Wet Spring, Rising Inflation Pressure Ag Profits
Northwest Farm Credit Services has released its quarterly Market Snapshot reports covering the state of major agricultural commodities in the region. Northwest FCS teams throughout Idaho, Montana, Oregon and Washington monitor conditions and report outlooks for commodities financed by the co-op.
Apples: The 12-month outlook for apples expects breakeven conditions. Supply of the 2021-22 crop is dwindling. Cool and wet weather will likely result in another small crop for the 2022-23 season. While growers and packers with normal to strong volumes should be profitable, many may face insufficient yields and throughput to cover operating and fixed costs. In addition, rising input and transportation costs will continue to pressure margins and reduce competitiveness of West Coast products in East Coast markets.
Cattle: The cattle outlook suggests slightly profitable returns. Strong demand has supported higher fed cattle and beef prices, but accelerating feed costs will create headwinds for cattle producers and feedlots.
Cherries: Breakeven conditions are expected for the Northwest cherry industry. Prolonged cool and wet weather, in addition to hailstorms, will significantly reduce the 2022 crop and raise breakeven prices at a time when high inflation is reducing consumers’ discretionary income. Those with sufficient crops will enjoy strong returns while others will struggle. Rising input and transportation costs will pressure margins.
Dairy: The dairy outlook suggests profitable returns. The USDA all milk forecasted price reached a record high at $25.75 per cwt, up 39% from 2021 prices. Record milk prices will offset headwinds from increasing feed and operational costs. Declines in global dairy production will create tailwinds for sustained elevated milk prices and keep U.S. dairy exports competitive.
Fisheries: The 12-month outlook foresees fisheries being profitable. Demand generally remains strong despite rising inflation and shifting consumption patterns. The Biden administration’s ban on Russian seafood imports may tighten pollock and crab markets, but the policy’s effectiveness is yet to be seen. Salmon supply and demand should be strong heading into its 2022 season. Northwest crab fishermen largely completed their catch before the recent price drop.
Forest Products: Both forest product manufacturers and timberland owners are expected to be profitable. Lumber prices have dropped dramatically but remain at profitable levels. Douglas-fir log prices have peaked to pre-pandemic levels. Overall, the forest products industry should benefit from strong housing construction in 2022, but leading indicators suggest a potential slowdown heading into 2023.
Hay: The 12-month outlook for the hay industry suggests profitable returns. A cool spring with intermittent rains has damaged some of the hay crops in Idaho and Washington. Smaller than expected hay production, coupled with lower inventories and high feed prices, will support favorable prices for hay growers.
Profits are anticipated for the nursery/greenhouse industry. Growers continue to face rising costs and shortages of inputs but benefit from strong demand and a willingness to absorb higher prices. Rising fuel and food costs may incentivize people to focus on home projects and grow more garden vegetables. Onions: The 12-month outlook suggests slightly profitable onion returns. All sheds have sold their onions in storage. Strong demand for medium to large onions and sustained high prices for the 2021-22 crop have left onion growers in a favorable financial position. Increasing fuel costs and expensive trucking rates will create major headwinds for producers’ operating expenses.
Pears: Slight profits are anticipated for pear growers. The 2021-22 crop continues to see strong demand and good overall quality. Preliminary assessments of the 2022-23 crop are favorable, but prolonged cool, wet weather creates the risk of a smaller than average crop. Rising consumer inflation may lead to demand loss. In addition, rising input and transportation costs will continue to pressure margins and reduce competitiveness in East Coast markets.
Potatoes: The outlook suggests profitable returns for both contract and uncontracted potatoes. Rising operational costs for growers, increases in packing expenses and inflation will create headwinds for processors.
Sugar Beets: The sugar beet outlook projects profitable returns for growers. Cooler weather and spring rains alleviated drought concerns and warming temperatures are optimistic to increase sugar beet growth. Higher contract prices should help minimize headwinds from rising operations costs.
Wheat: The 12-month outlook anticipates profitable returns for wheat producers. Government weather relief programs bolstered growers’ already strong 2021 revenues. A wet, cool spring in the Northwest has producers monitoring for rust, but most wheat is in good condition. In Montana, drought conditions are causing headwinds for wheat yields.
Wine/Vineyard: The outlook calls for profits for both vineyards and wineries. Multiple years of short crops should keep grape prices elevated. Unseasonably cool and wet weather may reduce yields and lead to frost damage in certain locations, but overall impact appears minimal in Washington and remains unclear in Oregon. Consumers continue to spend more per bottle of wine, but high inflation may limit this trend. Rising input and transportation costs remain a challenge. Northwest FCS is a $15 billion financial cooperative providing financing and related services to farmers, ranchers, agribusinesses, commercial fishing operations, timber producers, rural homeowners and crop insurance customers in Montana, Idaho, Oregon, Washington and Alaska. Northwest FCS is a member of the nationwide Farm Credit System that supports agriculture and rural communities with reliable, consistent credit and financial services. For more information, go to northwestfcs. com.
All Market Snapshots and audio highlights are posted online at northwestfcs.com/ industry-insights.