expect damage to trees from the storm will exacerbate already strained production from disease in the coming years.”

* Seventh District- Chicago– “Overall, expectations for District agricultural income in 2022 rose a bit, reflecting the strong corn and soybean harvests. Despite pockets of poor yields from drought, District corn and soybean yields were close to the records set in 2021.

Barge shipments continued to be constrained due to low water levels on the Mississippi, pushing up shipping costs, limiting exports, and reducing the availability of chemicals and fertilizers. The costs of most inputs remained elevated.

“Corn prices were lower, while soybean prices moved higher. Dairy and hog prices were generally down, though egg and cattle prices were up.”

* Eighth District- St. Louis– “District agriculture conditions have remained unchanged compared with the previous reporting period. Production forecasts for corn and cotton have increased slightly, while forecasts for soybeans remained unchanged and rice declined. On a year-over-year basis, however, production levels for cotton and soybeans are expected to be slightly higher, while corn production is expected to slightly decline and rice production is expected to moderately decline. While production has remained relatively steady, contacts in the District remain concerned over rising input prices, specifically fertilizers and feed.”

* Ninth District- Minneapolis– “District agricultural conditions remained strong through harvest season. According to the Minneapolis Fed’s October agricultural credit conditions survey, nearly three-quarters of lenders reported farm incomes increased from July through September compared with the same period a year earlier.

Farm household spending, capital spending, and loan repayment rates also increased on balance, while demand for loans fell.

“However, cattle ranchers in Montana reported culling herds due to high feed costs and lack of available hay in the drought-stricken state, and were reportedly reducing their planned capital expenditures for 2023.”

* Tenth District- Kansas City– “The Tenth District farm economy generally remained strong despite slightly lower commodity prices and intensifying adverse effects of drought in certain areas of the District.

Overall, farm income and credit conditions continued to improve modestly.

“However, contacts in areas most impacted by drought reported that farm income and liquidity were slightly lower than a year ago. As harvest neared completion, crop yields were generally expected to be less than average across all states and were particularly poor in Kansas and Oklahoma. Dry conditions also reduced hay production throughout the region and is likely to push feed expenses higher for many livestock producers.”

* Eleventh District- Dallas– “Widespread rainfall somewhat improved pasture and soil moisture conditions, though a majority of the district remains in drought. Agricultural commodity prices remained strong, though contacts said unprecedented volatility in cotton markets as well as a relatively low cotton price compared with grain prices may prompt a significant drop in cotton acreage next year. Beef demand remained strong, and prices were up from six weeks ago but down from a year ago because of increased beef supply due to more animals moving to slaughter amid the drought this year.”

* Twelfth District- San Francisco– “Conditions in the agriculture and resource-related sectors were stable, albeit weak, during the reporting period. Farmers reported solid domestic and international demand for both fresh and processed foods, especially for dairy products and nuts, but noted that global economic uncertainty and a strong dollar continued to weigh down international demand for most domestic agricultural products. Limited rainfall throughout California has reportedly impacted summer crops, such as tomatoes, and is threatening expectations for various winter crops, especially leafy greens. Contacts reported meaningful relief in supply bottlenecks in recent weeks, although one producer noted persistent disruptions and delays at some ports in Asia stemming from pandemic containment measures.”