California Ag Network

Tag: CoBank

  • California Fresh Fruit Association Continues to Support Growers for Over 100 Years

    Every summer, people around the country enjoy luscious fruits like apricots, table grapes, kiwis, peaches and plums. And since California is the nation’s largest producer of each of these commodities, there’s a good chance those fruits were grown right here in the Golden State.

    Working to protect the interests of growers of these and several other permanent fruit crops is the California Fresh Fruit Association (CFFA). With roots dating back to 1921, it’s one of the oldest agricultural trade associations in California, said Courtney Razor, CFFA’s Director of Member Services and Communications.

    “CFFA is a public policy organization that advocates on behalf of 13 permanent, fresh fruit commodities, everything from blueberries to stone fruit to table grapes,” Razor said. “We advocate for our grower and shipper members at the local, state and federal levels on a vast array of issues including but not limited to labor, water, trade and food safety.”

    Statewide, the association has about 350 members from Lake County to the Coachella Valley, with the bulk of operations clustered between Madera and Kern counties.

    Keith Hesterberg, President and CEO of Fresno Madera Farm Credit, said without CFFA members, consumers would have much less fresh fruit.

    “According to state statistics, California growers lead the nation in the production of apricots, figs, table grapes, kiwis, nectarines, peaches, persimmons, plums and pomegranates – and second nationally in blueberries and cherries,” Hesterberg said. “In fact, the state is basically the sole source of American production of kiwis, nectarines, clingstone peaches and plums. Farm Credit is proud to support many different commodities like fresh fruit that are such important parts of California agriculture.”

    Farm Credit Alliance members AgWest Farm Credit, American AgCredit, CoBank and Fresno Madera Farm Credit are proud supporters of CFFA. The organizations are part of the nationwide Farm Credit System – the largest provider of credit to U.S. agriculture.

    Razor said water supply and implementation of the state’s groundwater management system were key priorities, even in this extremely wet water year.

    On the labor front, CFFA members were disappointed in the passage of AB 2183 last year, which permits so-called “card check” voting for union representation instead of secret-ballot elections that allow workers to vote without fear of coercion. She said the association has been working with other ag organizations to educate members about how to comply with the new requirements. The group is also supportive of technological research and mechanization with the goal of making farm practices more efficient.

    She credits the Association for rising to the occasion during the COVID-19 pandemic to ensure CFFA members and their employees had access to personal protective equipment and vaccinations so growers could provide safe working environments and ensure fruit could be harvested and transported to consumers.

    Razor also thanked Farm Credit for its sponsorship of CFFA’s 87th Annual Meeting, which was held in March this year at The Lodge at Torrey Pines near San Diego.

    “The California Fresh Fruit Association is extremely grateful to Farm Credit for their continued partnership and support in helping us make the event a success each year. At our 2023 Annual Meeting, we had 225 members in attendance who heard from keynote speakers about priorities taking place this year at the state Capitol and in Washington, D.C. as lawmakers begin preparations for the Farm Bill,” she said.

    Mark Littlefield, President and CEO of AgWest Farm Credit, said supporting organizations advocating for California agriculture is an important priority for Farm Credit’s philanthropical efforts.

    “The issues CFFA works on are absolutely critical to the success of our state’s fruit growers – indeed, all of California’s farmers and ranchers,” Littlefield said. “Without water, a labor force and the ability to export crops overseas, the industry that feeds the nation and the world could not exist, which is why it’s so important that CFFA and other advocacy organizations do such a great job of educating policymakers here in California and in Washington, D.C.”

    About Farm Credit: 

    AgWest Farm Credit, American AgCredit, CoBank and Fresno Madera Farm Credit are cooperatively owned lending institutions providing agriculture and rural communities with a dependable source of credit. For more than 100 years, the Farm Credit System has specialized in financing farmers, ranchers, farmer-owned cooperatives, rural utilities and agribusinesses. Farm Credit offers a broad range of loan products and financial services, including long-term real estate loans, operating lines of credit, equipment and facility loans, cash management and appraisal and leasing services…everything a “growing” business needs. For a link to this article and for more information, visit www.farmcreditalliance.com.

    About the California Fresh Fruit Association:

    The California Fresh Fruit Association is a voluntary public policy organization that represents growers, packers, and shippers of the California table grape, blueberry, kiwi, pomegranate, and deciduous tree fruit communities. CFFA serves as a representative for these growers, shippers, and packers, on issues at both the state and federal levels. More information on the Association can be found at www.cafreshfruit.com.

  • U.S. Economic Slowdown Likely Ahead as Monetary Policy Actions Begin to Take Effect

    The U.S. economy continues to defy gravity and remains strong despite lingering inflationary pressures, higher borrowing costs and a barrage of other headwinds. Consumers continue to spend aggressively on services, businesses are still investing and the labor market remains incredibly strong. Secure jobs are the most important element in consumer spending and well-employed Americans have powered the economic recovery for three years.

    However, looming risks to the economy are increasing in number and size. According to a new quarterly report from CoBank’s Knowledge Exchange, the full impact of monetary policy actions—raising interest rates, quantitative easing and contracting the money supply—have yet to be felt. Those policy actions, combined with depleted consumer savings, tighter commercial bank lending standards and the persistently inverted yield curve are likely to result in a mild recession by the fourth quarter of 2023.

    “There is still a lot of wind at the back of this economy and we don’t believe a severe contraction is coming,” said Dan Kowalski, vice president of CoBank’s Knowledge Exchange. “But we do believe it is important to not misinterpret delayed impacts for minimal impacts. Monetary effects can be slow in developing, and history tells us that the economy can seem just fine right before a recession hits.”

    The labor market remains relatively tight, but the situation has improved significantly as female and non-native workers have stormed back into the work force. The labor force participation rate for women between the ages of 25-54 now stands at an all-time high, up more than 4 percentage points from the low in April 2020.

    Foreign-born employment has increased at roughly double the pace of native-born employment since April 2020. The successes in these two groups have been critical so far in the economic recovery. But looking forward, it raises the question of how many more workers are available to be coaxed in off the sidelines. Ultimately, the U.S. labor force challenges are far from over.

    Animal Protein & Dairy

    As the summer grilling season kicked off, beef demand remained incredibly resilient despite elevated prices for consumers. Retail beef prices averaged $7.50 per pound in May, a record high for the period, and an increase of 2% year-over-year. Robust demand combined with tighter cattle supplies spurred market momentum for cattle. Fed cattle values reached record levels, above $180 per cwt. and feeder cattle shot above $240 per cwt. While consumers have yet to balk at higher beef prices, things could quickly change when seasonal support wanes.

    Excess hog supply and weak pork demand put hog prices in jeopardy this spring. After a steady start to the year, the CME lean hog index tumbled about $10 per cwt., to $72 from mid-March to late April. However, more favorable market conditions across the animal protein segment drove lean hog values up 30% through May and June. While still down about $15 year-over-year, the pork cutout landed in the upper $90s, gaining about $20 per cwt. through the quarter.

    Domestic chicken consumption was up about 4% year-over-year through June 1, which has helped chip away at elevated cold storage holdings. Wholesale broiler meat prices have largely rebounded to pre-pandemic levels, following significant declines in late 2022 and early 2023. Feed costs have come down about 10% from last year but remain well above their historic averages. For broiler integrators, increased feed costs coupled with higher operational expenses have crimped profitability.

    U.S. milk producers continue to struggle in the current price environment. The national all-in mailbox milk price has dropped below the $20 per cwt. mark after averaging $25.34 per cwt. in 2022. While several factors are to blame for this year’s milk price decline, the sharp drop in American/cheddar-style cheese prices is the most significant. Prices for the category have dropped by one-third since the beginning of the year. Milk and feed futures suggest producer profitability should improve considerably by October when Class III milk prices are anticipated to increase by about $3 per cwt.

    Cotton, Rice & Specialty Crops

    U.S. cotton production is rebounding from last year’s crop that was devastated by extreme drought across the southwest. Recent rainfall in top-producing Texas is expected to reduce abandonment following three years of severe drought. The U.S. cotton crop is now estimated at 16.5 million bales, up 14% from last year. Price inflation for clothing and apparel in the U.S. continues to ease with the moderation of cotton prices, which may work to draw in new consumer demand.

    U.S. rice production is expected to recover from last year’s small crop, although concerns over dryness and worsening conditions in the mid-South have led to increased volatility of rough rice prices. With improved water availability this year, California medium grain rice production is also expected to rebound with planted acreage at 465,000 acres. That’s a substantial increase from last year’s planted acreage of 220,000 acres that were restricted by historic drought conditions.

    Sugar prices remain historically high as markets ration tight global supplies. USDA currently calls for a rebound in world sugar production for 2023-2024, but concerns are growing that El Nino will result in smaller harvests in 2023-2024. In the U.S., there is no relief in sight for high prices as wet weather delayed planting across northern states this spring, which resulted in a smaller U.S. sugarbeet crop.

    The tight farm labor market continues to be especially challenging for U.S. specialty crop producers. The Federal Reserve Bank of San Francisco reported that weekly median wages for farm workers swelled to a record high $915 in April, a 24% increase from the year earlier. In June, the House Agriculture Committee created a bipartisan working group, tasked with evaluating the H-2A program and finding solutions for the labor supply challenges facing farmers.

    Food & Beverage

    While food manufacturers generally indicate they are back to business as usual in the post-pandemic era, many consumers continue to harbor a crisis-management mentality when it comes to food costs. Rising food prices are challenging both at-home and away-from-home food spending. The Consumer Price Index for all food in May was 6.7% higher than May 2022, while food away-from-home prices were up 8.3%. To offset higher prices, consumers are continuing behaviors initially seen during the pandemic, namely eating more meals at home. Foot traffic in restaurants remains well below pre-pandemic levels.

    Power, Water & Communications

    Falling fuel and energy prices have brought some much-needed relief to rural consumers, who were uniquely disadvantaged by rising energy bills in recent years. Gasoline, diesel, heating oil, natural gas and electricity all cost less than they did a year ago. Rural discretionary incomes fell by a staggering 50% from 2020 to 2022 compared to 13% for urban residents. Transportation and home energy expenses were responsible for two-thirds of the inflationary divide between rural and urban households.

    Microsoft, Google and Meta are investing billions of dollars in artificial intelligence applications, which have exploded onto the scene in recent months. Applications like ChatGPT will dramatically increase the need for data processing capacity, fiber network connectivity and other communications infrastructure. Telecommunications operators in rural and smaller cities are well positioned to meet this growing need, as data storage and computation needs to occur in near proximity to where AI applications are run.

    Read The Quarterly. Each CoBank Quarterly provides updates and an outlook for the Macro Economy and U.S. Agricultural Markets; Grains, Biofuels and Farm Supply; Animal Protein; Dairy; Cotton and Rice; Specialty Crops; Food & Beverage industries and Rural Infrastructure.

    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.

  • Common Threads Honors 13 Women in Ag for their Service

    Anthropologist Margaret Mead once said, “Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it’s the only thing that ever has.”

    That is the core of Common Threads, an awards program that recognizes women in agriculture in the San Joaquin Valley and Northern California for their service to agriculture and to their communities. As the Common Threads North awards program put it:

    “Agriculture is the common thread of all honorees. Their contributions are symbolic of the rich, colorful threads used to fashion a multifaceted tapestry, not unlike the agricultural diversity of our region. The common threads of our tapestry display an array of cultures, ages, and regions. Some threads are vivid and bright, like the colorful bounty of our land’s harvest. Some are as soft as well-used denim and a little faded with age. Some have the tensile strength of iron; others the complexity and richness of fine lace.”

    Colleen Cecil, executive director of the Butte County Farm Bureau and a member of the Common Threads North committee, which recognizes women from Stanislaus County north to the Oregon border, said it was important to honor the contributions of women to agriculture.

    “Women are often overlooked because they’re busy working bees in the background and they don’t get the spotlight,” Cecil said.

    “Other programs recognize outstanding people, but this is the only one I know of about women in ag. It’s special to get this award because you’ve been nominated by others who hold you in high regard. I’ve had the opportunity to read the applications and letters of recommendation, and I just want to give everyone an award. We’re grateful to be able to bring attention to these women.”

    Rebecca Quist, the chair of the Common Threads Fresno committee, which recognizes women in Fresno, Kern, Kings, Madera, Merced and Tulare counties, noted that the committee’s honorees represent a wide variety in ages.

    “Ag has no age limit. The women we recognize are legacy women – whether they’ve done things quietly behind the scenes or they’re part of a newer generation where they’re out-front advocating in a public forum,” she said.

    In the Fresno area, seven honorees were honored on March 1 at a luncheon in Clovis: Lucy Areias, Fresno; Aubrey Bettencourt, Hanford; Juanita Calzadillas-Pedrozo, Merced; Holly Rosa, Hanford; Nanette Simonian, Fowler; Sheri Kanagawa, Hanford; and Tricia Stever Blattler, Honorary Recipient, Tulare.

    And in the north, six women were recognized at a dinner in Winters on April 5:  Geri Byrne, Tulelake; Bonnie Fernandez-Fenaroli, Woodland; Bobbin Mulvaney, Sacramento; Audrey Z. Tennis, Chico; Linda Walker, Los Molinos; and Sharron Zoller, Kelseyville.

    North CA Honorees (Left to right): Bobbin Mulvaney (Sacramento), Audrey Z. Tennis (Chico), Sharron Zoller (Kelseyville), Linda Walker (Los Molinos), Geri Byrne (Tulelake), Bonnie Fernandez-Fenaroli (Woodland).

    AgWest Farm Credit, American AgCredit, CoBank and Fresno Madera Farm Credit have collectively contributed more than $35,000 to support Common Threads as top-level sponsors since 2015. The organizations are part of the nationwide Farm Credit System – the largest provider of credit to U.S. agriculture.

    Mark Littlefield, President and CEO of AgWest Farm Credit, said Farm Credit supports Common Threads because of the importance of women in agriculture.

    “Each of the women honored this year has made outstanding contributions to California agriculture, whether managing operations of their family farming business, through work in organizations supporting agriculture or both,” Littlefield said. “And since so many younger women are taking on even more important roles in farming and ranching, they will help ensure a strong future for agriculture in the state.”

    Keith Hesterberg, President and CEO of Fresno Madera Farm Credit, added that the philanthropic efforts of women in agriculture are a cornerstone of the health of farming communities around the state.

    “Since the founding of our nation, rural America has evolved through a unique commitment to volunteerism that has strengthened and improved our communities,” Hesterberg said. “The Common Threads winners truly exemplify this trait as all have given generously of their time over the years to work on projects that have made a real difference.”

    The Common Threads program also benefits the recipients’ communities, Holman noted, as some of the proceeds from the awards events benefit a charity designated by each of the honorees.

    About Farm Credit: AgWest Farm Credit, American AgCredit, CoBank and Fresno Madera Farm Credit are cooperatively owned lending institutions providing agriculture and rural communities with a dependable source of credit. We specialize in financing farmers, ranchers, farmer-owned cooperatives, rural utilities and agribusinesses. Farm Credit offers a broad range of loan products and financial services, including long-term real estate loans, operating lines of credit, equipment and facility loans, cash management and appraisal and leasing services…everything a “growing” business needs. For more information, visit www.farmcreditalliance.com

    About Common Threads: The Common Threads program was launched in 1997 by the California Agricultural Leadership Foundation and the College of Agricultural Sciences and Technology and the Ag One Foundation at California State University, Fresno. The Agricultural Leadership Foundation launched Common Threads North in 2003 in conjunction with the College of Agricultural and Environmental Sciences at the University of California, Davis, California Women in Agriculture and nine county Farm Bureaus. For information about Common Threads North, visit https://www.commonthreadsnorth.com and for more information about the Central Valley program, visit https://www.agleaders.org/alumni/common-threads-central-valley/

  • Resilient Labor Market Delays Inevitable U.S. Economic Slowdown

    CoBank — Turmoil in the commercial banking sector over the past month has created a new and unpredictable variable in the U.S. economic outlook. For now, the situation appears to be contained and the economic impacts have been relatively modest. But as lending standards and credit availability tighten for smaller banks, small businesses and consumers will have fewer funding sources. That will create a downdraft in the economy in the coming months.

    According to a new quarterly report from CoBank’s Knowledge Exchange, inflation remains the biggest economic challenge ahead. Even as general inflation moves in the right direction, headline inflation is still at 5% year-over-year. That’s well above the Federal Reserve’s 2% target and points to the likelihood the Fed will raise rates again in May.

    Gains in disposable personal income are powering consumer spending, although the pace of growth is slowing. The job market remains strong, and that demand for labor is preventing the economy from cooling too quickly. However, corporate profits are falling from their lofty levels during the pandemic, which portends hiring weakness in coming quarters.

    “Several indicators point to an oncoming recession, with inverted bond yields being the most closely watched,” said Dan Kowalski, vice president of CoBank’s Knowledge Exchange. “But predicting the timing of that slowdown has been particularly tricky in the face of a resilient labor market. We still expect a shallow, relatively short recession in 2023, but probably not before late in the third quarter or into the fourth.”

    New data from the U.S. Census Bureau shows the pandemic-era trend of outmigration from large population centers is slowing but not reversing. Rural areas saw a second consecutive year of population growth in 2022. However, the benefit of population inflow is not spread equally in rural America. More than 60% of counties with populations under 10,000 lost residents last year. These counties tend to be geographically isolated and less adequately resourced. And the lack of amenities like high-speed broadband prevent many of these areas from sharing in the prosperity experienced by other rural counties.

    Grains, Farm Supply & Biofuels

    Grain prices finished the quarter down modestly after a roller coaster ride spurred by the ongoing war in Ukraine, lower corn and soybean production in Argentina and a weakening global economic outlook. The drop in U.S. corn prices spurred a Chinese buying spree, helping to close the gap between actual accumulated exports and USDA’s projections. Soybean oil was the standout losing ag commodity in the first quarter, dropping 20% and continuing a precipitous fall that began in December 2022.

    Fertilizer prices continued to fall amid downward pressure on commodity and energy prices. Nitrogen prices may be nearing a low point for 2023, as higher natural gas prices are forecasted by summer. Farm supply cooperatives saw muted agronomic activity in the first quarter due to substantial rain and snowfall in March, which has limited field work and other pre-planting activities. But the outlook for the sector is generally favorable this year following a year of record profits in 2022.

    Ethanol production and profitability were in line with long-term averages during the first quarter as lower corn and natural gas costs helped margins. On the policy front, legislation reintroduced in the U.S. Senate could support higher blends of ethanol. If enacted into law, the act will mandate automobile manufacturers to design vehicles that use cleaner fuels and fuel retailers to offer higher-octane options. As reported in January, renewable diesel production surpassed biodiesel production for the first time in November 2022.

    Animal Protein & Dairy

    Cattle markets ended the first quarter in a strong position. Fed cattle traded above $165/cwt and feeder cattle above $190/cwt during the quarter. Consumer demand for beef over the past three years has been nothing short of remarkable, but resistance to higher prices has recently surfaced. The choice boxed beef cutout tumbled more than $20 during January. With packer margins pressured by stronger cattle prices and weaker cutout values, production has eased lower.

    Hog prices were relatively flat through much of the quarter, missing out on their normal seasonal momentum. Through the end of March, cumulative weekly slaughter is up about 3% year-over-year. However, the industry appears to be drawing down future availability which should lead to higher prices later in the year. U.S. pork exports came under pressure in 2022, but the trade picture appears to be improving. In January, year-over-year exports increased to Mexico by 5% and to China by 37%.

    Chicken producers had a difficult start to 2023 after wholesale breast meat prices hit rock-bottom levels late last year. But things are looking up for the sector as prices have increased and beef production comes under pressure. U.S. broiler meat exports reached 630 million pounds during January, a record high for the month and a 13% increase year-over-year. Domestic dark meat support remains robust as well, helping to carry the burden of less-than-stellar conditions for white meat.

    Milk prices are succumbing to additional milk supply with the seasonal pressures of the spring flush combined with an additional 12,000 cows added to the U.S. herd in February. The increased milk supply, combined with ongoing weak domestic demand, pushed down All Milk prices earlier in the quarter with spot milk selling at a significant discount to Class pricing. Cheese manufacturers are producing a record amount of cheese as milk supply builds. The export pace for all dairy products remains robust, with January shipments tallying 466.1 million pounds – a record for the month.

    Cotton, Rice & Specialty Crops

    The deteriorating global economic outlook is weighing heavily on cotton markets. Global cotton consumption is forecast to drop 11% between marketing years 2020/2021 and 2022/2023. That would be among the worst performances in the last 10 years. Clothing inventories are still too high for retailer preferences, while disposable income growth rates in developed economies continue to be stagnant. Lackluster demand for cotton seems inevitable.

    Rough rice prices fell last quarter under the pressure of speculative selling. U.S. rice exports continue to lag far behind last year’s pace, with accumulated shipments for the current marketing year down 40%. The strong dollar and India’s increased exports remain headwinds for the U.S. Indian exports are forecast to climb to a new high as India’s government has dramatically increased subsidies to rice farmers.

    The U.S. sugar industry is anticipating strong prices and record production. Production estimates continue to edge higher, spurred by decade-high recovery rates for beet sugar and increasing sugarcane acreage. At the same time, prices remain historically high as food manufacturers hold inventories at the bare minimum. The cane sugar manufacturing Producer Price Index is up about 37% from pre-pandemic levels. But wholesale spot cane sugar prices have risen by 82% over the same time, which suggests fairly strong margins for sugar refiners.

    Rain and cold temperatures during much of March’s almond bloom and pollination period has raised concerns over 2023 yields. However, a short crop may not be a bad thing for the almond industry as inventories have ballooned in recent years. Domestic and export demand fundamentals are currently weak, and it will take another season at least to bring almond inventories back to more manageable levels. Meanwhile, the heavy rains in California have left many of the state’s strawberry fields under water. Strawberry prices will be sky high in the coming months as a result.

    Power, Water & Communications

    U.S. natural gas futures prices have fallen sharply since the start of the year, with 2023 setting up to be one of the most bearish years in recent history. End of winter inventories are well above average and the upward momentum in production suggests the industry will be well stocked ahead of the next heating season. While the U.S. can already boast of having more LNG export capacity than any other producing nation, the country’s liquefied natural gas shipping armada is about to get bigger, potentially doubling in size.

    Several publicly traded broadband operators have reduced their 2023 fiber network expansion plans. Higher interest rates, increased costs for labor and materials, and increased competition are among the main reasons for the cutbacks. Rural operators are also experiencing a slowdown as they face many of the same issues as urban and suburban operators. Despite the near-term slowdown in network builds, investor interest in the market has not waned. The reality is consumers are increasingly reliant on fiber networks, which means the U.S. economy is too.

    Read The Quarterly. Each CoBank Quarterly provides updates and an outlook for the Macro Economy and U.S. Agricultural Markets; Grains, Biofuels and Farm Supply; Animal Protein; Dairy; Cotton and Rice; Specialty Crops and Rural Infrastructure Industries.

    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.

  • Three Emerging Risks for the U.S. Farm Supply Sector

    The outlook for agricultural retailers is generally favorable for 2023 following a year of record profits in 2022. However, the sector faces an emerging set of risks that could depress profit margins and challenge traditional business models in the years ahead. Lower levels of industry working capital, higher property insurance costs, and changing grower needs are three of the key issues that ag retailers will need to navigate over the next five years.

    According to a new report from CoBank’s Knowledge Exchange, a downturn in the crop cycle—after several years of consecutive high profits—is likely during 2024 or shortly thereafter. The prospect of lower grain prices and financial pressure at the farm level, combined with the newly emerging risks, has business implications that ag retailers should begin preparing for now.

    “Grain and farm supply cooperatives delivered tremendous value to their customers over the past three years of extreme volatility in prices and economic activity stemming from COVID-19,” said Kenneth Scott Zuckerberg, lead grain, farm supply and biofuels economist for CoBank. “Unfortunately, the post-pandemic world is one that features a variety of new risks. The good news is that ag retailers and farm supply co-ops can develop risk mitigation strategies before the eventual cyclical downturn occurs.”

    Emerging Risks Flying Mostly Under the Radar

    A significant percentage of U.S. farming operations, comprised mostly of mid-sized and non-family farms, are increasingly seeking more products and services than traditional farm suppliers typically offer. This group has demonstrated a strong interest in biologicals and other specialty nutrients, as well as advice on carbon monetization and ESG compliance programs. Beyond specific product and service categories, more farmers of all types prefer to evaluate, order and mange input purchases electronically. Ag retailers that want to compete for these customers will need to adjust their business models accordingly.

    Lower levels of farmer working capital during the current upcycle suggests growers will cut back on input purchases more dramatically during the next downturn. Total farming working capital during the 2021/2022 crop cycle peak averaged $138 billion. That’s down from $215 billion during the 2012 peak. (All figures in 2023 dollars as reported by USDA.) The lower levels of working capital may be a result of strategic purchases of equipment while interest rates were at historically low levels. However, the reality is that farmers and ranchers will have less available cash to purchase inputs during the next downturn, unless they increase debt.

    Additionally, the rising cost of property insurance is an emerging risk factor that will pressure farm supply cooperatives profitability. The cost of property-casualty premiums has risen between 25% and 75% for the 2023 season, largely due to an increase in claims from natural catastrophes. Losses from extreme weather totaled $170 billion in 2022, compared to $155 billion in 2021, well above the long-term average.  Zuckerberg said farm supply operators might want to investigate alternative risk transfer mechanisms, such as a self-funded captive insurance arrangements, to address rising premium costs.

    Watch a video synopsis and read the report, Ag Retailers Prepare to Navigate 3 Emerging Risks.

    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.

  • The Federal Reserve’s Efforts to Temper Inflation and Cool the Economy will Continue

    The Federal Reserve is finding it harder to cool the economy than almost anyone expected. Most corners of the U.S. economy are performing very well considering the Fed has been aggressively raising rates for seven months. Manufacturing continues to expand, consumer spending remains strong, the labor market is still extremely tight and Q3 GDP data will likely show solid growth.

    While the rate increases have done little to cool spending and tamp down inflation, critics are increasing their calls for the Fed to stop raising rates. The argument is that further monetary tightening will have catastrophic effects on the U.S. and global economies, and that inflation is about to fall precipitously. According to a new Quarterly report from CoBank’s Knowledge Exchange, the Fed does not see it that way, nor should it.

    “To date, there is no solid evidence that inflation is on a steep downward path and there is also little evidence that higher rates are severely damaging the economy,” said Dan Kowalski, vice president of CoBank’s Knowledge Exchange. “Ultimately, to get inflation levels down, the willingness or ability of consumers and businesses to spend must also come down. That means rate hikes will continue until the Fed achieves its mandate of price stability. Unfortunately, that increases the likelihood of collateral damage coming in the first half of 2023.”

    There are signs of slowing, however, which are the first cracks to form from monetary tightening, noted Kowalski. Consumer credit is on the rise while savings rates are falling. And wage growth is falling even as inflation remains high, reducing consumer purchasing power.

    In contrast, the energy and agri-food sectors have gained unexpected levels of pricing power as supply shortages now appear to be medium-term challenges. Risks and uncertainty remain exceptionally high, but elevated commodity prices also offer opportunities.

    Grains, Farm Supply & Biofuels

    Grain prices remained volatile throughout the third quarter, finishing mostly higher. U.S. corn and wheat futures rose 11% and 8%, respectively, partly offset by a 2% drop in soybeans. On farm grain storage is above 2021 levels for the three major crops, potentially signaling a stronger harvest-time basis this year. Corn and soybean exports for the new crop marketing year are up 13% over last year. However, grain transport expenses could remain higher as low water levels on the Mississippi River caused a spike in barge rates. And Russia is now indicating it may not extend its agreement to allow Ukrainian grain exports via the Black Sea, which would send grain prices upward.

    Despite a slow start to the spring planting season, ag retailers successfully managed crop input inventories and had a very good summer agronomy season. Domestic fertilizer prices fell by 5%-16% in Q3 amid a massive correction in energy prices. However, prices have been rising as harvest gets underway and farmers shift their attention to fall application season. Russia’s war with Ukraine continues to impact global supplies and prices for nitrogen, phosphorous and potassium fertilizers.

    Ethanol production continued to trend down as Q3 came to a close, concurrent with recession fears, lower gasoline demand and capital market volatility. The most significant event of the quarter was on the policy front, with the passing of the Inflation Reduction Act of 2022. The legislation provides strong current and future support for renewable energy, and biofuels in particular.

    Animal Protein & Dairy

    The slowing global economy and unrelenting food inflation are concerns for red meat and poultry demand into 2023. Consumer willingness to pay higher prices for meat and poultry since the start of the pandemic encourages optimism, however. USDA forecasts domestic per-capita red meat and poultry consumption at a new record high of 225 pounds in 2022.

    Per capita chicken consumption will likely set new records in coming years given chicken’s appeal to budget-minded consumers. While broiler chick hatchability has been an issue over the past few years, weekly incubation rates have improved, and chick placements are up 5% year-over-year. Export markets remain favorable for broiler meat despite numerous HPAI outbreaks, which commercial broiler facilities have largely avoided.

    Beef markets remained generally strong throughout Q3, with prices for live cattle 13% higher than a year ago. Cattle slaughter numbers have surged in recent weeks and are running 4% above the five-year average. To date, strong beef demand has largely overcome swelling retail prices. This is spurring optimism as cattle supplies erode, which will inevitably force beef prices higher.

    While the hog market is softening, prices were remarkably strong in Q3 with cash lean-hog prices topping $1.20/lb. in early August. Pork cutout prices spent much of the quarter above $120/cwt, a level about $50 above the five-year average. China continues to slow its pork imports, leading to a 16% reduction in total U.S. pork exports year-to-date. However, Mexico and other destinations have helped pick up some of those losses.

    The U.S. dairy cow herd continues to show only incremental growth, despite record high milk prices and positive margins. High feed and labor costs, combined with tight heifer availability, are limiting herd growth. Class IV milk continues to hold a premium to Class III, elevated by rising butter prices which reached record highs last quarter. Butter supplies remained extremely tight, down 22% year-over-year. The USDA has raised its forecast for U.S. dairy exports to a record $9.5 billion in 2022.

    Cotton, Rice & Specialty Crops

    Cotton prices plummeted as worries about a global economic slowdown intensified. With harvest in most of the U.S. in full swing, any further surprises on the supply side seem unlikely. The market is now focused on export sales and, beyond that, 2023 planted acreage. Given the current lb./bushel price ratios, a sizable reduction in U.S. planted acres next year wouldn’t be surprising.

    U.S. rice prices climbed last quarter after India, the world’s largest rice exporter, banned exports of broken rice and imposed a 20% export tariff on several varieties of white rice. USDA reduced its export forecast for India by 2 million metric tons as a result. The U.S. rice crop is expected to be the smallest since 1993/1994 due to fewer acres and lower yields. With global supplies tightening, USDA is projecting record high prices for U.S. producers.

    Sugarbeet harvesting throughout the Red River Valley is nearing completion, with yields and extraction rates varying by location. But processors should have ample supplies assuming normal winter weather preserves beet conditions into early spring. The Louisiana sugarcane crop is in excellent condition, particularly in relation to 2021 when Hurricane Ida hindered yield potential. Despite record high wholesale prices, U.S. per capita sugar consumption hit a record high in fiscal year 2021/22 at nearly 75 lbs.

    Reservoirs feeding key specialty crop growing regions of the Western U.S. entered the new water year on Oct. 1 at historically low levels, implying another tight year for water allocations. With a La Niña weather pattern possibly continuing into its third year, the outlook for precipitation needed to raise reservoir levels is dim and growers are bracing for more fallowed acres.

    Power, Water & Communications

    The rapid increase in exports of U.S. liquid natural gas has converted the U.S. natural gas markets from a mostly captive pricing market, to one that is at least partially exposed to world prices. The increased demand for exports has lifted long-term domestic natural gas prices from $3-$4/MMBtu to a $4-$5/MMBtu window and possibly higher. The incremental demand doesn’t pose a challenge from a supply perspective. But it has been added in such an abbreviated time frame producers may find themselves scrambling to satisfy a soon-to-be crowded marketplace.

    T-Mobile and Verizon dominated the home broadband market in Q3 with aggressive price packages for fixed wireless bundled with smartphone plans. Broadband operators located in smaller or rural cities could face competitive threats if the national wireless operators decide to target these markets. Apple announced its iPhone14 with limited satellite connectivity, bringing rural Americans one step closer to a broadband connectivity option they haven’t had previously.

    Read The Quarterly. Each CoBank Quarterly provides updates and an outlook for the Macro Economy and U.S. Agricultural Markets; Grains, Biofuels and Farm Supply; Animal Protein; Dairy; Cotton and Rice; Specialty Crops and Rural Infrastructure Industries.

    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.

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

    Fresno Madera Farm Credit and CoBank announced today that they have made a $30,000 donation to Central California Food Bank’s Feeding Families Fund Drive. The donation will provide more than 120,000 meals to residents of Central California who have been severely impacted by the pandemic and rising inflation.

    “During the pandemic, we lost a lot of corporate donors due to business closures and economic hardships, so we are immensely grateful that businesses like Fresno Madera Farm Credit have continued to provide their support,” said Denise O’Canto, Corporate Relations Manager with Central California Food Bank. “This generous donation will help us continue to meet that expanded need, especially as we move towards the holiday season when demand is at its highest.”

    The $30,000 donation was made possible, thanks in part to CoBank, the funding bank for Fresno Madera Farm Credit, who matched Fresno Madera Farm Credit’s $15,000 local donation.

    “CoBank is proud to support Fresno Madera Farm Credit in their commitment to supporting the rural communities where they live and work,” said Claire Trudo, Vice President with CoBank. “We know that food insecurity is often higher in these rural communities, and we are proud to support organizations like the Central California Food Bank who are working to end hunger.”

    Fresno Madera Farm Credit’s donation was timed to coincide with the Feeding Families Fund Drive when all donations received a 50% match from Gar Bennett. Staff from Fresno Madera Farm Credit also volunteered Friday to help the Food Bank collect donations from the community outside of The Market grocery store. During this single day, the Central California Food Bank raised over $600,000 with the Gar Bennett match.

    “We’re proud of the support we’ve provided to our area communities over the past eight years through our partnership with the Central California Food Bank,” said Fresno Madera Farm Credit CEO Keith Hesterberg. “Supporting the mission of food insecurity has never been more critical – food inflation has a devasting impact on so many members of our communities and the need for this support is critical.  We have a mission to serve the agricultural industry in this region and our members – the farmers, ranchers, and business owners we serve – understand how important this kind of support is.”

    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.

  • Avian Flu Puts Easter Egg Supplies at Risk

    Recent outbreaks of Highly Pathogenic Avian Influenza (HPAI) within the U.S. layer flock are adding strain to beleaguered egg supply chains, which have not fully recovered from disruptions brought on by the COVID-19 pandemic. While egg production has stabilized in recent months, it is still well below pre-pandemic levels and egg availability could be limited leading into Easter, according to a new research brief from CoBank’s Knowledge Exchange.

    “U.S. egg producers have been hard-pressed to align supplies with market demand over the last two years,” said Brian Earnest, lead animal protein economist with CoBank. “The U.S. layer flock typically expands ahead of the surge in demand for Easter and contracts during the summer months. But recent losses due to HPAI have combined with high feed costs and other challenges that are severely limiting flock size management.”

    The U.S. table egg layer flock trended ahead of target growth in 2019, however, the annual supply has declined by more than 5% since then. The decline in supply stems from extreme shifts in consumer behavior during 2020. Although grocery demand skyrocketed during the onset of the pandemic, egg producers were not initially set up to shift lost food service volumes into retail channels.

    The lack of packaging equipment and supplies needed for grocery sales led to empty store shelves, sky-high retail prices, and ultimately, lower egg consumption. Compounding the pandemic challenges, producers also faced increased input costs of grain, energy and transportation.

    The latest blow to U.S. egg supplies is the worst outbreak of HPAI in years. At least 11 million layers have been lost in recent weeks. With USDA reporting new cases almost daily and depopulation of operations ranging from in the tens of thousands to more than 5.3 million birds,1 estimating the total expected losses is challenging.

    The most recent USDA weekly shell egg demand indicator2 shows about five days of inventory are currently on hand, which normally suggests a tight, but not alarmingly tight supply. However, it does not appear that supplies will be able to accommodate the reduction in layers as a result of HPAI outbreaks, especially at a regional level.

    Current supply pressures coincide with typical in-store grocery features ahead of Easter celebrations. With eggs serving a dual purpose of both decoration and cooking supply, retailers typically rely on eggs as a loss-leader. Market forces result in seasonally higher wholesale values for shell eggs ahead of Easter, but with the tight supply situation now exacerbated by flock reductions, prices are above fundamental ceilings. Consumers are likely to absorb some of the cost increases as they seek to fill their baskets with eggs prior to Easter.

    Read the research brief, Pandemic, Higher Costs and Avian Flu Put Easter Egg Supplies at Risk.

    About CoBank

    CoBank is a $170 billion 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 maintains an international representative office in Singapore.

  • Global Demand for High-Protein Whey Soars, but is Growth Sustainable?

    The COVID-19 pandemic has fundamentally altered the global market for high-protein whey products, which have now entered the mainstream as a super food for health-conscious consumers. Global demand for high-protein whey has grown exponentially during the pandemic as consumers around the world sharpened their focus on health and nutrition.

    As the global leader in high-protein whey production and exports, the U.S. stands to benefit from the increased demand. Despite record cheese production in the U.S., global supplies of whey products remain tight which has resulted in significant price premiums for high-protein whey products.

    According to a new report from CoBank’s Knowledge Exchange, whey prices are expected to persist at historically strong levels until new cheese and whey processing capacity comes online over the next five years. In the longer term, further-processed fractionated whey protein products are expected to become the bigger value-drivers of the whey stream.

    “High-protein whey products come with risks of increasing price volatility that’s endemic of niche and diverse product mixes with limited market players,” said Tanner Ehmke, lead dairy economist with CoBank. “To meet the growing demand for diverse whey products while covering the risk of higher volatility, dairy processors will need to invest in processing technologies that allow flexibility in production.”

    While high-protein whey will continue to grow in demand and offer higher returns, low-protein whey will still offer the appeal of stability and price hedging for processors, added Ehmke. The dairy industry of the future will need to meet growing demand for low-protein whey for both human consumption and animal feed and for high-protein whey for consumer products.

    Total U.S. cheese and whey processing capacity in the U.S. is expected to increase by an estimated 10% in the next 5 years. Increasing whey production means an increasing commoditization of all whey products, including high protein concentrates and isolates. 

    Whey production will become increasingly stratified across products and prices, requiring processors to invest in processing technology to allow for flexibility in production for a variety of whey products spanning dry whey to fractionated whey. The high costs of membrane technology required for further processing of whey will limit growth opportunities to larger cheese and whey processors that have economies of scale.

    Plant-based alternative sources of protein like soy protein and pea protein are not expected to disrupt the high protein whey market due to nutritional deficiencies compared to whey.

    Watch a video synopsis and read the report, COVID-19 Spiked Demand for High-Protein Whey, but is Growth Sustainable?

    About CoBank

    CoBank is a $170 billion 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 maintains an international representative office in Singapore.

  • Electric Cooperatives Positioned for Leadership Role in Rural Energy Transition

    Rural communities and electric cooperatives could begin to aggressively close the energy transition gap over the next decade, pivoting from their role as underdogs to leaders on clean energy. Despite an absence of financial incentives, electric co-ops are already transitioning to low or zero-carbon resources at a similar or faster pace than the U.S. national average.

    According to a new report from CoBank’s Knowledge Exchange, electric co-ops have quietly emerged as laboratories for clean grid innovation, outpacing investor-owned utilities on smart meter installations, time-based pricing pilots and experimental storage solutions.

    “The next chapter of the nation’s transition to renewable energy will require greater supply-side adoption of renewable generation, as well as profound consumer coordination,” said Teri Viswanath, lead energy economist with CoBank. “And, given their unique governance structure built on member alignment, rural electric cooperatives are uniquely equipped to excel at this phase of decarbonization over the last mile.”

    Rural communities already host 99% of onshore wind projects and a growing share of utility-scale solar projects, positioning them well for growing economic opportunities. In addition, electric co-ops’ coal dependency largely stems from contracted purchase power agreements rather than coal plant ownership, which gives them more flexibility to transition to renewable energy.

    The scope of the opportunity for rural communities is substantial.

    According to the Department of Energy, solar energy has the potential to power 40% of the nation’s electricity by 2035. Solar currently makes up 5% or about 96 GW of the utility-scale electricity supply. To achieve the 40% solar target, the U.S. would have to double the annual average installations or install 30 GW of solar capacity each year between now and 2025, and 60 GW per year from 2025 to 2030. For rural communities, this accelerated timeline could spur a new cycle of economic development.

    Historically, cost considerations have been the primary factor influencing the timing of energy transition in rural communities. Unlike investor-owned utilities where shareholders bear the cost of renewable development projects, electric co-ops must assess those costs to their memberships. However, as the cost of wind and solar developments has fallen, co-ops are increasingly likely to pursue renewable projects for the rural communities they serve.

    Thirty-eight states currently have defined renewable or clean energy electricity mandates, with roughly half of U.S. renewable generation growth attributable to these requirements. In turn, the regulatory and public pressure applied by these programs, as well as more favorable economics, have prompted utilities and electric cooperatives to increasingly adopt clean energy goals.

    Read the report, From Underdogs to Leaders: Co-ops in Energy Transition.

    About CoBank

    CoBank is a $155 billion 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 75,000 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 maintains an international representative office in Singapore.