October 19, 2021

Federal Reserve survey: Agriculture conditions remain stable

CHICAGO — Economic growth downshifted slightly to a moderate pace in early July through August and reports in the agriculture sector were mixed, but on balance positive across Federal Reserve districts in the Corn Belt.

The Federal Reserve’s Beige Book summarizing the economic conditions was released Sept. 8. This document summarizes comments received from contacts outside the Federal Reserve System collected from bank and branch directors, plus interviews and online questionnaires completed by businesses, community organizations, economists, market experts and other sources.

This report was prepared at the Federal Reserve Bank of New York based on information collected on or before Aug. 30. Here are the agriculture-related comments from the Corn Belt.

Chicago

“Economic activity in the Federal Reserve Bank’s 7th District increased moderately in July and early August and contacts expected growth to continue at that pace in the coming months,” the report stated.

Although most agriculture prices were higher than a year ago, farm incomes were expected to be down in 2021 with the end of pandemic-related government support payments.

Cattle and egg prices increased during the reporting period. Milk producers faced lower margins as transportation costs rose and output prices mostly moved sideways. Contacts hoped reopening schools would boost bottled milk demand.

Hog, corn and soybean prices retreated from their recent highs. Relatively tight supplies of crops helped support corn and soybean prices. District corn and soybean harvests were expected to be near record levels, though parts of the region still faced a drought.

Concerns grew that strained logistics would lead to shortages of parts for farm equipment during harvest and clog the movement of crops to markets. Farmland values kept climbing.

The Chicago district includes the northern two-thirds of Illinois and Indiana and all of Iowa, Wisconsin and Michigan.

St. Louis

Agriculture conditions in the 8th District have remained unchanged from the previous report. Relative to early July, the percentage of corn and soybeans rated fair or better has decreased slightly while the percentage of rice increased slightly and cotton experienced no change.

Contacts indicated that both non-labor and labor costs have increased, but income is up, as well. One contact noted the drought in South America has raised grain prices. They also noted COVID-related shortages of maintenance parts.

The St. Louis Federal Reserve District includes the southern parts of Illinois and Indiana and eastern half of Missouri, as well as parts of Tennessee, Arkansas, Kentucky and Mississippi.

Minneapolis

While extreme drought conditions were taking a toll in many areas, 9th District agricultural producers continued to benefit from strong commodity prices.

Agricultural bankers indicated broadly increased farm income and spending in the second quarter, with a positive, but more moderate outlook for the third quarter.

However, livestock and dairy producers were suffering from the drought’s impact on hay availability and pasture conditions, while corn and soybean crop conditions were deteriorating.

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

Kansas City

In the 10th District agricultural economy, farm income and credit conditions continued to improve despite weakness in the cattle industry and severe drought in some areas.

Crop and hog prices remained at multi-year highs, and corn and soybean conditions were slightly better than the national average in most district states through early August. However, profit opportunities for cattle producers remained limited.

Contacts in the meat packing industry also reported that tight labor markets were slightly constraining production capacity at some facilities.

As a result of widespread drought, over 60% of pasture and range land in Wyoming was in poor or very poor condition as of early August, compared with about 30% in Colorado and New Mexico and 20% or less in all other states.

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

Tom Doran

Tom Doran

Field Editor