Most farmers will agree that the farm economy has been strong in the past several years and with reasonably good yields and demand-driven commodity prices, the rural sector of the US economy has provided a lot of the horsepower to keep the rest of the economy going. Pork and beef exports alone are adding a billion dollars to the economy, contributed by foreign consumers. But how has the farm economy performed regionally in the eyes of bankers? The Federal Reserve Beige Book has that answer.
The Beige Book, named because of the color of its card stock cover, is a summary of the economic activity in each of the Federal Reserve Districts. Housing, manufacturing, consumer spending, and banking are just a few of the areas that District banks report on between the meetings of the Federal Reserve’s Open Market Committee which establishes monetary policy. The latest Beige Book indicates the farm economy remains strong, but with a few warts and moles. However, agriculture is seen as a plus for the overall U.S. economy. We’ll visit the districts that report on agriculture, starting in the southeast.
Atlanta—6th Fed District: While much of the District witnessed various degrees of drought ranging from “abnormally dry” to “exceptional” in late November and December, both Georgia and Louisiana experienced the most severe conditions. Demand for cotton was flat as a result of global economic concerns and competition from synthetic fibers. Prices for cattle and hogs continued to increase because of strong foreign demand. Several regional agritourism contacts noted plans to expand next year.
Chicago—7th Fed District: Farm income for 2011 was higher than in 2010; and farmland values and cash rental rates were reported to be higher once again. After falling initially during the reporting period, corn and soybean prices rose in the last half of December. More generally, crop prices fell during the harvest period. However, most crop deliveries involved sales at pre-harvest prices, as many end users found it necessary to ensure sufficient supplies prior to the harvest. In contrast, for those who didn’t pre-sell, more of their crop ended up being put into storage. Milk and hog prices fell during the reporting period, while cattle prices increased. Still, export demand helped keep prices for both dairy and meat products higher than they were at the end of 2010. Input costs have risen for the coming planting season.
St Louis—8th Fed District: Monthly output of commercial red meat for October 2011 increased compared with September 2011 and October 2010. However, the District’s total live weight and number of young chickens slaughtered decreased between September and October 2011.
Minneapolis—9th Fed District: Growth in the agricultural sector moderated, as some commodity prices declined. Prices received by farmers for wheat, corn, hogs, and dairy products decreased in December from the previous month. Cattle, poultry, egg, dry bean, and hay prices increased in December from the previous month. Meanwhile, a partnership announced the development of a large grain-loading facility in Minnesota.
Kansas City—10th Fed District: Agricultural growing conditions improved in late November and December but farm income prospects dimmed with high input costs. Timely rains eased drought conditions in the Southern Plains. Most of the winter wheat crop emerged in good condition, though more protective snow cover was needed for the winter dormancy period. Volatile crop prices and high input costs tempered crop profit expectations for the coming year. High production costs trimmed margins for livestock operators even though strong export demand underpinned prices. Still, with historically high profits, many farmers were repaying operating loans, buying farmland and purchasing additional machinery and equipment. District contacts reported an increase in the number of farmland auctions as record high land prices enticed more landowners to sell.
Dallas—11th Fed District: The District remained largely in drought, although recent rainfalls have lessened the drought’s severity in most parts and benefitted the winter wheat crop. There is still very little grazing available, resulting in costly supplemental feeding of livestock. Demand for agricultural products receded slightly over the reporting period, although beef exports remained strong.
The Fed’s decision makers on interest rates and other monetary policy have been watching the strength of the farm economy. While it shows strength, it also shows weather-related threats to production. And while it indicates a strong export demand for livestock and meat, it also reports on high feed prices for livestock producers and the particular lack of grazing land for producers in the southern plains.