Down on the Farm, Things May Be Looking Up -- A Little

Last week’s Beige Book report from the Federal Reserve had some modestly upbeat news for the farm industry — fuel and fertilizer costs are falling, and that’s making it easier for growers to get financing.

Still, problems remain, particularly for Midwest livestock producers, who are faced with weak demand and low prices, and in California, water shortages remain a problem.

First, the good news: It’s been a wet spring for most of the country. The southern Atlantic coast states got enough rain and even snow in March to make up deficits from last year’s drought, the Fed said.

Falling prices for oil are improving profit margins for farmers across the country. Not only do farmers use gasoline and diesel to power their machinery, much of the pesticides and fertilizers they used are derived from either petroleum or natural gas.

In some districts, those drops in input costs are making banks more-willing to loan to farmers, who typically need short-term loans to cover their spring planting costs.

And while California’s continuing drought means fewer acres are being planted this year, prices for fruits, vegetables and livestock produced in the West have remained steady, according to the Fed’s San Francisco branch governors. In addition, “food manufacturers saw further sales gains and continued to operate at high levels of capacity utilization,” they reported.

Now the bad news: Market conditions are still weak in much of the country.

Weak demand continues to plague Atlanta and the Southeast, which saw exports plummet during the first quarter, in large part due to the salmonella scare in the peanut industry.

The dairy market is “ugly,” the Fed’s Chicago district governors report. Low milk prices there have triggered federal subsidies in Illinois and surrounding states. The same is true in Texas and Oklahoma, where the Fed says dairy farmers are no longer breaking even.

Across the lower Midwest, livestock producers are struggling with drought conditions. Aside from the fact that animals need water to drink, the lack of rainfall means there’s less grass in pastures, which forces ranchers to buy more feed for their cattle. And since less rain means there’s less hay too, the price of that feed is climbing. As a result, many producers are culling their herds, the Fed reports from Dallas.

From Kansas, the Fed governors report that falling prices has led farmers to cut spending on equipment, which has implications for companies like John Deere and Caterpillar.

And while the wet weather in most areas has generally been good for growers, it also means that it’s been too wet for many of them to get out in the fields. Several districts report that planting is running late this spring. On the other hand, cotton planting in Texas is running behind schedule because fields are too dry.

There will be some significant shifts in acreage devoted to different crops. In Illinois and Indiana, growers are ditching corn in favor of soybeans. In Missouri, on the other hand, winter wheat acreage fell 35 percent, with more farmers planning to plant corn and rice. Sorghum acreage should also fall, several districts reported.

In the upper Midwest, farmers are cutting back on acreage for all grains and switching to sugar beats, in hopes of catching higher sugar prices. And in growers in parts of the Midwest continue to sit on significant portions of last fall’s harvest — particularly their corn and soybeans — in hopes of better prices.