Demand for grazing land is supporting modest rise in pasture values, but cropland values holding steady

Drought conditions are causing problems in the Southern Plains and Pacific West, and, to a lesser extent, in the Midwest, according to Federal Reserve System contacts. Dry weather, particularly in California and Arizona, has prompted farmers to trim crop plantings and cut livestock herds. Drought pressure is also widespread in the Texas panhandle and parts of Iowa. In the Southeast and Northern Plains, Fed sources report that excessive moisture has delayed plantings.

Planting has progressed well overall in the Midwest and in Idaho. Both the Kansas City and Dallas Fed Districts report problems with the quality and quantity of the winter wheat crop, though winter wheat crops are generally in good condition in the St. Louis District. A fatal pig virus continues to impact hog growers across the Minneapolis and San Francisco Districts, which has helped boost hog prices. Low cattle supplies and strong demand is helping push up beef prices in the Minneapolis and Kansas City Fed regions.

Prepared by the Federal Reserve Bank of New York and based on information collected through May 23, the Beige Book summarizes comments received from businesses 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 – Contacts report that fertilizer prices remain stable, chemical prices are up slightly, and farm equipment prices have also edged up. A South Carolina farmer said that delayed planting increased field days but did not affect his crop plans. Wholesale agribusiness executives report that sales are at normal seasonal volumes.

Atlanta – Parts of the District have seen excessive rain, with flooding reports in lower Alabama and the Florida panhandle. There are some reports of crop damage and delayed planting due to excessive moisture.

Chicago – Corn and soybean planting has progressed quickly after rain and cool temperatures slowed fieldwork earlier in the spring, though planting in Michigan and Wisconsin is still lagging. Cold soil temperatures are still a concern; some contacts report that the corn crop is in good shape but that soybean emergence is behind average. Moisture levels are at least adequate for planting throughout the region, although parts of Iowa remain in drought. Corn and wheat prices fell since the April report, while soybean prices have drifted higher. Livestock prices remain well above the levels of a year ago, although hog prices have moved lower. High milk prices are encouraging dairies to expand, and high cattle prices appear to be leading to some new entrants into the livestock business. Farm machinery is readily available after several years of waiting lists for purchases.

St. Louis – As of mid-May, on average, corn planting across the region was about 81% complete and about 93% of the winter wheat crop was rated in fair or better condition.

Minneapolis – District farmers’ financial condition has continued to weaken, while livestock and dairy producers are in better shape. More than half of respondents to the Minneapolis Fed’s April Survey of Agricultural Credit Conditions said farm incomes and capital spending fell in the first three months of 2014, and about the same percentage expect it to decrease in the second quarter. A late spring and heavy early-season rains significantly delayed corn and soybean plantings throughout the District. Hog producers continue to lose large numbers of animals to porcine epidemic diarrhea virus, pushing up prices for pork, as well as poultry. Cattle producers continue to enjoy record beef prices, as overseas demand grew and efforts to rebuild the U.S. herd keep cattle from going to slaughter. Grain elevators report delays in shipping grain due to rail capacity constraints.

Kansas City – Farm income prospects for crop producers have dimmed since the last survey period, while profitability in the livestock sector has improved. Winter wheat growers are concerned that the poor condition of the crop will limit profits despite an upswing in wheat prices. Corn and soybean prices have been steady since the last survey period but remain well below year-ago levels. Spring planting has prompted increased demand for operating loans to pay for crop inputs. In contrast, profit margins for livestock operators have improved further as low cattle and hog supplies push prices higher and feed costs remain flat. Strong demand for grazing pastures is helping to support a modest rise in ranch land values, but cropland values generally are holding steady. Farm loan repayment rates have dipped below year ago-levels, and District bankers report a slight rise in carry-over debt relative to last year.

Dallas – District drought conditions have worsened further since the April report. Most of the Texas panhandle has fallen into exceptional drought, the most severe drought classification. Winter wheat crop conditions have deteriorated and growers have abandoned a relatively large share of Texas’ wheat acres, which will not be harvested this year. Cotton planting season has begun and farmers are already concerned about poor production due to the very dry soil, particularly for non-irrigated cotton. Agricultural commodity prices have stayed strong. Export sales for cotton have fell over the last six weeks in response to high cotton prices.

San Francisco – Demand for fruits, vegetables and livestock products increased, but production in agricultural industries was uneven across the District. Concerns about water costs and availability have mounted in some areas. Contacts note that drought conditions in California and Arizona have led to reduced herd sizes and decreased plantings of annual crops, including tomatoes and rice. On the other hand, farmers in Idaho anticipate adequate water supplies and have planted grains, hay, and potatoes ahead of schedule, expecting the level of plantings in 2014 to be similar to 2013. In general, dairy operations are benefiting from low feed costs. Pork production remains weak as a fatal virus continues to sweep through pig farms in some areas. ■

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