The Cream of the Crop
The Atlanta Fed’s Agriculture Advisory Council convened recently for another lively discussion and, as always, we learned a great deal. While last year’s overarching agriculture story was “all about the drought,” this year’s conversations were more about “cool and wet.” Council members told stories of delayed planting or replanting, but participants acknowledged that some of that wet and cool weather contributed to good yields, although there is some frost risk for late planted/harvested crops.
Generally speaking, exports for many southeastern agriculture products are expected to increase. This includes beef, poultry, wood/biomass, grains, cotton, and rice. Members also hope for continued strong demand from China for yellow pine saw timber. We continued to hear reports of significant downside risks for cotton. Should China release its large cotton inventory onto the market, cotton prices and exports would be adversely affected.
Regarding investments, council members reported replacing equipment in the timber industry, as well as farming implements such as irrigation equipment as well as storage augmentation. As one council member said, “We are improving what we have rather than expanding.” Additionally, some farmers are replacing smaller, labor intensive equipment with larger, more modern equipment. While these acquisitions improve production efficiency, they also address difficulties in finding labor. Reports persist of paperwork burdens with the E-verify program and the high cost of housing people participating in the H2A guest-worker program.
Overall, farm product prices are down, and headline consumer price index (CPI) is trending down. The chart below shows CPI trends and the price index for all farm products over time.
Although overall farm product prices are down, some specific commodity prices are helping regional agriculture producers, especially those in the cotton, rice, beef, hog, and poultry sectors, which are all showing higher year-over-year prices. Soybeans and corn prices are trending down, although lower corn prices are good news for protein producers whose use corn for feed. Florida citrus growers continue to have problems with citrus greening, and although they believe a solution is forthcoming, the problem is not yet resolved. Meanwhile, the cost of production is higher than normal, but lower yields have resulted in higher prices for citrus products. Lumber prices, which are down from the first half of 2013, are still well above recession-era lows (see the chart).
Land rents are being actively negotiated. Landlords, seeing recent good yields, are negotiating future rents based on these higher yields. Timberland prices were reported as being flat or down, but several council members reported higher farmland prices. Increased costs tied to regulatory compliance and the impact of the Affordable Care Act were both mentioned as having ongoing negative impact on general business conditions.
Council members also discussed how agriculture has changed over time, moving away from small and midsized farms that depended on the subsidy system toward farm consolidation. As one participant said, “Two generations ago, you managed your farm with a little spiral notebook and a pencil in your front pocket. The next generation used a legal pad. Now computers and business plans are the norm.” Members noted that young people are getting degrees and are eager to join the ranks of modern farmers. Some have interests in local organic farming, but others see big agriculture changing and want to be a part of the transition.
Another topic of discussion was the growth of agritourism, which includes such realms as local sourcing, sustainable sourcing, and even destination weddings. An EconSouth article titled "Agritourism Takes Root in the Southeast" reported on this growing trend back in 2011, and it’s one that is helping farmers and rural economies tap into the region’s dynamic tourism market.
So as farmers complete fall planting, finish their harvests, and prepare for winter, we here at the Fed continue to watch, listen, and learn. While farm price and production reports remain essential in our analysis of the agriculture sector, our Agriculture Advisory Council meetings give us the breadth and depth of the story that is agriculture in the South.
As for me, I am thankful to understand a little more about how what ends up on my plate gets there. When I visit the season’s pumpkin patches and tree farms, I know I am in for a lot of fun, but I will also be looking behind the curtain to learn more about the fascinating business that is agriculture.
By Teri Gafford, a Regional Economic Information Network Director in the Atlanta Fed’s Birmingham Branch
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