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Agricultural economic conditions weaken: Federal Reserve survey provides snapshot of regions

CHICAGO — A boots-on-the-ground look at the impact of the pandemic on economic activity was reported across Federal Reserve districts.

The Federal Reserve System’s Beige Book included information collected on or before April 6 through reports from bank directors, interviews and questionnaires completed by businesses, community contacts, economists, market experts and other sources.

“Economic activity contracted sharply and abruptly across all regions in the United States as a result of the COVID-19 pandemic. Producers of food and medical products reported a strong demand but faced both production delays, due to infection-prevention measurers and supply chain disruptions,” the report noted.

“Income prospects for the agricultural sector deteriorated substantially as the spread of the coronavirus led to a dramatic fall in many commodity prices. A large drop in ethanol prices led ethanol plants to cut production and corn consumption, which pushed corn prices lower,” according to the Seventh Federal Reserve District of Chicago survey, which includes the northern two-thirds of Illinois and Indiana and all of Iowa, Wisconsin and Michigan.

“The drop in ethanol production also reduced the availability of corn byproducts needed for nutritional balance in corn-based animal food rations. This led livestock operations to switch to soy-meal and helped support soybean prices.

“In spite of shortages of some meat products in stores, most livestock prices fell as demand from restaurants and other food service providers weakened. Milk sales declined substantially as schools closed, but egg prices spiked.

“Contacts expressed concern about the health and availability of agriculture workers, particularly for specialty crop production. Access to credit for farm operators was little changed, though loan requests increased.”

Modest Improvement

The Eighth Federal Reserve District of St. Louis reported “agricultural conditions improved modestly from the previous reporting period.”

The number of acres planted in the Eighth District for corn, cotton, rice and soybeans increased 8% compared with last year. All states in the district increased their number of acres planted as planting season in 2019 was severely affected by poor weather. Corn, rice and soybeans were planted in greater quantities compared with last year.

Southern parts of the St. Louis district have planted fewer acres of cotton and more of rice. District contacts stated that the COVID-19 pandemic has had a relatively muted effect on the agricultural sector to date.

“Several contacts reported that farmers and agricultural suppliers do not have current plans to reduce output or employment at this time. Contacts cited continued trade disputes with China, weather, commodity prices and deteriorating credit conditions as sources of uncertainty for the industry,” the Eighth District reported.

The district includes the southern parts of Illinois and Indiana and eastern half of Missouri, as well as parts of Tennessee, Arkansas, Kentucky and Mississippi.

Potential ‘Perfect Storm’

“District agricultural conditions were steady at low levels. Some contacts described the COVID-19 pandemic as a potential ‘perfect storm’ for an already struggling rural economy,” according to the Federal Reserve District of Minneapolis summary.

Early reports suggested that Ninth District farmers intended to plant less wheat and more corn and substantially more soybean acres this year.

The Minneapolis-based district includes all of Minnesota, the Dakotas and Montana, northwestern Wisconsin and all of Michigan’s Upper Peninsula.

Price Pressure

The Tenth District Federal Reserve Bank of Kansas City reported agricultural economic conditions weakened. Macroeconomic developments related to COVID-19 were expected to put downward pressure on prices for many agricultural commodities, despite sharp increases in short-term demand for retail food products.

District cattle prices declined rapidly in mid-March which reduced profit opportunities for producers. Corn prices also decreased sharply as demand declined alongside a substantial drop in ethanol production.

Credit conditions weakened modestly from the prior survey period, and while many farm lenders cited uncertainty about the extent of the impact, most expected conditions to deteriorate further in coming months.

Tenth District contacts connected to food processing and retailing reported supply chains have been well maintained despite rapid increases in demand.

The Kansas City district includes the western part of Missouri, Kansas, Nebraska, Oklahoma, Wyoming, Colorado and the northern New Mexico.

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