As Harvest Gets Underway, Signs of Financial Strain Emerge in Key Crop Production Regions

Despite extensive damage to crops from record rainfall earlier this year in the southern Midwest and northern Mid-South and uneven conditions in the Midwest and Lake states, anticipated yields are up for corn and soybeans.

U.S. Federal Reserve System Districts

Lower farm income forecasts and expectations that grain prices may not improve significantly due to growing supplies, are raising caution flags in some key cropping regions. The Kansas City Fed reports signs of financial strain in Nebraska and other regions most dependent on crop production as prices have fallen, credit conditions worsened and cropland values softened. Similarly, capital spending and demand for farm equipment fell in Minneapolis, while Dallas District farmers managed costs in the face of low expected revenues. Isolated severe drought conditions developed in the Atlanta and Minneapolis Districts, and San Francisco reports serious concerns about drought and inadequate water resources affecting future harvests.

Prepared at the Federal Reserve Bank of Boston and based on information collected through August 24, 2015, the Beige Book summarizes comments received from business and other outside contacts.

The following is a Fed region-by-region summary of farm sector economic conditions, starting in the Mid-Atlantic and moving west:

Richmond - Conditions have improved modestly in recent weeks. Corn harvesting is underway, although some crop yields in North Carolina are low due to dry weather conditions earlier in the season. Sod sales have increased since early July. Commodity prices remain low, while corn prices fell further. Input prices remain unchanged.

Atlanta - Areas affected by drought conditions expanded in the southeast since the last report. Most drought-affected areas were categorized as abnormally dry to moderate, but parts of southeastern Florida experienced severe to extreme drought conditions. All District states forecast lower cotton production than last year. Conversely, soybean and peanut production forecasts show a net production increase. The USDA reports year-over-year cropland values increasing everywhere in the District except Alabama which reported no price change. Pasture values rose in most states, but declined 1.9% in Georgia, and weakened modestly in Florida. 

Chicago - The condition of the corn and soybean crops is uneven across the Midwest, with record yields possible in some areas and low yields likely in others. Nationally, yield expectations moved higher, contributing to lower corn and soybean prices. Corn and soybean producers who locked in prices during the rally earlier in the summer should be able to break even on a portion of their output, but most others likely will not cover input costs if they sell their harvest at current prices. Wheat prices have also moved lower. Hog prices have been flat, dairy prices have moved up, and cattle prices have moved down. Poultry houses have started to receive birds to replace those culled due to the influenza outbreak earlier this year, but the recovery has been slow, so egg and turkey production are expected to remain lower than normal for the rest of the year. Egg prices rose.

St. Louis - Crop conditions have deteriorated slightly for corn and soybeans but improved for cotton and rice. The share of corn and soybean crops rated in good or excellent condition declined slightly since early July. However, close to 20% of the corn and soybean crops across Illinois, Indiana, and Missouri was rated in very poor or poor condition. The outlook for many row-crop farmers remains negative as a result of lasting damage from record rainfall. As of late July, approximately 20% of the Missouri sorghum and soybean crops remained unplanted. In contrast, since early July, there has been a slight increase in the percent of the region’s cotton and rice crops rated in good or excellent condition. Most of the improvement for the region’s cotton crop is due to improved conditions in Tennessee.

Minneapolis -  Conditions have improved for most of the region’s producers since early July. The majority of corn, soybean, and spring wheat acres were listed in good or excellent condition as of mid-August; progress on the spring wheat, oats, and barley harvests is well ahead of recent years. Though most of the region remains free from drought, federal disaster aid is now available to ranchers in 15 Montana counties stricken by severe drought. Low crop prices continue to depress farm finances. Three-quarters of respondents to the Minneapolis Fed’s July survey of agricultural credit conditions say that farm incomes and capital spending decreased in the previous three months, and a similar share expect them to continue to fall in the third quarter. Prices received by farmers in June fell from a year earlier for corn, soybeans, wheat, hay, hogs, milk, and chickens; prices increased for cattle, eggs, and turkeys.

Kansas City - Farm income remains subdued, and credit conditions have weakened since the last survey period. After rebounding briefly in June, crop prices fell sharply in July and early August due to improved growing conditions and expectations of a strong fall harvest. Although loan repayment rates declined slightly compared to a year ago, bankers report only minor loan repayment problems, and very few applications for operating loans were denied. Signs of financial strain were strongest in regions most dependent on crop production, such as Nebraska, Kansas, and western Missouri. Contacts are more optimistic in Oklahoma and Colorado, where farm income is being supported by profits in the cow-calf sector. Low crop prices, however, and expectations of reduced farm income are prompting further modest declines in cropland values. Non-irrigated cropland values declined almost 3%, on average, from last year. The declines were largest in Nebraska and Missouri, while values increased modestly in Oklahoma and the Mountain States

Dallas - East Texas has gotten dry again, but overall moisture conditions remain favorable for crop production and livestock grazing. The crop harvest is underway in some areas and yields have been good overall but quite variable based on when the crops were planted and how wet the fields were at planting. The cattle sector continues to benefit from good pasture conditions, low feed costs and high selling prices, which has prompted herd rebuilding. Grain prices have moved lower over and farmers are managing costs in light of lower expected revenues.

San Francisco - Agricultural activity grew slightly over the reporting period. Drought remains a serious concern in many areas, with uneven impacts across products. Wheat and potato output has grown modestly; however, harvests for nuts, grapes, and fruit trees occurred earlier and were smaller than anticipated. Higher prices have somewhat offset lower production in regard to farm revenue, but inadequate water resources continue to pose a significant challenge to future harvests. Dairy and other livestock producers are taking advantage of the ample supply of corn to reduce overall feed prices through substitution for more expensive feed products. ■

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