California Ag Network

Tag: CoBank

  • US Monetary Policy Poised to Replace COVID as Economic Wild Card

    Despite the surge in COVID cases and the complications it brings, the U.S. economy continues to thrive. Workers are steadily returning to the labor force; the unemployment rate is currently under 4% and consumers are still spending confidently.

    Until the omicron surge subsides, the biggest economic risk will be the millions of workers who report sick and hamper already beleaguered supply chains. The impacts for food and agriculture sectors will vary significantly by product but will generally be less severe than earlier in the pandemic, according to a new Quarterly report from CoBank’s Knowledge Exchange.

    “Economic risks from new, high-impact coronavirus variants will remain throughout 2022,” said Dan Kowalski, vice president of CoBank’s Knowledge Exchange division. “But Americans are increasingly making peace with the notion that the virus, in some form, will be with us for months if not years, and we must find a way to live more normally with it. This shifting mindset will de-risk the economy to some degree.”

    As of late December, the U.S. has regained 84% of the jobs lost since the pandemic began, equating to a deficit of 3.6 million fewer workers compared to early 2020. The supply chain outlook has improved due to more workers in warehousing and transportation. Since May 2020, the U.S. has added 800,000 jobs in the two sectors, eclipsing the pre-COVID number of jobs by 3%.

    As the labor market inches closer to full employment, any last arguments for the Federal Reserve to maintain its highly accommodative monetary policy are losing their merit. With the market now anticipating a sea change in monetary policy, the tightening of financial conditions has begun.

    Animal Protein & Dairy

    U.S. animal protein production moved moderately higher through Q4, but supplies remain under pressure due to robust demand. Combined production of red meat and poultry set a November record of 8.9 billion pounds, 3.5% larger than a year earlier. Ending stocks of poultry were down to five-year lows, and pork inventories hit 12-year lows. Meanwhile, fourth quarter wholesale meat indexes were 25% higher year-over-year, reflecting the heightened demand for animal proteins.

    China’s imports of animal protein have slowed significantly from their record peaks during the summer months. For U.S. producers, reliance on China has waned for poultry and pork, while the opportunities for beef remain robust. The 2022 outlook for sales to China remains mixed, as the nation’s hog inventory has rebounded but African swine fever remains a wild card. China’s growing affinity for U.S. beef has made beef producers optimistic.

    Milk supplies tightened further in Q4 as the U.S. dairy herd continued to shrink, particularly in the West and Southwest regions of the U.S. where feed availability remains a persistent challenge. However, signs of prosperity are on the horizon as heifer prices rise, dairy cow slaughter moderates and farm sales slow. Class III milk futures traded on the CME ended 2021 above $20/cwt after starting the year below $18/cwt.

    Cotton, Rice & Specialty Crops

    Cotton futures prices hit $1.20/lb. in late November, the highest close in over a decade. But news of the omicron variant hit shortly thereafter, and cotton futures dropped 10-15 cents. Nonetheless, prices held above the longer-term upward trend that began in April 2020. However, despite the nearly two-year bull market, there is an increasing threat of downside risk as global stocks appear to be ample.

    Rough rice futures languished in Q4 amid abundant exportable supplies in India and declining export price competitiveness. Persistent weakness in the Brazilian real has been a headwind to U.S. rice as Brazilian rice exports are more competitive in Western Hemisphere markets. U.S. export sales commitments for all rice in the current marketing year are down 36% year-over-year and shipments are down 5%.

    The sugarbeet harvest is complete and record yields are expected following ideal growing conditions across the upper U.S growing region. U.S. sugar deliveries for human consumption have grown a combined 2.1% over the past two years. The question for 2022 is whether wholesale prices approaching 50 cents/lb. will finally put a crimp in sugar consumption.

    The producer price index for specialty crops climbed sharply last quarter as smaller harvests drove farmgate prices higher. The rise in fruit and vegetable prices is due mostly to the persistent drought across the U.S. West that cut production through lower acreage and yields. The smaller tree nut harvest this fall is also sending almond, walnut and pistachio prices higher for both growers and consumers.

    Power, Water & Communications

    Natural gas and coal prices soared to multi-year highs in 2021 as buyers scrambled to line up sufficient supply ahead of winter. Last year’s massive economic reboot and the inability of producers to keep up was largely to blame for energy supply shortfalls and run-away prices. However, some argue that energy transition played a role in high fuel prices as collective weaning from fossil fuels hobbles supplier response. The energy crisis playing out in Europe appears to support that analysis.

    The Infrastructure Investment and Jobs Act provides $15 billion for lead pipe removal, a far cry from the $45 billion likely required. However, as the largest pay-out in a generation, the funding could make a meaningful dent in addressing this problem. Success of the current program will depend, in part, on how funds are spent.

    The $65 billion in new broadband funding is triple the size of the Rural Development Opportunity Fund (RDOF), which was the largest federal government broadband subsidy program. States will receive two-thirds of the funding to build networks in unserved and underserved areas. By tapping into local knowledge of where coverage is needed and who can build it, the Federal Communications Commission appears to have learned from the shortcomings of previous programs.

    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 $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.

  • Forces That Will Shape the US Rural Economy in 2022

    The U.S. economy is poised to slow in 2022 relative to 2021, but economic growth will continue at a pace that is well above average. Consumers have powered the economic recovery since mid-2020 and that will continue in the coming year. Consumer spending is expected to rise another 4% to 5% in 2022 and GDP is expected to grow by roughly 4.5%, according to a comprehensive year-ahead outlook report from CoBank’s Knowledge Exchange.

    “The COVID-19 omicron variant is shaping up to be the wild card of early 2022 and it could delay the rebalancing of the U.S. economy,” said Dan Kowalski, vice president of CoBank’s Knowledge Exchange. “If omicron disrupts the services industry, the majority of consumer spending will again revert to goods, compounding supply chain and inflation problems. However, at this early stage, we expect omicron to have only a modest impact on the economy.”

    The CoBank 2022 outlook report examines several key factors that will shape agriculture and market sectors that serve rural communities throughout the U.S.

    Global Economy: Fragile Growth

    If the global economy is to perform well in 2022, it will do so despite three significant headwinds: a persistent pandemic, monetary tightening in the U.S. and slowing growth in China. As we enter the third year of the pandemic, the COVID-19 virus is still in control of the world economy, and it will likely remain so through much of the first half of the year. The ongoing threat of virus mutations that could evade vaccines will keep economic uncertainty unusually high. Nevertheless, strong consumer demand throughout much of the developed world will keep the economy humming.

    U.S. Economy: Labor and Supply Chains to Improve, Inflation Might Not

    The pandemic has significantly altered how our economy functions, with the greatest impact coming from what we consume. Through October, in 2021 Americans spent 18% more on goods and about 1% less on services than they did in 2019. Compounded by a labor shortage, it is easy to see why supply chains have become one of the biggest economic challenges of the pandemic—demand has significantly exceeded the capacity of our existing system. Fortunately, we have likely experienced the worst of the bottlenecks, which should diminish in the coming year. For most consumers and businesses, a key focus in 2022 will be tackling the effects of inflation. Operating and input costs will remain high for businesses in early 2022, and they will continue to look for ways to pass on those costs to consumers.

    Monetary Policy: Tough Fed Decisions Approaching

    The coming year will hold perhaps some of the most challenging monetary decisions that the Federal Reserve has faced in over a decade. Chair Powell has acknowledged that inflation could remain elevated well into 2022, and the Fed is now expected to accelerate the tapering of its monthly securities purchases. The Fed will want to extend the economic recovery as long as possible before raising interest rates. But it will also be cognizant that the longer inflation remains elevated the higher the likelihood that it leads to a perpetuating cycle of higher prices and higher wages. Both Chair Powell and President Biden will want to prevent that from happening.

    U.S. Government: Spending, Partisan Control Will Dominate 2022

    As the nation looks ahead to a new year, the federal policy machinery is very focused on a few key factors that will impact the ability of the administration to lead and Congress to legislate. COVID-19 has lingered far longer than everyone hoped and continues to cast a long shadow on Capitol Hill. While the House has passed the Build Back Better bill, the Senate has not moved the bill, a key piece of the President’s agenda. Both the House and Senate agriculture committees plan oversight hearings in 2022 to begin the farm bill planning for 2023. While that is important and timely work, the widely expected change in partisan control of Congress following the 2022 elections may render much of that work perfunctory. Legislative expectations should be modest for 2022.

    U.S. Farm Economy: Increased Costs, Trade Battle with China to Tighten Farm Margins

    The U.S. farm economy will continue to struggle with the ongoing supply chain dysfunction and cost inflation issues that emerged in the summer of 2021. Historically strong prices will be more than offset by increases in cost structure for nearly all crop production including row crops, fruits and vegetables, and hay. CoBank economists do not anticipate any significant pullback in farm-level costs until Q3, at the earliest. The expected decline in direct government payments in 2022 will further squeeze farm income statements. The single biggest wildcard for U.S. agriculture is export sales to China, currently the largest export market for U.S. farm products.

    Specialty Crops – Squeezed by Labor, Drought, Transportation

    Rising labor and transportation costs, compounded by ongoing drought and water restrictions in the Western U.S., will dominate the specialty crops sector in 2022. Agricultural labor has not been immune to the “Great Resignation” resulting from the pandemic. U.S. fruit and vegetable acreage will continue to shift toward mechanically harvested crops that require less manual labor. Prices of fruits, nuts and vegetables will be driven higher by smaller harvests caused by ongoing drought conditions in the Western U.S. Processors and distributors of fruit and vegetable produce, meanwhile, will be incentivized to expand supply networks outside of the U.S., particularly to countries like Mexico and Chile.

    Grain, Farm Supply and Biofuels – Inflation, Volatility Create Mixed Outlook

    The grain, farm supply and biofuels sectors enter 2022 facing a mixture of inflationary headwinds, supply chain bottlenecks and high-energy prices that present challenges but also a few opportunities. CoBank economists view the short-term outlook as mixed for grain, challenging for farm supply and positive for biofuels. Biofuels enter 2022 with considerable momentum as the fuel ethanol complex is revving on all cylinders driven by strong consumer demand and higher gasoline and fuel ethanol prices. Beyond ethanol, 2022 should see the continued build-out of soybean crushing and soy oil refining capacity to support the expected growth in renewable diesel.

    Animal Protein – Lean Supplies, Strong Demand Bolster Prices Despite Export Unknowns

    The Bureau of Labor and Statistics’ Consumer Price Index for all meats, poultry, fish, and eggs hit an all-time high in October, up 12% year-over-year. As restaurant and grocery prices adjust, consumer-level meat inflation is likely to continue well into the new year. While higher retail prices could limit consumption growth, tighter cattle supplies, ongoing broiler breeder issues and sow herd reductions should support favorable processor margins through at least the first half of 2022. Although beef exports have been robust during the second half of 2021, the collective U.S. protein opportunity to China may have already peaked.

    Dairy – Producer Margins to Improve, but Logistics Hinder Exports

    Milk supplies in the U.S. and around the world will tighten in 2022 as dairy farmers reduce herd sizes in response to cost inflation pressures. The cross current of resilient domestic and global demand for dairy products with the slowing growth in milk supplies will give an upward lift to milk prices in 2022. Combined with softer feed costs following big corn and soybean harvests, producer margins will finally improve. However, high costs for labor, construction, and freight will limit upside margin potential and dampen milk production growth. For dairy processors, tighter availability of milk will mean some processors get squeezed.

    Rural Electricity – Managing on the Grid-Edge

    As electricity consumers’ requirements rapidly change and redefine the relationship between buyers and sellers, all eyes will be on grid-edge technologies. These consumer-accessible resources have already been disrupting the century-old, one-way flow of power from suppliers. The challenge with grid-edge technologies is they create a two-way flow between suppliers and consumers and disrupt the predictable amount of demand that consumers might require. Electric cooperatives have a proven track record of agility and are possibly better positioned to work with consumers to beneficially manage the proliferation of grid-edge technology.

    Rural Communications – As Government Money Flows, Cable Market Competition Heats Up

    With bipartisan support to bridge the digital divide, the government funding flood gates are expected to open in 2022. The Infrastructure Investment and Jobs Act includes $65 billion in broadband funding, of which $42.5 billion will be allocated to the states to build networks in unserved and underserved areas. Cable operators have enjoyed robust broadband subscriber growth over the last several years due to consumer trends and limited competition from the telecommunication companies. But competition should start to heat up in 2022.

    Read the full report, 2022 The Year Ahead: Forces That Will Shape the U.S. Rural Economy.

    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.

  • Adapting to Persistent Supply Chain Disruptions

    The U.S. economy is on a strong growth path and cash-rich consumers are spending robustly on both services and goods. Roughly 80% of the U.S. adult population has now received at least one vaccination shot, leading to renewed participation in many public activities.1 But while the U.S. economy is running hot, it is still very much in the grips of the pandemic. Its negative influence, however, has steadily shifted from curtailing demand to derailing supply chains.

    According to a new Quarterly report from CoBank’s Knowledge Exchange, supply chains are arguably in the most dire condition since the start of the pandemic, as lead times for manufacturing inputs recently reached record highs. Persistent supply chain disruptions and labor shortages are adding significant costs to business operations, and consumers will feel these effects through higher prices for months to come.

    “Supply chain snarls are likely to persist well into 2022, and so will elevated inflation,” said Dan Kowalski, vice president of CoBank’s Knowledge Exchange division. “The latest producer price index data for August was up 20% year-over-year, while the consumer price index increased just 5.2%. So it’s clear that many businesses are passing only a small portion of those cost increases on to the final consumer. We expect that will change in the months ahead and many businesses will raise prices.”

    Rapidly rising input costs and product shortages are hitting agriculture particularly hard, as ag commodity prices have flattened and inflation compresses margins. However, robust exports have kept much of agriculture in the black. The USDA currently projects that China will import $39 billion of U.S. ag products in 2022, up from an estimated $37 billion in 2021. While that forecast looks promising, success will be much more dependent on prices remaining high as volume is likely to fall.

    Grains, Farm Supply & Biofuels

    Corn, soybean and wheat prices declined from their third-quarter highs, but will likely rebound due to tight supplies and rising demand for soybean and vegetable oils for use in renewable diesel fuel. The export picture remains cloudy in the short term as grain terminal operations in the U.S. Gulf region are just beginning to recover from Hurricane Ida and export volumes remain depressed.

    Ag retailers are benefitting from strong demand for crop inputs resulting from above-average U.S. grain prices and net farm income. While harvest is far from conclusion, farm supply cooperatives should experience a favorable fall agronomy season, barring any extreme weather events. Skyrocketing fertilizer prices and crop chemical shortages are two key short-term risk factors for the ag retail sector.

    The U.S. fuel ethanol sector saw mixed performance during the past quarter as production fell but operating margins increased dramatically. The regulatory environment remains dynamic and U.S. biofuel policy continues to be an area of friction between farmers, ethanol producers and fossil fuel refineries. Debate surrounding the Environmental Protection Agency’s proposed renewable fuel standard (RFS) blending volume requirements continues.

    Animal Protein & Dairy

    Returning demand from the food service sector led to extraordinary strength in the U.S. meat and poultry complexes throughout the summer. While pent-up demand has been a tailwind for the meat industry in recent months, the full effect of inflation is expected to test consumers’ appetite for meat during the fourth quarter.

    Foreign demand for U.S. animal protein has remained robust. Combined U.S. exports of beef, pork and chicken are forecasted to reach record highs in 2021, increasing 3% over last year. But inadequate labor availability continues to dampen productivity throughout the meat industry and is expected to remain a concern throughout the supply chain into 2022.

    Strong consumer demand for chicken breast meat and wings, combined with improved export demand resulted in a continuation of historically low ending stocks. Freezer inventories of broiler meat at the end of August were reported to be down 3% from July, and 20% below prior year. Beyond labor, hatchability remains a major constraint to chicken production growth. Weekly incubation rates have been reported at 3-5% higher than a year ago, yet harvest is down 1% from last year.

    The U.S. beef industry continues to benefit from elevated domestic demand and extraordinary foreign demand. U.S. beef exports are on pace to hit record levels for 2021, with Korea up 17% in volume through July, and China up 137% compared to 2020. Per-head packer margins remain at historic highs. In August, the choice boxed beef cutout valuation averaged $322/cwt., up nearly 50% compared with the same period last year.

    African Swine Fever (ASF) continues to add trepidation to the U.S. pork sector outlook. Roughly 27% of U.S. pork is exported. If ASF is found in U.S. hogs, it could effectively shut down exports overnight. Meanwhile, pork prices and hog values have responded favorably to tight supplies. Pork cutout prices are up 60% from a year ago and are 40% higher than the five-year average. Nearby hog futures eclipsed $120/cwt for the first time since 2015.  

    Rising feed and construction costs halted the 11 month-long expansion of the U.S. dairy herd last quarter while record hot temperatures dented milk cow productivity. The U.S. cow herd dropped by 29,000 head over three consecutive months into August. Labor supply tightness has prompted dairy producers to evaluate purchases or leases of robotic milkers, which have become more cost efficient with rising labor costs.

    Despite the congestion in the global supply chain, exporters continue to move big volumes of U.S. dairy products, particularly milk powder and cheese to Mexico and Asia. Domestic demand for dairy products also remains resilient with the return to school lifting fluid milk demand and the expanded cheese processing industry’s demand for milk is constant and growing.

    Cotton, Rice & Specialty Crops

    U.S. cotton prices have continued their slow but steady climb over the past 18 months, rising nearly 20% since the beginning of the year, outpacing both corn and soybeans. Texas is poised to post its second largest crop in history. Exports to China had been on a torrid pace since the beginning of 2020 but have stalled over the past two months. However, other markets have picked up the slack as world mill use has outpaced production for two years in a row.

    Flood damage resulting from Hurricane Ida has reduced rice harvest prospects on a crop that was already set to be smaller year-over-year on lower planted acreage as farmers switched acres to corn and soybeans. Concerns over flood damage lifted rough rice futures late in the quarter. Global rice supplies remain ample and have dampened the outlook for U.S. rice exports and prices.

    Hurricane Ida also impacted Louisiana’s sugarcane region. Crop damage was modest, but it will likely take a small bite out of local yields and extraction rates. Louisiana provides about 20% of the total domestic sugar production. The most consequential impact of the hurricane is that it temporarily shut down the sugar refining facilities in New Orleans, adding another supply chain problem for end-users. Spot wholesale cane prices have spiked to the mid-50 cent range, compared to the 2015-2019 average of 35 cents/lb.

    California tree nut growers anticipate a smaller crop but sharply higher prices. Intense drought conditions trimmed bearing acreage and yield potential this growing season. But the combination of an expanded global market, continued weakness in the U.S. dollar and a smaller harvest is widely anticipated to lift tree nut prices in the marketing season ahead.

    Power, Water & Communications

    The price for taking winter delivery of natural gas is now trading at a seven-year high as global scarcity concerns and a more measured return to domestic production growth have fueled early buying. The market appears to be concerned that the demand for U.S. natural gas exports is so strong that there may be little flexibility in meeting domestic demand, should another cold winter unfold. Exports have risen significantly, with the U.S. now exporting about 10% of its dry gas production, a 30% increase compared to year ago levels.

    The country’s largest reservoirs in the West have tipped to crisis, threatening the region’s water supply and hydropower generation. In August, the federal government declared a water shortage on the Colorado River for the first time, triggering mandatory water consumption cuts for the Southwest states. Unfortunately, a recent report by the National Oceanic and Atmospheric Administration foresees little relief on the horizon for the region. With scarcity proving to be the mother of invention, the West will likely come up with innovative ways to conserve water in the year ahead, identifying longer-term solutions for improved resiliency.

    Momentum is growing in Washington to reform the Universal Services Fund (USF) in an effort to bridge the digital divide. Currently, the USF does not offer a large enough revenue base to fund future broadband programs that are needed to ensure broadband is available in unserved rural areas.

    Private wireless networks are growing in popularity with towns and cities as a cost-effective way to bridge the digital divide. Cities are leveraging light poles and roof tops and partnering with equipment manufacturers and system integrators to build private wireless networks using CBRS spectrum.

    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; Specialty Crops; Other Crops and Rural Infrastructure Industries.

    About CoBank

    CoBank is a $158 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.

    Reference:

    1. COVID Data Tracker, Centers for Disease Control and Prevention, https://covid.cdc.gov/covid-data-tracker/#vaccinations_vacc-total-admin-rate-total, accessed Oct. 6, 2021

  • The Future of Ag Retailing Will be Driven by Precision

    Farm supply cooperatives and independent ag retailers are enjoying strong financial returns as the upturn in U.S. grain prices enters its second consecutive year. The extended period of above-average crop prices is leading farmers to increase spending on agronomic inputs and services. However, while profits for the ag retail sector are expected to remain favorable over the next 12 months, emerging structural challenges will bring increased competition and pressure profitability in the years to come.

    Major crop input suppliers wielding greater market power, larger farm enterprises with a growing appetite for more sophisticated technologies, and competition from ag equipment dealers competing for those services are among the key challenges facing ag retailers over the long-term.

    According to a new report from CoBank’s Knowledge Exchange, the ag retailer of the future has an opportunity to earn more income from precision agronomy services and emerging sustainability management programs, in addition to traditional crop input sales. The report suggests the current operating environment provides a timely opportunity for ag retailers to invest in new technologies and position themselves for success in a marketplace that is evolving rapidly.

    “The traditional approach for farm supply cooperatives is to save above-average profits when times are good and then manage costs rigorously during the inevitable downturn, which we expect will begin in 2023,” said Kenneth Scott Zuckerberg, lead grain and farm supply economist with CoBank. “Unfortunately, this approach exposes cooperatives to revenue volatility and declining earnings during down cycles, which can often last five or more years.”

    Instead of relying on product commissions and rebates alone, Zuckerberg sees farm supply cooperatives’ path forward is to expand their precision agronomy service offerings and capture more income from consultative service and software fees. “Putting technology and information to work to help farmers manage their inputs and production is where farm supply co-ops excel,” he said.

    Tailwinds Continue for Ag Retail, Near Term

    Ag retailers have enjoyed three consecutive profitable agronomy seasons and are generally well positioned for fall 2021 given high grain prices and favorable farm economics. The short-term outlook remains generally positive based on strong farmer income, steady demand for crop inputs and favorable cash flows. Partially offsetting this, retailers may face shortages of certain protection chemicals sourced from Asia as well as high wholesale fertilizer costs which they may not be able to fully pass on to growers.

    Growing global demand for feed grains and vegetable oil generally positions U.S. farmers and retailers for continued success in 2022. U.S. corn and soybean stocks remain very tight and the demand imbalance in stocks and usage should persist until at least 2023.

    Forces Driving Change

    Over the next several years, ag retailers are facing risks that will accelerate over time. The number of U.S. farms continues to decline due to consolidation as family and non-family farms seek greater economies of scale to boost profitability. As the new class of commercial farming enterprises hire their own agronomy staff and demand more data-intensive precision ag services, ag retailers could lose their edge as agronomic service providers.

    Recent acquisition activity confirms that ag equipment manufacturers are accelerating their offerings of autonomous and precision farming services, which compete with traditional agronomic advice provided by ag retailers. Consolidation among agro-chemical and seed suppliers and the maturation of disruptive ag tech startups represent additional structural obstacles.

    Getting Paid Properly for Advice

    Beyond providing farm customers with enhanced tools to farm more profitably, the business case for ag retailers’ expansion of precision agronomy services is financially compelling. Precision capabilities can help cooperatives attract and retain high value customers, while recurring service fees provide a new source of income. From a risk-reward standpoint, Zuckerberg sees revenue-sharing partnerships with proven technology service providers as a solid opportunity for ag retailers.

    “The current environment is ideal for partnership structures as a revenue-sharing opportunity between retailers and suppliers,” he said. “The opportunities associated with technologies for everything from drone imagery and remote sensing for crop scouting to precision seed recommendations and prescriptions are continually expanding.”

    Read the report, Precision Agronomy Services Will Factor Heavily in the Future of Ag Retailing.

  • Fresno Madera Farm Credit and CoBank Announce $30,000 Donation to Central California 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 210,000 meals to residents of Central California during a year when the food bank has seen a 25% increase in need in our community.

    “Central California Food Bank went from serving 280,000 people per month pre-pandemic, to more than 350,000 people per month this year,” 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.”

    This donation is part of CoBank’s larger Sharing Success program which relies on the local knowledge and expertise of the bank’s customers to identify nonprofit organizations that are truly making a difference in rural communities. As part of the Sharing Success program, and an additional California Food Bank program, CoBank matched Fresno Madera Farm Credit’s $15,000 donation, bringing the grand total to $30,000.

    “CoBank is humbled by the generosity of our customers and their commitment to support the rural communities they call home,” said Leili Ghazi, senior vice president of CoBank. “We know this donation will support the Central California families who need a little extra support during this tough time.”

    According to the Food Bank, in 2020-2021 more than 25% of the families visiting the food bank were there for the first time. O’Canto attributes that increase to massive unemployment due to COVID and the closing of more than 57 local agencies which typically provided food to the community.

    “When the pandemic started, schools closed, and then many of the churches and partner agencies that were providing food to families were operated by senior citizens who were told to stay home in order to stay safe,” O’Canto said. “We had to fill that need and come up with new ways to distribute food.”

    O’Canto said over the past year the Food Bank has started making deliveries to seniors, setting up new distribution sites, and pre-packaging foods for added safety – all of which have required additional resources.

    “Our staff and our customers are committed to supporting the communities in our region – and our partnership with the Central California Food Bank has always been an important part of our outreach,” said Keith Hesterberg, President and CEO of Fresno Madera Farm Credit. “We know our donation this year will help to support the food bank’s mission to address food insecurity in our area – at a time when area families need it most.”

    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 $158 billion cooperative bank serving vital industries across rural America. The bank provides commercial 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.

  • U.S. Tree Nut Exports Reach Record Levels, Easing Oversupply Burden

    California tree nut growers harvested record crops of almonds, walnuts and pistachios in 2020, following a year of ideal growing conditions on expanded bearing acreage. The abundance of supply led to lower tree nut prices which, combined with a weaker U.S. dollar, have pushed exports to record high volumes. The surge in exports comes despite ongoing retaliatory tariffs in importing countries like China and India and complicated shipping logistics.

    According to a new report from CoBank’s Knowledge Exchange, as bearing acreage continues to expand in the years ahead, the sector will need to continue growing its export base and add processing capacity to handle future record crops.

    “California’s tree nut crop has tripled in the last 20 years and continued expansion is expected as more bearing acres come into production in regions where water has not been limited,” said Tanner Ehmke, lead specialty crops economist with CoBank. “Expanding the export base will be key to finding a home for increases in production, and further investments in harvesting machinery, hulling and shelling capacity, and processing will be needed to market future tree nut crops in a timely manner.”

    After experiencing an exceptional growing season last year, California growers of almonds, walnuts and pistachios harvested near-record yields on record high acreage to produce a massive crop in 2020. Harvest levels rose substantially over 2019, with almonds, walnuts and pistachios increasing by 18%, 19% and 40%, respectively.

    Local markets were challenged by a lack of storage and processing capacity to handle the record crop, noting that acreage has grown too fast to harvest in a timely manner.

    The immense supply, coupled with some minor quality issues, contributed to the notable drop in prices for almonds and walnuts. Almond prices fell by roughly 30% from the prior year and walnut prices were down 40%. Pistachio prices have been steady to moderately lower year-over-year following a smaller off-year harvest in 2019.

    Water allocations for crop irrigation in California may impact yields of the 2021 crop. Handlers anticipate prices will be relatively stable for almonds, walnuts and pistachios heading into the next crop year and that the low-price environment will build a stronger demand base that will carry over into future marketing seasons.

    While tree nut growers and handlers are expected to struggle with low prices through 2021, the payoff is coming, noted Ehmke. “Consumers around the globe are adding nuts to their diets, which will boost demand and propel export momentum,” he said.

    Shipping issues with containers and the unknown impacts from COVID-19 cloud the long-term outlook on general consumption. Container shortages constrained exports from achieving a faster pace. Tree nut traders estimate that the scarcity of shipping containers has delayed 10%-20% of shipments.

    Watch a video synopsis and read the report, California Tree Nut Outlook: Record Exports Expand

    About CoBank

    CoBank is a $159 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.

  • Women’s Group Effectively Speaks on Behalf of the Busy Farmer

    In 1975, a group of women concerned about challenges to California agriculture got together to “speak on behalf of the busy farmer” and educate consumers and legislators about farming issues. Today, the CWA has become one of the largest all-volunteer advocacy groups in the nation, consisting of a diverse group of bankers, lawyers, accountants, marketing professionals and consumers – along with farmers and ranchers.

    Rose Tryon, a fifth-generation rancher beginning her second year as CWA president, said it is critically important that the ag industry continues to mount education and advocacy efforts, and last year added a digital campaign to its usual lobbying efforts.

    “Last year we ran a digital campaign titled Faces of Ag, where our communications team highlighted members who work in different facets of the industry,” she said. “We wanted to point out (to lawmakers) how important agriculture is to the state’s economy, how many jobs are involved and how many women and minorities are involved in ag and make a connection about how their decisions affect women and minority populations and ag in general. Our membership is as diverse as the crops we grow.”

    Because of the importance of educating policymakers about the many issues affecting farming and ranching in California, Farm Credit associations serving California have sponsored CWA for more than 20 years. Supporting Farm Credit institutions are American AgCredit, CoBank, Colusa-Glenn Farm Credit, Farm Credit West and Fresno Madera Farm Credit – all of which are part of the nationwide Farm Credit System, the largest provider of credit to American agriculture.

    “About half of the million dollars Farm Credit donates to nonprofits each year goes to preserving agriculture and raising awareness of the importance of agriculture in California,” said Timothy Elrod, president and CEO of Colusa-Glenn Farm Credit. “CWA’s 1,300 members do a great job educating decision-makers and advocating for policies that keep our state’s agriculture industry competitive and viable. We believe our contribution of $10,000 a year to support this great organization is an investment in the future of farming.”

    Tryon said Farm Credit’s support over the years has been essential in helping the organization grow.

    “We can’t continue to advocate without our sponsors, and we are so appreciative of Farm Credit’s support. They’ve been an absolutely wonderful sponsor, and we couldn’t continue without them,” she said.

    The organization consists of 21 local chapters that focus on promoting agriculture locally and providing scholarships to students majoring in farming-related majors. Tryon said her local chapter in the Chico area, for example, raises money to loan to students who can’t afford to buy an animal for FFA or 4H competitions. A student then raises the animal, shows it, and repays the loan when she sells it after the competition.

    That kind of commitment to the future of agriculture is another reason why Farm Credit continues to sponsor CWA, noted Keith Hesterberg, president and CEO of Fresno Madera Farm Credit.

    “In our area, CWA partners with Ag One to put on the Ag Boosters BBQ each year, which raises funds to support ag students and programs at Fresno State,” Hesterberg said. “Farm Credit is proud to directly sponsor that program, which helps ensure we will have well-educated ag leaders in the future.”

    About Farm Credit: 

    American AgCredit, CoBank, Colusa-Glenn Farm Credit, Farm Credit West 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 more information, visit www.farmcreditalliance.com.

    About California Women for Agriculture:

    The CWA’s mission is to promote and develop the interest of California women involved or interested in agriculture and to promote a strong agriculture industry in California. CWA’s efforts are guided by five principal objectives: to speak on behalf of agriculture in an intelligent, informative, direct and truthful manner; to keep CWA members informed on legislative activities pertaining to agriculture; to join forces when the need arises to deal with agricultural issues and challenges; to improve the public image of farmers and to develop a rapport with consumers, educators, and governmental and business leaders in communities throughout the state.

  • Mailbox Milk Prices Expected to Normalize in 2021 Following Year of Extreme Volatility

    The pandemic in 2020 caused unprecedented market volatility in dairy prices, leading to lower milk checks for dairy producers. However, the price spread is expected to realign in the first half of 2021, bringing normalcy to producer price differentials (PPDs) and mailbox milk prices, according to a new report from CoBank’s Knowledge Exchange division.

    Extreme volatility in cheese and milk prices resulted from supply chain disruptions, government purchasing, and changes in consumption habits during the COVID-19 pandemic. Record-high cheese prices lifted Class III milk prices disproportionately higher than Class IV milk prices, which were held in check by low butter and milk powder prices.

    Because of higher Class III milk prices, cheese manufacturers were incentivized to depool milk from Federal Milk Marketing Order (FMMO) marketing regions. The loss of higher-priced Class III milk from the pool resulted in negative PPDs for dairy farmers and lower mailbox milk prices.

    “The coronavirus pandemic broke the relationship between monthly mailbox milk prices and monthly Class III milk prices,” said Tanner Ehmke, manager of CoBank’s Knowledge Exchange. “But the spread between Class III and IV milk prices is expected to realign in the first half of 2021, bringing normalcy back to PPDs and mailbox milk prices.” 

    Pooling and De-Pooling

    While most Class I processors are legally obligated to pool milk in an order, handlers of other classes of milk have the option to participate based on certain order performance requirements and the financial incentive.

    Between June and November 2020, cheese processors mostly found themselves in a disincentivized position. The cost of milk would be higher if processors had pooled milk in the order. As a result, cheese manufacturers have in many cases chosen to “de-pool” milk.

    The effect of de-pooling has been most dramatic in California, where the FMMO pool consisted of an average of just 0.8% Class III milk between June and October 2020. This followed an average of 29% of the order in the same period in 2019.

    De-pooling is incentivized when the blend or uniform price in an order pool falls below either Class III or Class IV prices. Historically, de-pooling also tends to coincide with a negative producer price differential.

    Future of PPDs

    Negative PPDs occur when milk in a federal milk pool is less than the Class III price. This tends to happen when the Class III price is at a significant premium to Class IV milk prices.

    New cheese manufacturing plants coming online and expanding in Iowa, Michigan, Minnesota, South Dakota, and Wisconsin will increase annual production of American-type cheese by an estimated 8% by June 2021. When at capacity, the addition in manufacturing will utilize approximately 4.6 billion lbs. of milk annually—roughly equivalent to 1.5 years of increases in annual U.S. milk production.

    The increase in plant capacity, combined with the slowing of government programs like the Food Box Program, should contribute to Class III and Class IV milk prices returning to more historical price spreads in the second quarter of 2020, resulting in positive PPDs.

    Read the report, When the Pandemic Breaks Milk Prices: A Study in Returning to Normal.

    About CoBank

    CoBank is a $148 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 70,000 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.

  • Surging Feed Prices Will Challenge the U.S. Animal Protein Sector’s Recovery

    The U.S. animal protein sector is expected to face a 12% increase in feed costs in 2021, which will mark the highest year-over-year inflation since 2011. With corn futures above $4 per bushel and soybean meal futures around $350 per ton, cattle feeders, hog producers and chicken producers will pay higher prices for feed than they have in many years, according to a new report from CoBank’s Knowledge Exchange division.

    The higher feed costs come at a challenging time, as meat and poultry industry margins have been pressured by weak prices in 2020 due to COVID-19. Average producer margins for cattle, hogs and broilers fell into negative territory this year after the pandemic disrupted foodservice demand and drove widespread meat plant slowdowns and shutdowns.

    “Most producers lost money during the year, but that’s been in the midst of some of the most extreme volatility in global food demand anyone has ever seen,” said Will Sawyer, lead animal protein economist with CoBank. “Industry margins are far better today than they were in the spring, but there will be tighter windows of opportunity for the livestock and poultry sectors to profit in 2021.”

    Much of the increase in feed prices is being driven by Chinese demand for grain as it rebuilds its hog herd and overall animal protein supply after African Swine Fever (ASF) ravaged its herd the last couple of years. The USDA forecasts China’s corn imports to more than triple in the 2020-21 crop year, with much of that increase coming from the U.S.

    The shortage of animal protein in China has drawn massive trade flows towards the world’s most populous country. Since China lost more than half of its hog herd beginning in late 2018, it has been the largest importer globally of beef and pork, and nearly surpassed Japan in poultry imports. While China’s protein imports are expected to decline a modest 3% in 2021, CoBank economists anticipate those imports will fall more sharply in the years to follow.

    For most of the last decade, feed costs have generally been a tailwind for U.S. meat and poultry producers and have been lower than the year before for six of the last eight years. In 2021, U.S. hog producers are expected to face the highest level of feed cost inflation at 14%, closely followed by cattle feeders at 13%, and chicken producers at 11%. The impact of feed costs varies by species for several reasons, such as life cycle, feed ration, and components of other feed costs.

    While feed costs will be more of a burden for the animal protein industry than in previous years, meat and poultry supply growth is expected to slow in 2021. USDA forecasts 0.8% overall growth for U.S. beef, pork, and chicken production in the coming year, the slowest rate of supply growth since 2014. That leaves reason for some level of optimism that higher feed costs can be offset by higher prices.

    “While animal protein and poultry producers face a higher cost structure in 2021, margin opportunity will increasingly come from revenue rather than cost,” said Sawyer. “And fortunately, there are positive signs that producers and processors may benefit from higher beef, pork, and poultry prices to cushion higher feed costs.”

    Sawyer points to the emergence of COVID-19 vaccines as a positive first step towards the eventual normalization of food and animal protein consumption patterns, including the return of foodservice industry demand. Additionally, changes by major meat and poultry processors greatly reduce the probability of a repeat experience seen in April and May 2020.

    CoBank estimates U.S. meat and poultry companies have invested more than $2.5 billion this year in direct COVID-19 expenses to ensure safe working conditions and reduced risk of plant shutdowns. With plants operating at a more normal level, absenteeism levels improving, and far fewer workers falling ill, the financial impact of COVID-19 looks to be far less in the coming year than what the industry has endured in 2020.

    Read the full report, Surging Feed Prices to Test U.S. Animal Protein’s Recovery.

    About CoBank

    CoBank is a $148 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 70,000 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.

  • California Incentives Spur Dairy Manure Methane Digester Developments

    State incentives designed to help California’s dairy industry reduce methane emissions have led to a spike in the number of manure digester developments underway on California dairies. According to a new report from CoBank’s Knowledge Exchange, the wave of digester developments on California dairy farms has spurred interest in the technology nationwide.

    “Dairy producers outside of California may be anticipating future environmental mandates in their own states,” said Tanner Ehmke, manager of CoBank’s Knowledge Exchange division. “But the possibility of financial incentives and energy market opportunities are what’s capturing attention.”

    California’s 1.4 million dairy cows are the largest source of methane in the state, which put dairies in the spotlight when, in 2017, the state moved to reduce greenhouse gases (GHG) by adopting rules for methane emissions. Manure methane digesters are the primary means to reduce dairy emissions and offer the added benefit of capturing and recycling methane as renewable natural gas for energy.

    As a state law prohibits California from regulating methane from cattle farms until at least 2024, it has used incentives to encourage dairies to develop digesters. To date, the state’s dairy digester development program has awarded more than $183 million in grants for 108 digester projects. California’s legislated goal for 2030 is to reduce dairy manure methane emissions by 40% below 2013 levels and is about half way to that goal.

    A key driver behind the growth of manure methane digesters has been consumers’ increasing concern about GHG emissions. They are putting that concern into action by demanding products have smaller carbon footprints, pressure that is being felt by state governments, retailers and dairy supply chains.

    In turn, California has implemented two measures beyond the grant program that are driving digester development: the Cap-and-Trade program and the Low Carbon Fuel Standard (LCFS). These programs are now the main sources of revenue for dairy digester projects.

    Under the Cap-and-Trade program, regulated entities in California pay a fee to the state for their GHG emissions. This revenue funds the incentives for non-regulated sectors, like agriculture, to voluntarily reduce emissions. The LCFS, an option that has generated revenue for dairy biogas, works similarly to Cap-and-Trade but is focused on transportation fuels. Fuel suppliers are required to reduce the carbon intensity of their fuels by blending low carbon fuels or purchasing credits from an entity with excess credits.

    The decision to install a digester is multifaceted. The cost to install a digester varies greatly depending on the dairy’s location, size, manure management and existing infrastructure. But digester companies report the average cost for a herd of 2,500 cows at $3 million, depending on the manure equipment already in place.

    Scale is a key component impacting digester costs. A minimum of 2,000 cows is the threshold in California, where the typical digester is a covered lagoon digester producing gas for pipeline injection. Generally, each additional 1,000 cows reduces the cost per cow of digester projects by 15-20%.

    The risk of policy change to the Cap-and-Trade program and the LCFS is low in California, but risk may be higher for projects outside of California trying to capitalize on credits.

    The full report, “Interest in California Dairy Manure Methane Digesters Follows the Money,” is available on cobank.com.

    About CoBank

    CoBank is a $152 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 70,000 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.