Further tightening in the agricultural economy

- U.S. inventories of corn, soybeans, and wheat more than doubled on average since 2013 while consumption has stagnated, says the  Kansas City Federal Reserve Bank. “The outlook for the agricultural economy has continued to become more pessimistic,” the Fed bank says. The strong dollar stifles ag exports and the bumper crops of 2015 could mean further expansion of U.S. supplies in 2016.

“These fundamentals continue to point to further tightening in the agricultural economy, both in the Tenth District and nationally, as lenders also have voiced increasing concerns about 2016 farm finances,” it says.

Commodity prices have fallen since corn, wheat, and soybeans set records in 2012 under the weight of larger harvests. “In general, farmers have adjusted capital spending in line with declines in farm income. However, household spending has been slower to adjust,” wrote Kansas City Fed economist Cortney Cowley.

In its long-term projections released last month, the USDA said corn, wheat, and soybean prices for the 2016 crops will be slightly lower than in 2015, with some improvement expected in the medium term. Commodity prices are burdened by large U.S. production – growers reaped a record 3.93 billion bushels of soybeans and the third-largest corn crop in 2015 – and a growing stockpile. USDA estimates half-a-year’s supply of wheat will be in U.S. bins when the 2016 harvest begins. Soybean stocks are forecast to double, to a six-week supply, and the corn stockpile would be the largest in a decade.

The government says net cash farm income, a measure of solvency for farmers, fell by 31% since 2013 due to lower crop and livestock prices. The 2015 figure of $93 billion was the lowest since 2009. USDA will make its first estimate of farm income for this year on February 9.

“In addition to stagnant domestic demand, softening global demand and growing competition are hampering U.S exports of agricultural products,” says the Kansas City Fed. “In fact, exports of food and kindred products, including processed meat products, have declined for 14 consecutive months. Exports of agricultural products, including bulk commodities, also have continued to decline. Exports decreased about 10%, on average, each month in 2015 compared to 2014.”

USDA estimates farm exports will total $131.5 billion this fiscal year, down $8 billion from the previous year and $20 billion from the record $152.2 billion of fiscal 2014. Canada would replace China as the top customer.

UAC Information Center by information agriculture.com