Ag sector optimism remains high, Federal Reserve report shows
A published report released this week by the Federal Reserve shows that most participants in the agricultural sector remain optimistic about their 2021 crops, prices, and economy.
The Beige Book, published eight times a year, summarizes comments received from contacts outside the Federal Reserve System and is not a commentary on the views of Federal Reserve officials.
Of the 12 Federal Reserve Districts, six have a heavy agriculture presence. Here is a summary of the ag-centric districts.
In the Ninth District of Minneapolis, agricultural conditions improved sharply since the previous report. Contacts expected strong farm incomes heading into planting season, building on recent commodity price increases and export demand. Crop progress as of mid-May was generally well ahead of recent averages in District states. However, extreme drought conditions spread in portions of the District, according to the Fed Reserve report.
Kansas City District
The Tenth District farm economy remained strong, but drought continued to strain all types of producers in the western part of the region. Prices for corn, soybeans, wheat, cotton, and hogs increased in recent weeks and remained at multiyear highs through the early part of May. In contrast, prospects for the cattle industry remained subdued as cattle prices were near pre-pandemic levels but profit opportunities were limited due to elevated feed costs. Alongside severe drought in the western portion of the District, the wheat crop was in poorer condition in Colorado relative to other states. Contacts also reported that the impact of drought on pasture quality and hay production continued to worsen, according to the Fed Reserve report.
St. Louis District
Agriculture contacts in the Eighth District remain optimistic about current conditions overall. Most contacts reported that their sales thus far have met expectations. Supply chain issues are raising many producers’ costs, although higher commodity prices have helped generate higher incomes, maintaining profit margins. The government support has been strong in the ag sector. The percentage of row crops planted has increased since the previous reporting period and is up slightly from this time in 2020. Progress of acres planted is up slightly to moderately this year for every crop of the District states; only Indiana is behind its 2020 progress to this point. Contacts reported that their outlook for 2021 has improved, according to the Fed Reserve report.
In the Seventh District, agriculture expectations for farm income in 2021 strengthened across sectors in April and early May. Drought and dry weather conditions were an issue across a substantial portion of the District, though timely rains could still erase most of the impact. Frosts damaged some plants and trees, with potentially heavy losses for fruit producers. Corn and soybean planting proceeded ahead of the normal pace. Corn, soybean, and wheat prices moved up and were near multiyear highs. Hog, cattle, and milk prices rose, helped by strong meat and dairy exports. Egg prices dropped, however. Despite higher prices, livestock producers’ margins were little improved be-cause of higher feed costs. Farmland values increased once again, because of strong demand and limited inventory, according to the Fed Reserve report.
Recent rainfall eased drought conditions in parts of the Eleventh District and improved prospects for row crops. Agricultural commodity prices moved higher across the board, spurred by tight world supply and robust export demand. Overall, row crop farmers were optimistic for improved production and revenues this year. Significantly higher grain prices, however, have negatively affected the livestock sector with feed costs double what they were a year ago. Beef exports were strong, which together with continued capacity constraints in meat packing plants, have driven up beef prices to well-above-average levels, according to the Fed Reserve report.
Agricultural conditions remain mixed in the Sixth District. Widespread rain across much of the District resulted in abnormally moist to excessively wet conditions while the southern tip of Florida experienced abnormally dry to moderate drought conditions. Most of the region’s cotton and peanut crops were behind the five-year planting average, while soybean planting was mixed. Tennessee’s corn crops were mostly on par with the five-year average. The USDA reported year-over-year prices paid to farmers in March were up for corn, cotton, rice, soybeans, and broilers, but down for eggs and milk; cattle was unchanged. Several contacts noted that land values increased, according to the Fed Reserve report.
This information, collected on or before May 25, 2021, enables comparison of economic conditions in different parts of the country, which can be helpful for assessing the outlook for the national economy.
The national economy expanded at a moderate pace from early April to late May, a somewhat faster rate than the prior reporting period. Several Districts cited the positive effects on the economy of increased vaccination rates and relaxed social distancing measures, while they also noted the adverse impacts of supply chain disruptions, according to the Beige Book report.