Strong commodity prices are creating opportunities for U.S. farmers to profit despite the risks posed by drought and higher production costs, said the Ag Finance Update by the Kansas City Federal Reserve Bank. Farmland prices surged an average of 20 percent in the Farm Belt during the summer as buyers shrugged off sharply higher interest rates.
Farmers in the Midwest and the mid-South are paying the price for low water on the Mississippi River in the form of lower cash bids for their corn and soybeans — as much as $2 a bushel lower for soybeans, said USDA economists on Wednesday. At the same time, the cost of transporting fertilizer upriver has increased, and neither situation is likely to change before late winter.
After reaching a record high in 2022, U.S. farm exports will plateau amid a world of uncertainties, said the USDA chief economist on Tuesday. The strong dollar and slower economic growth worldwide will be a drag on exports, now forecast by USDA at $193.5 billion this fiscal year, down slightly from the estimated record of $196 billion in the fiscal year that ended on Sept. 30.
Headwinds are intensifying for the farm sector, although high commodity prices support a positive outlook for farm finances through the end of this year, said a survey of ag bankers on Thursday. Alongside increased loan volume during the summer, “interest rates rose sharply and pushed financing expenses to the highest level since 2019.”
U.S. growers reaped their second-smallest wheat crop in 20 years due to drought in the Plains, said the Agriculture Department. The smaller-than-expected harvest would delay any American role in restoring grain flows disrupted by the Russian invasion of Ukraine.
With the fall harvest getting under way, traders expect the USDA to trim its estimate of the U.S. corn crop by more than a quarter-billion bushels on Monday but to stick to its forecast of the largest soybean crop ever, at roughly 4.5 billion bushels. Dry weather in the western Corn Belt, including powerhouses Iowa and Nebraska, will lower corn production to just below 14.1 billion bushels, or 1 billion bushels less than last year, according to the average estimate from traders surveyed by wire services.
High commodity prices are the fueling a strong farm economy in the Midwest and Plains this summer, but agricultural lenders worry that higher prices for seeds, fertilizer, fuel and other inputs will put the brakes on farm income in the near term. "Lenders reported growing concerns about 2023," said the Kansas City Federal Reserve Bank, one of four regional Feds to survey bankers every three months about farm finances.
Wholesale prices rocketed by a near-record 11.3 percent for the year ending in June, said the Labor Department on Thursday, a day after it reported that consumer prices had soared 9.1 percent during same period. Food was an inflationary factor in both reports, although some analysts saw signs that the momentum for higher prices was easing.
The Agriculture Department said it would enroll more than 3.1 million acres of grasslands — the largest amount ever — in the Conservation Reserve Program this fall, underlining the transformation of the reserve into a working lands program. The CRP was created in 1985 as a cropland retirement program.
Steered by fears of recession and a clearer picture of this year’s global grain harvest, the sky-high commodity prices fueled by Russia’s invasion of Ukraine are losing momentum, analysts said on Thursday. The USDA was likely to scale back its estimates of record-high farm-gate prices for this year’s wheat and soybean crops despite the uncertainties caused by warfare in the Black Sea region.
There is little correlation between commodity prices and inflation rates, said a group of agricultural economists writing at the farmdoc daily blog. "Current high inflation rates do not necessarily signal a continuing period of high commodity prices," they said, pointing to "plateaus" when corn and soybeans cluster around long-term price averages.
Concerned by rising production costs and the longevity of sky-high commodity prices, farm-state lawmakers floated margin protection for crop growers and standby farm disaster programs on Thursday for inclusion in the 2023 farm bill. However, farm bill funding may be tight, which could limit Congress’ ability to add new features to the farm program.
Electrified by Russia's invasion of Ukraine, commodity prices are sky high, with soybean futures topping $16.80 a bushel and the USDA forecasting the highest-ever farm-gate price for wheat. But high prices for corn, wheat and soybeans are far more likely to revert to their long-term averages than mark the dawn of a new era of permanently higher prices, said five university economists on Tuesday.
Persistently strong commodity prices in the opening months of the year fueled a sharp growth in farmland values throughout the Midwest and Plains, said a Federal Reserve report on Thursday.
President Biden will announce three steps to encourage American farmers “to boost production, lower food prices, and feed the world” during a visit to a family farm in northern Illinois on Wednesday afternoon, said the White House. Action by the USDA would be a response to Russia’s invasion of Ukraine and to high inflation at home.
The UN index of food prices, already at a record high, rose by 12.5 percent in reaction to Russia's invasion of Ukraine, with world wheat prices soaring nearly 20 percent, said the Food and Agriculture Organization. Wheat prices were so high, said USDA analysts in a separate report, that consumers in sub-Saharan Africa may find it cheaper to eat rice, ordinarily the more expensive staple grain.
Prices for common elements of the U.S. diet, from poultry and dairy to fruits and vegetables, are rising at double or triple their usual rate, said the government in forecasting the highest annual food inflation rate in 14 years. The Agriculture Department said food prices would rise an average of 5 percent this year, an abrupt two-point increase from its forecast a month ago.
U.S. food prices will rise by at least 4.2 percent this year, propelled by high energy and commodity prices, said a University of Missouri think tank on Wednesday. The group’s director said the actual figure could be higher still.
U.S. farmers will pare corn plantings by 1.5 percent and modestly increase soybean acreage this spring in the face of high input costs, projected the USDA on Thursday. High yields would bring the largest corn and soybean crops ever in America and pull down season-average prices for the two most widely planted U.S. crops.