“Prospects for 2024 farm income increased slightly, though income is still expected to fall below its 2023 level,” said the Chicago Fed, describing changing conditions since the April 17 version of the Beige Book. “Corn, soybean, and wheat prices moved higher. Most livestock prices were up, though egg prices were down. Continuing concerns about the financial impact of avian influenza in cattle were offset by additional support from the federal government.”

The Dallas Fed said that “the spread of avian influenza among dairy cows remains a concern for milk supply, though it is not a food safety issue due to the pasteurization process.” With drought conditions easing, cotton production should increase this year, it said, but cotton prices “have slipped. Most other crop prices rose … while cattle prices eased off highs.”

“Conditions in the Tenth District agricultural economy softened through early May and farm finances tightened slightly,” said the Kansas City Fed. “Corn, soybean, and wheat prices increased slightly since April but remained weak, keeping profit opportunities narrow.”

The Minneapolis Fed said agricultural conditions in its district “remained weak amid some positive developments,” including a moderation in production costs. The St. Louis Fed said higher labor costs were “an additional stressor” in its region.

“Row crop farmers struggled amid low demand and excess supply, and many do not expect to turn a profit this year,” said the Atlanta Fed. “Poultry producers saw some improvement in revenues from domestic sales, attributed to reduced supply resulting from avian influenza.” Some sawmills on the West Coast closed this spring due to sluggish demand, said the San Francisco Fed.

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Analysts expect 14.2 billion bushels for the current marketing year, which is 325 million bushels less than projected in December and 1.1 billion bushels below initial projections for the 2020 crop, according to the USDA.

Corn stockpiles also are expected to fall. The USDA projects a decline of about 150 million bushels, which would lower stockpile inventory to 1.55 billion bushels. That is 1.2 billion bushels below last summer’s level. The decline was steeper than what analysts projected, according to The Wall Street Journal.

The shift in inventory led to a sharp rise in prices. On Jan. 12, corn futures rose by the maximum allowed by the Chicago Board of Trade to more than $5.17 per bushel. The price continued upward the following day.

The USDA also cut its soybean stockpile forecast and wheat stockpiles, which similarly caused those commodities to trade at their highest levels since 2014. Soybeans were above the $14 per bushel mark and wheat over $6.60 per bushel in mid-January.

Demand from China is also influencing the market. The country needs grains to rebuild hog herds after culling millions infected by African swine fever.

Source: Wall Street Journal

Some news outlets reported that the Chinese government had told major state-run agricultural companies to pause purchases of some American farm goods, including soybeans, after tensions escalated between the world’s two biggest economies over the weekend.

Those same news outlets later in the day reported that China bought at least three cargo loads of U.S. soybeans on Monday.

Even in those reports, China promised “firm countermeasures” in response to what it characterized as U.S. attempts to harm Chinese interests.

President Donald Trump said on Friday he was directing his administration to begin the process of eliminating special treatment for Hong Kong, ranging from extradition treatment to export controls, in response to China’s plans to impose new security legislation in the territory.

In response to that, initial reports from unnamed Chinese government officials were that the country would pause state purchases of large-volume U.S. corn and cotton. Those reports also said Chinese buyers had cancelled an unspecified number of pork orders from the U.S.

As the dust settles on events of the past few days, the agriculture industry is left to wonder what it might mean for the phase one trade deal.

As part of the deal, which was signed in January, China pledged to buy an additional $32 billion worth of U.S. agriculture products over two years above a baseline based on 2017 figures.

China has bought U.S. soybeans, corn, wheat and soy oil this year to fulfill its commitment under the trade deal. Beijing has also stepped up purchases of U.S. pork, after the deadly African swine fever decimated its pig herd.

The uncertainty has filtered through to the commodities markets, with China opting to buy Brazilian soy instead of American beans.

Sources: Reuters, Bloomberg