Lower commodity prices darken farm income outlook, says Federal Reserve

Farmers are on track to harvest some of their largest corn and soybean crops ever, but the ongoing decline in commodity prices is putting farm income in question, said the Beige Book issued by the Federal Reserve Board on Wednesday. Regional Fed banks in Chicago and Minneapolis said the farm income outlook had weakened in recent weeks, while the Kansas City Fed said agricultural conditions in its district “faced headwinds from weak crop prices.”

Meanwhile, a handful of Federal Reserve officials indicated that a cut in interest rates may soon be possible, though not before the board’s September meeting, reported Reuters. The U.S. inflation rate fell to 3% in June, its lowest level in more than three years.

In the Beige Book, released eight times a year, the 12 regional Fed banks report on economic conditions in their regions. The anecdotal reports are based on interviews with business contacts, economists, market experts, and other sources as well as on reports by the regional banks.

“Farm income expectations for the district waned in late May and June as key crop prices declined,” said the Chicago Fed. “Contacts indicated that farmers were slow to sell crops from storage and were holding back on selling ahead from their anticipated fall harvest in part because of low prices.” Market prices for corn, soybeans, and wheat were down, and hog prices faltered. Milk and egg prices were up. “Cattle prices were flat at a high level,” said the Chicago Fed.

The Minneapolis Fed said agricultural conditions had weakened since May. Ag lenders report “decreased farm incomes in the second quarter of 2024 relative to a year earlier, with expectations of further declines in the coming three months,” it said. Poultry producers were worried by outbreaks of bird flu in the region.

“The latest planting estimates and favorable growing conditions suggested corn and soybean production could be strong, factors likely to weigh on prices,” said the Kansas City Fed. “Grain stocks from last year also remained elevated in district states and across the United States, putting additional downward pressure on prices and reducing revenue opportunities.” Cattle prices remained strong in the central Plains, so financial stress was lower in cattle-producing areas and higher on row-crop farms.

The St. Louis Fed said crop conditions were stable “with high rainfall mitigating excessive heat. Contacts in agriculture equipment and services stated the slowdown in transactions relative to their peak in 2021-22 has continued.”

U.S. net farm income, a gauge of profitability, is forecast by the USDA to fall in 2024 for the second year in a row from the record set in 2022. At $116.1 billion, it would be the fourth-highest level ever and 15% above its 10-year average in nominal terms.

Agriculture conditions improved slightly in the U.S. Southeast, thanks to strong cattle, poultry, and dairy prices, said the Atlanta Fed. “Florida citrus farmers struggled as harvests were disappointing, leading to expectations of more growers leaving the market over the next year.” In the Southwest, drought has eased, and “livestock conditions were strong, with little to no supplemental feeding needed thanks to ample availability of grazing and hay, and cattle prices continued to strengthen,” said the Dallas Fed.

On the West Coast, large inventories of apples, grapes, raisins, walnuts, almonds, and frozen salmon have depressed market prices below the cost of production, said the San Francisco Fed.