California Ag Network

Tag: CoBank

  • Food and Beverage Companies Sharpen M&A Efforts to Focus on Core Strengths and Consumer Trends

    Food and beverage manufacturers are refining their merger and acquisition efforts to address strategic business imperatives and keep pace with evolving consumer demand trends. While M&A activity in the sector has slowed considerably in 2024, recent moves reflect two key themes that will likely continue when the pace of dealmaking picks up.

    According to a new report from CoBank’s Knowledge Exchange, food and beverage companies are streamlining their product portfolios by shedding brands that don’t align with their core strengths. Meanwhile, acquisitions have largely been in response to growing consumer demand for grab-and-go convenience and healthier snacking.

    “There’s a common strategic focus that underpins the majority of M&A activity in recent months,” said Billy Roberts, food & beverage economist with CoBank. “Food and beverage manufacturers are increasingly applying the 80/20 rule and devoting more attention to the 20% of their core brands and categories that account for the lion’s share of company revenue.”

    Roberts points to recent deals that exemplify the current trends driving M&A in the food sector. Recognizing its future was not in the dairy case, General Mills exited the yogurt category by selling its Yoplait, Go-Gurt and Oui brands. The move allows the company to focus on brands with better margins and more aligned with its core portfolio. Hershey’s 2023 purchase of two popcorn operations to increase production capacity for SkinnyPop reflects the company’s pursuit of consumers seeking better-for-you snack options.

    The pace of M&A activity in the food and beverage sector has trended much slower in 2024 compared to recent years. The average number of deals by quarter in the first half of the year was down nearly 40% from the 2021-23 average. However, several indicators suggest a pickup in activity. The expected interest rate cuts are poised to lower the cost of capital to finance acquisitions. Additionally, recent earnings calls have shown executives from Mondelēz International, General Mills and other CPG firms are open to M&A activity.

    “Ironically, M&A within the food and beverage space has mirrored overall CPG activity in recent years, namely lower volume and higher prices,” said Roberts. “The majority of sales growth for food and beverage brands has stemmed from price inflation. As that eases, companies are feeling the pressure to return to profitable volume-led growth.”

    Acquisitions are reducing some of the pressure on major manufacturers’ R&D departments to innovate. Several recent acquisitions have been of a smaller variety and that trend is likely to continue. Roberts said manufacturers at the smaller end of the spectrum, regardless of food or beverage category, could find opportunities with larger companies looking to acquire innovative products.

    Read the report, Food and Beverage Companies Sharpen M&A Efforts.

    About CoBank

    CoBank is a cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 77,000 farmers, ranchers and other rural borrowers in 23 states around the country.

    CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.

  • U.S. Dairy Replacement Heifer Numbers Fall to a 20-Year Low

    The increasing cost of raising heifer calves has prompted a steep decline in dairy replacements. California Dairy Editor Matthew Malcolm recently met with Corey Geiger, Lead Dairy Economist from CoBank, to discuss the impact of these trends and opportunities for dairy producers.  Watch this brief interview, and read more in California Dairy Magazine.

    Please thank this video’s sponsor afimilk for their industry support.

  • Record Demand for Butterfat in Dairy Expected to Continue

    At the World Ag Expo, California Dairy Editor Matthew Malcolm met with Corey Geiger, Lead Dairy Economist from CoBank, to get the inside scoop on record growth trends in demand for butterfat in dairy and what this means for California dairy producers.  Watch this brief interview, and read more in California Dairy Magazine.

    Please thank this video’s sponsor afimilk for their industry support.

  • Nuanced Market Dynamics Will Complicate Pace of Rural Broadband Consolidation

    The rural broadband industry has been a major focus for investors, private equity sponsors and government across federal and state levels in recent years. That heightened level of interest and investment has led to an unprecedented amount of private and public capital flowing to rural America to build or expand broadband network infrastructure. Private investors, attracted by the favorable economics of the broadband service business model, are aiming to capitalize on the opportunity to tap underserved markets.

    While merger and acquisition activity in the rural broadband market has slowed due to high interest rates and other economic headwinds, further consolidation within the industry is expected in the years ahead. However, the degree and pace of rural broadband consolidation is not likely to match what has played out in the cable and wireless industries over the last few decades.

    According to a new report from CoBank’s Knowledge Exchange, several forces are driving broadband consolation, including the need for greater scale, investor interest in owning broadband assets and potential M&A interest from large cable operators struggling to grow their broadband base. But the fragmented nature of the market is likely to limit the rate and scope of industry consolidation.

    “Rural broadband consolidation will probably look different than other industries where M&A is largely a function of horizontal integration,” said Jeff Johnston, lead communications economist with CoBank. “The industry is heavily fragmented with thousands of uniquely structured operators offering either fiber, digital subscriber lines, coaxial solutions and more recently, fixed wireless carriers. Typically, this level of fragmentation leads to consolidation only when growth starts to slow, or scale becomes a bigger priority.”

    Independent rural broadband operators have their own unique mission, service territory and business case, which means many will not be M&A candidates. Some of these operators will get overbuilt with fiber from larger players and will struggle to survive. Others operating in high-cost, remote areas may not be attractive assets for an investor or another company to own. And cooperatively-owned operators, which have been formed to serve a specific need and are likely the only provider in the area, have historically been hesitant to sell.

    But given the sheer number of broadband operators and the coverage holes that are being addressed with new fiber networks, it is probable many operators in attractive markets may be considered M&A candidates.

    Institutional investors have been one of the driving forces behind broadband industry M&A over the last five years and will play an important role in future consolidation activity. During the most recent period, investors drove EBITDA valuations higher than most industry participants thought they would ever go.

    However, the ensuing inflationary pressures, labor shortages and higher interest rates all negatively impacted investors’ ability to upgrade networks and turn over their portfolio. Those unforeseen circumstances have impacted investors’ return on investment and will likely cast a cloud over M&A until costs and timelines begin to normalize.

    “Further consolidation will take time to play out, but it does seem to be a question of when, not if,” said Johnston. “It’s also a question of how much. Either way, a broadband operator in rural America providing a reliable service will continue to be an increasingly valuable asset to the future of its community. The pandemic clearly illustrated the vulnerabilities of those without reliable broadband service and AI will be another powerful reminder.”

    Watch a video synopsis and read the report, Shifting Signals Create Uncertainty for Rural Broadband Consolidation.

    About CoBank

    CoBank is a cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 77,000 farmers, ranchers and other rural borrowers in 23 states around the country.

    CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.

  • Slowdown in Consumer Spending will Create Headwinds for the U.S. Rural Economy in 2024

    The U.S. economy has remained remarkably steady despite an unrelenting series of shocks over the last three years. America’s economic resilience was again on display throughout 2023, as the Federal Reserve continued the most aggressive round of interest rate hikes the country has seen in more than 40 years. Steadfast consumer spending has fueled the economy through much of the recent adversity. However, lingering high prices are expected to take a bigger toll on the economy in 2024, according to a comprehensive year-ahead outlook report from CoBank’s Knowledge Exchange.

    “By conventional measures, the U.S. economy is doing quite well,” said Rob Fox, director of CoBank’s Knowledge Exchange. “But consumers are increasingly feeling the pinch of higher prices for food, housing and other essential goods. People have anchored mental expectations about what prices should be and those anchors take a long time to move. Consumers are beginning to realize some prices aren’t going back to where they were three years ago and changing their purchasing behaviors to reduce spending. That will create stronger headwinds for the U.S. economy in 2024.”

    The CoBank 2024 outlook report examines several key factors that will shape agriculture and market sectors that serve rural communities throughout the U.S.

    Global Economy: Growth Rates Will Fall in the Era of Deglobalization

    The decades-long era of free trade agreements was a rousing success for global economies. Since 1990, global trade has increased more than 400% and global GDP has increased by 500%. During the heyday of free trade (2000-2018), global GDP grew at an average of 5.4% annually. But those days are over as the ideological pendulum has swung towards economic protectionism and political isolationism. Global growth in 2023 is estimated at around 2.5% and the consensus is for a continued slowdown in 2024. China’s economic growth rate has leveled off considerably. Business plans must account for the reality of permanently slower global economic growth moving forward.

    U.S. Economy: Consumer Sentiment More Important than Economic Data

    Key indicators point to the strength of the U.S. economy. Headline inflation has plummeted to 3.1%, the unemployment rate remains below 4% and inflation-adjusted wages are growing. However, large swaths of U.S. consumers remain anxious about their financial situations given high grocery prices, skyrocketing mortgage rates and other inflationary pressures. While grocery inflation is currently running at about 2%, the price of food at home has risen by 25% in the past three years. Consumer spending makes up almost 70% of the economy and consumers who are worried or angry will hold back on discretionary spending. Inflation-adjusted retail spending has fallen in 10 of the past 12 months, a trend that could carry into 2024.

    U.S. Government: Vital Funding Bills Await Dysfunctional Congress

    The difficulties of governing with slim majorities in both the House and Senate are in clear focus as 2024 draws near. While the House was ultimately able to pass a Continuing Resolution (CR) three days before a shutdown deadline, none of the 12 annual appropriations bills have been enacted. Until Congress can complete its work appropriating discretionary funding, little progress can be made on other major legislation like the Farm Bill. For rural America, there was a silver lining in the CR as it extended the current Farm Bill through Sept. 30, 2024. However, many reasons favor completing the new Farm Bill sooner rather than later. Cooperation will become increasingly difficult as the next election cycle begins.

    U.S. Agricultural Economy: High Costs Spell Lackluster Profitability for Farm Incomes

    Higher interest rates, a strong U.S. dollar and resiliency of the U.S. economy have weighed heavily on agricultural commodity prices. But the biggest problem for farm margins heading into 2024 is the elevated cost of production. While fertilizer prices have fallen, other costs of production remain stubbornly high. However, ag commodities will benefit from more upside price risk than down in 2024. Global grain and oilseed stock inventories are tight by historic measures and the northern hemisphere will likely have a strong El Nino weather pattern during the growing season for the first time since 2015. The dollar should continue its recent decline and global demand should return to its long-term growth trend.

    Grains, Farm Supply & Biofuels: Renewable Diesel Will Shift More Acres to Soybeans

    The renewable diesel boom and the smaller U.S. soybean harvest of 2023 will drive an expansion of soybean acreage in 2024, reducing acres available for other crops. The biofuel sector at large carries the momentum of historically large profit margins into the new year. Both ethanol producers and soybean crushers are benefiting from rising demand for biofuels. The grain and oilseed price outlook hinges largely on the value of the U.S. dollar, conditions of wheat in Russia and harvests of corn and soybeans in South America. Current 2024 futures prices suggest further price erosion across the sector in 2024.

    Animal Protein: Input Costs Temper Expansion Plans, Production Growth 

    Profitability for the U.S. livestock sector should improve modestly in 2024, as lower feed costs and steadfast domestic demand offset weak global export conditions. Beef packers will continue to struggle with shrinking supplies of available cattle. Tighter cattle numbers, flat pork supplies and dampened broiler availability would normally be seen as supportive to margins, but all segments have been fighting rising costs of production. With expansion plans on hold due to the high-cost environment, the industry’s focus on efficiency and technology is expected to intensify and risk management will remain paramount. U.S. animal protein will remain competitive in global markets but open access to markets remains critical.

    Dairy: Growth Will Continue, Exports Remain a Wild Card

    The upside potential for dairy demand faces some uncertainty moving into the new year. Dairy product sales should grow, led by cheese, butter and yogurt. However, that growth will be at a slightly slower pace as U.S. consumers will be pressured by reduced household savings, growing credit card debt and higher interest rates. Ultimately, the wild card is international demand as the world’s growing middle class craves more high-quality proteins. If global dairy demand picks up, the U.S. is poised to fill orders as the other major dairy export regions all show signs of static milk production growth. Lower feed costs and improved cow productivity should spur additional U.S. milk production.

    Food & Beverage: Consumers Seek Value Amid Elevated Prices

    Food and beverage companies’ financial performance has largely relied on price increases at the expense of volume sales over the last year. That approach is rapidly running out of road, and the limits of price elasticity will slow further increases. But elevated prices will continue to impact consumer shopping behavior, even amid pockets of deflation in certain categories and expectations of lower prices in other grocery goods in the coming year. Cost-saving behaviors including purchasing from lower-cost retailers, trading down to private label brands and value shopping are likely to linger. Modest volume growth in food and beverage is likely as several factors are improving, including inflation.

    Power & Energy: Global Discord Underscores Need for Energy Security

    Global conflicts and geopolitical discord spanning the Middle East and Eastern Europe create significant uncertainty for commodity markets and energy prices. Complicating matters further, global suppliers are reconciling the prospect of an accelerated energy transition with the realities of today’s fossil fuel-dependent economies. Nevertheless, oil prices have fallen by 5% in the fourth quarter as the economy slows and inventories rise. But it is unlikely the current market calm will persist. The World Bank asserted that if conflict-driven market disruptions escalate, oil prices could potentially blow past $150 per barrel in 2024.

    Communications: Despite Tailwinds, Broadband Buildouts Face Obstacles

    The broadband market will continue to be a bright spot for the U.S. economy in 2024. The amount of public and private investment flowing into the industry is unprecedented as the era of digitization continues. However, telecom operators face several obstacles to executing their network buildout plans on time and on budget. The challenges include navigating the tight labor market, tightening credit conditions and managing through the permitting process, which has proven to be a bottleneck for fiber builds. The combination of low unemployment and a significant amount of network build work scheduled for 2024 means many contractors are already booked 6 to 12 months out.

    Read the full report, The Year Ahead: Forces That Will Shape the U.S. Rural Economy in 2024.

    About CoBank

    CoBank is a cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 76,000 farmers, ranchers and other rural borrowers in 23 states around the country.

    CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.

  • Food Deserts in Rural America Expose Need for Broader Distribution Strategies

    Food insecurity remains prevalent in the U.S. with sparsely-populated rural areas often being disproportionally affected. Rural communities comprise 63% of all U.S. counties but 87% of counties with the highest food insecurity rates. The primary challenge for rural residents is the prevalence of low-access food deserts, where the distance to supermarkets impedes the ability of consumers to access a wide range of food and beverage options.

    According to a new report from CoBank’s Knowledge Exchange, the sheer volume of consumers experiencing food insecurity due to poor access represents a potential market opportunity for food manufacturers. Serving these customers through direct-to-consumer ecommerce platforms or direct delivery could be a relatively easy and profitable means to improve their food options.

    “A sizable portion of the country falls within the realm of a food desert and with 10% of the U.S. population experiencing some degree of food insecurity, the market is there,” said Billy Roberts, senior food and beverage economist for CoBank. “Innovation in the areas of driverless and drone delivery could ultimately provide food and beverage companies even more opportunities to establish direct relationships with underserved rural consumers.”

    U.S. Census Bureau data indicates that 27 million Americans suffered from food insecurity as of July 2023. Feeding America estimates the number of food insecure is closer to 34 million.

    Dozens of rural counties have no food store options. Walmart is the largest food retailer in the U.S. but there are considerable gaps in its market penetration. Population density suggests many of the food deserts in less-populated areas of the country simply do not have the consumer base to support a full-size grocery store.

    Research from The Brookings Institution finds 93% of the U.S. population—including 90% of people living in food deserts—has access to food delivery from at least one of four major players: Amazon, Instacart, Uber Eats or Walmart. However, only 37% of rural residents within limited-access food deserts have access to the major food delivery services. Significant barriers remain for these communities, often including the lack of reliable broadband connectivity.

    Convenience and dollar stores have increasingly focused on foods, improving access in some rural communities. However, low margins may be an obstacle to their continued growth in food sales. Dollar Tree recently pared down its profit expectations, citing an increase in low-margin purchases such as food, as well as issues with shrink and fuel costs.

    Roberts said agribusinesses and food manufacturers looking to establish a more direct line to their consumers may well consider adopting tactics seen during the height of the pandemic. “Farmers in rural America expanded their own delivery capabilities to meet consumer demand that stemmed from empty grocery store shelves or consumers efforts to isolate themselves,” he said.

    For shelf-stable food and beverage, delivery mechanisms exist even if it takes the form of FedEx, UPS or USPS. Fresh food offerings present another challenge altogether. But direct-to-consumer approaches will become more viable as delivery technologies improve. Food and beverage manufacturers could incorporate those technologies and establish their brands as part of rural consumers’ ensconced ordering procedures.

    Read the report, How Delivery Innovation Can Reduce Hunger in the Heartland.

    About CoBank

    CoBank is a cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 76,000 farmers, ranchers and other rural borrowers in 23 states around the country.

    CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.

  • Fresno Madera Farm Credit and CoBank Announce $30,000 Donation to Central California Food Bank

    Fresno Madera Farm Credit and CoBank have jointly announced a $30,000 donation to Central California Food Bank’s Feeding Families Fund Drive. The donation will provide over 180,000 meals to rural residents of Central California, many of whom have limited access to full-service grocery stores and have been severely impacted by the rising cost of food.

    “With the challenge of rising food costs, we greatly appreciate the support from businesses like Fresno Madera Farm Credit as we work to feed more than 300,000 people per month,” said Kym Dildine, co-CEO for Central California Food Bank. “Thanks to this generous contribution, we can continue addressing the growing demand for food access in Central California.”

    The $30,000 donation was made possible by a matched donation from CoBank, Fresno Madera Farm Credit’s funding bank, which matched its $15,000 local contribution.

    “Fresno Madera Farm Credit’s partnership with the Central California Food Bank reflects our shared commitment to making a positive impact in Central Valley communities,” said Claire Trudo, senior relationship manager in CoBank’s Farm Credit Banking Group. “We are proud to support Fresno Madera’s unwavering commitment to Central California Food Banks’ mission.

    Fresno Madera Farm Credit timed its donation to coincide with the Feeding Families Fund Drive, which offered a 50% match from GAR Bennett for all contributions. The staff at Fresno Madera Farm Credit also volunteered Friday to help the food bank collect donations outside The Market grocery store on Herndon and West, resulting in a one-day total of over $614,000 with the GAR Bennett match.

    “There are many ways we can all support the communities in our area – we’ve always understood that addressing food insecurity is one of the best ways to fulfill this responsibility – so, we take great pride in our nine-year partnership with the Central California Food Bank,” said Fresno Madera Farm Credit CEO Keith Hesterberg. “Inflation and high interest rates have created challenges for everyone in our community and we appreciate the leadership role the food bank has played in creating visibility around food insecurity and how we can all have an impact.”

    About Fresno Madera Farm Credit:

    Founded in 1917, Fresno Madera Farm Credit is a farmer-owned cooperative and a proud member of the national Farm Credit System.  Located in one of the most productive agricultural areas in the world, FMFC provides credit and financial services to farmers, ranchers, and agribusinesses that grow, process, and market over 350 commodities that are shipped all over the United States, and the world. For more information about FMFC please visit fmfarmcredit.com, and for more information about the Farm Credit System, visit www.farmcredit.com.

    About CoBank:

    CoBank is a cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 76,000 farmers, ranchers, and other rural borrowers in 23 states around the country. CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure, and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S., and also maintains an international representative office in Singapore.

  • Beef on Dairy Brings New Value to the Marketplace

    The U.S. beef cow herd reached its lowest level in decades this summer as prolonged drought conditions in major cattle producing regions led producers to aggressively cull their herds. The sharp reduction in beef cow numbers will tighten supplies for years to come, while consumer demand for beef has remained remarkably consistent despite elevated retail prices.

    The contracting beef herd has led to higher dairy bull calf prices and may compel more dairy producers to leverage beef breed genetics in their reproduction programs and capture an additional revenue stream in the process, according to a new report from CoBank’s Knowledge Exchange.

    “We expect the adoption of beef genetics in dairy breeding programs will accelerate as producers capitalize on the opportunity for improved margins, particularly given the reduction in beef calf availability,” said Brian Earnest, lead animal protein economist for CoBank. “And while the impact on the overall beef supply will be relatively small, an increase in beef and dairy crossbred calves entering the beef supply chain is something cattle feeders and packers will want to keep an eye on.”

    The practice of leveraging beef genetics in dairy reproductive programs, commonly referred to as “beef on dairy” within the industry, has steadily increased in recent years. On average, day-old beef and dairy crossbred calves entering the beef supply chain sell for $100-$300 more than their 100% dairy-bred counterparts.

    Increased adoption of beef on dairy crossbreeding will primarily benefit dairy producers, but other sectors of the beef supply chain stand to benefit as well. Animal genetics companies that provide beef semen for artificial insemination of dairy cows can expect continued sales growth.

    According to the National Association of Animal Breeders’ Semen Sales Report, U.S. beef semen sales from 2017 to 2022 increased at a rate nearly equal to the rate that U.S. dairy semen sales decreased. The data suggests rising beef semen sales are largely attributable to increased purchases by dairy operators.

    The benefits from beef on dairy crossbreeding become more complex as calves enter the feedlot. Cattle feeders that are currently set up to handle 100% dairy cattle may see increased feed efficiencies for crossbred calves and would likely be more willing to pay the premium price for beef on dairy genetics.

    Industry experts suggest feed efficiency gains in beef and dairy crossbred calves can be highly variable. A University of Wisconsin extension report notes that is why some feedlots are taking a direct approach with dairies to acquire more consistent crossbred calves by offering purchase programs for beef on dairy calves. These programs typically require dairy producers use genetics selected or provided by the feedlot, as well as follow specific animal health protocols.

    The investment in those feedlot programs can ultimately pay off.  Data from the USDA-Cattle Contracts library shows beef on dairy cattle are worth increasingly more at harvest compared to straight-bred dairy cattle. And in addition to facing fewer discounts than straight-bred dairy cattle, crossbred cattle can garner an average premium of $5.44/cwt. if they meet the 10 requirements for Certified Angus Beef.

    Like feedlots, packers already processing dairy cattle or lower quality 100% beef cattle will see a benefit in processing beef and dairy crossbreds, which generally have a better dressing percentage. However, for packers that process high-quality, 100% beef cattle, the benefits are less clear. Standard grading mechanisms may not be sufficiently sophisticated to properly value beef on dairy cattle.

    Read the report, Breeding Beef with Dairy Brings New Value to Marketplace.

    About CoBank

    CoBank is a cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 76,000 farmers, ranchers and other rural borrowers in 23 states around the country.

    CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.

  • India’s Rice Export Ban: Short-Term Benefit, Long-Term Challenge for U.S. Rice

    U.S. rice producers and exporters stand to benefit from India’s recent decision to ban exports of white rice, as global demand for U.S. rice is expected to rise. Increased demand will temporarily lift prices for U.S. rice producers and the industry is well-positioned to meet higher demand for exports. However, the short-term benefits of India’s rice export ban will give way to the longer-term consequence of an oversupplied global market and severe price correction when the ban is ultimately reversed.

    According to a new research brief from CoBank’s Knowledge Exchange, higher global rice prices resulting from India’s export ban will prompt other countries to expand rice production, increasing global supplies. When India’s ban is reversed, presumably after the country’s elections next May, the growing rice surplus in India will be dumped on the export market and world rice prices will over-correct from the sudden flood in supply.

    “The good news is that the ban will benefit U.S. rice producers with stronger export demand, particularly from Iraq and possibly the Caribbean, as well as Central and South America,” said Tanner Ehmke, lead grains and oilseeds economist for CoBank. “Unfortunately, a prolonged period of abnormally depressed rice prices and lower incomes among rice farmers, including in the U.S., will likely follow the reversal of India’s rice export ban.”

    India’s government imposed a ban on non-basmati rice exports on July 20 following a jump in food inflation in June and erratic weather that negatively impacted the country’s spring-planted rice crop. The move was made to contain rising domestic rice prices amid higher overall food costs, geopolitical risk in the Black Sea raising wheat prices and the threat of El Nino diminishing Indian rice harvests.

    The threat of reduced global rice supplies sent India’s top importers across Asia, West Africa and the Middle East scrambling to secure supplies in anticipation of global shortages. Prices of white 5% broken rice in Thailand, the second largest rice exporter with about 13% of global market share, have climbed 18% since the Indian export ban was imposed. Should other rice-exporting countries also restrict exports, world rice prices including in the U.S. would become extremely volatile.

    So far, U.S. rough rice prices on the Chicago Mercantile Exchange have been virtually unchanged relative to other global exporters like Thailand since India’s export ban was imposed. However, the U.S. likely will see new demand emerge to backfill into markets that are more price-sensitive to higher Asian rice prices.

    The U.S. will be well-positioned to meet higher export demand with all-rice production expected to reach 203.6 million cwt., a year-over-year increase of 26.9%, according to USDA. Potential new export business that emerges because of the ban will most likely be for long-grain rice, which is projected at 146.8 million cwt., up 14.5% year-over-year. Longer term, the U.S. rice industry should prepare for a period of heightened market volatility.

    Read the research brief, India Rice Ban Will Benefit U.S. Rice Exports, Increase Market Volatility.

    About CoBank

    CoBank is a cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 76,000 farmers, ranchers and other rural borrowers in 23 states around the country.

    CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.

  • Depressed Hog Values Amid Sky-High Production Costs Compound Producers’ Challenges

    U.S. pork producers are facing an increasingly challenging economic environment that is likely to persist through the remainder of 2023. The combination of elevated operating costs and depressed hog values are evaporating producer returns and limiting overall industry growth. While hog prices have risen this summer, they have not kept pace with skyrocketing costs for feed, labor, construction and other expenses, according to a new report from CoBank’s Knowledge Exchange.

    Soft domestic demand for pork and a murky outlook for U.S. pork exports are compounding the market challenges. Persistently high retail pork prices and a decline in food-at-home spending in the U.S. are limiting domestic consumption growth. Globally, demand for U.S. pork has come under pressure as China’s hog supplies have rebounded from the outbreak of African swine fever (ASF). The totality of adverse market conditions, which include higher borrowing costs, will limit U.S. herd expansion and tighten hog supplies.

    “Ultimately, these challenges all fall on the shoulders of pork producers,” said Brian Earnest, lead animal protein economist for CoBank. “In addition to pressuring hog and pork supplies, the current market conditions are derailing hog producers’ expansion plans. And even if the cost structure warranted additional production, demand is a part of the puzzle that needs addressing.”

    Per capita U.S. pork consumption has remained essentially flat since 1990 and averaged 50 pounds annually over the last decade. In the meantime, chicken consumption nearly doubled from 57 pounds in 1987 to 102 pounds. in 2022. Roughly two-thirds of domestic pork winds up in processed items like bacon, sausage or hams, which have performed relatively well in recent years. However, key meat case items like pork loins are struggling to gain the same attraction that boneless skinless breast meat or ground beef enjoy.

    Outside of bacon, pizza toppings and breakfast-type items, pork is usually consumed at home. And pork thrived during the pandemic-era lockdowns of 2020-2021, when food options were either take-out or at home cooking. But as food service has fully reopened in 2022-2023, moving retail case pork items has become more challenging.

    Exports have long played a key role in the U.S. pork industry. Approximately 25% of U.S. pork goes to export markets, the most of any of the U.S. processed animal proteins. When ASF decimated China’s domestic hog herd in 2018, annual U.S. pork exports to China tripled in 2019, and then doubled the following year. Since then, China’s need for U.S. pork imports have rapidly declined as its domestic herd rebounded.

    Fortunately, Mexico has been a bright spot for U.S. pork. Exports to Mexico eclipsed 2.3 billion pounds in 2022, a record high for any single destination that accounted for about 37% of all U.S. pork exports. And today’s export volume to Mexico represents a 45% jump from 2016 levels. Nonetheless, uncertainty surrounding China, the world’s largest pork importer, and concerns about deteriorating global economic conditions cloud the outlook for U.S. exports.

    “Some of the challenges facing pork producers will linger for the foreseeable future,” said Earnest. “But longer term, if retail pork prices begin to return to a normal level it should help domestic demand recover. Also, the popularity of backyard barbecuing has encouraged consumption of some cuts of pork that have historically struggled, which has been helpful in an otherwise difficult situation.”

    Watch a video synopsis and read the report, Pork Producer Optimism Dampened by Triple Threats.

    About CoBank

    CoBank is a cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 76,000 farmers, ranchers and other rural borrowers in 23 states around the country.

    CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.