Meat and dairy markets particularly impacted
17 October 2023
5 minute learn
The combo of excessive rates of interest and a powerful US greenback is starting to take a disproportionate toll on rural industries like agriculture, wooded area merchandise, mining and production, in line with a quarterly file from CoBank.
Maximum global transactions are nonetheless performed in greenbacks, and a powerful greenback makes US exports costlier and imports less expensive. That disproportionally hurts the spine of the agricultural financial system, in line with a new quarterly file from CoBank’s Wisdom Alternate.
Whilst the United States financial system is outperforming expectancies, the remainder of the sector—Europe and China particularly—has fallen brief. On account of the United States financial place relative to different international locations, the greenback has gotten a lot more potent than up to now expected. The expectancy that rates of interest will stay excessive for the foreseeable long run has additionally contributed to the strengthening greenback.
“The problem for agriculture and different rural industries that depend closely on international markets is their export companions merely can’t have enough money to shop for U.S. merchandise,” mentioned Rob Fox, director of CoBank’s Wisdom Alternate. “Whilst you mix the lack of exports with a common slowdown in the United States financial system, it’s a double whammy for lots of companies working in rural The usa.”
The disruptive geopolitical and financial occasions lately resulted within the traditionally abnormal scenario the place commodity costs and the greenback have been each shifting upward in tandem. However the ones occasions at the moment are fading as marketplace drivers. The basic inverse courting between the vast array of commodities and the greenback has in large part returned.
Farm Invoice negotiations will take a again seat whilst the Area of Representatives makes an attempt to choose a brand new speaker and Congress works to cross its annual appropriations expenses earlier than the Proceeding Solution expires on Nov. 17. The in all probability end result is an settlement by means of year-end to increase the present Farm Invoice by means of a couple of months or as much as a 12 months or extra.
Grains, farm provide and biofuels
Traditionally low water ranges at the Mississippi River are proscribing grain motion heading into height fall harvest season. Upper barge charges at the river are pressuring inner foundation values for corn and soybeans. The combo of a robust US greenback and powerful export festival from Brazil and Russia are growing main headwinds for the United States grain and oilseed export program. Wintry weather wheat planting is underway in the United States with acreage anticipated to be down relatively as costs languish underneath anticipated breakeven prices of manufacturing.
Fertilizer costs endured to weaken within the 3rd quarter. Anhydrous ammonia and potash costs fell 30% and 15%, respectively. Costs for herbal fuel, used as a each feedstock and manufacturing enter, dropped by means of about 7%. The autumn fertilizer utility season will have to be fairly commonplace for areas which are seeing an orderly harvest. Whilst the outlook for the 2024-25 planting season is cloudy, much less fertilizer utilization is anticipated as acres shift from corn to soybeans.
Gas ethanol manufacturing was once very robust throughout the 3rd quarter, averaging 16.1 billion gallons in comparison to 15.4 billion throughout the second one quarter of 2023. A robust summer time go back and forth season and tasty gasoline ethanol costs have been the important thing call for drivers. Profitability was once additionally favorable, exceeding 50 cents in step with gallon vs. 20 cents in step with gallon within the 12 months in the past length. Renewable diesel and different biofuel capability continues to develop, having higher by means of 26% or 800 million gallons since January 2023.
Animal protein and dairy
Restricted provides of market-ready farm animals suppressed red meat availability all through the 3rd quarter. USDA estimates general US red meat output shall be down 5% in 2023 and expects an extra 7% decline in 2024. Tight provides endured to churn the wholesale red meat marketplace. The composite boxed red meat cutout climbed to listing highs in June and July, averaging a 16% top rate year-over-year for the quarter. However with fed farm animals costs up 30% in comparison to closing 12 months, packer margins got here underneath drive. Regardless of the emerging value atmosphere, client call for for red meat has remained steadfast.
The USA Splendid Court docket determination to uphold California’s Proposition 12 spurred a rally within the red meat marketplace. Red meat cutout values higher 41% from Might-July, countering susceptible costs previous within the 12 months. Hog costs additionally rallied, with within sight hog futures mountaineering 36% from past due Might via early August. With manufacturing emerging and seasonal hobby fading, markets have since cooled. USDA’s newest hogs and pigs file means that whilst the business is making potency features, manufacturing ranges will proceed to teeter on meager benefit expectancies.
Hen markets have been tepid at first of the 3rd quarter. Breast meat values have been unseasonably low and wings hovered round $1 in step with pound. Whilst increased client value issues could have contributed to comfortable disappearance, the load of increased surplus was once tricky to dump. Serious margin compression mixed with excessive enter prices led to some manufacturers to rethink longer-term manufacturing objectives. Any expansion shall be restricted given the bulletins of six plant closures this 12 months.
Robust cheese manufacturing and slowing dairy exports mixed to drag Elegance III milk costs right down to a paltry $13.77 in step with cwt. by means of midsummer. With plentiful cheese and powerful milk manufacturing, Midwest spot a whole lot of Elegance III milk bottomed out a lot less than the five-year reasonable. Confronted with low milk costs and excessive feed prices, dairy farmers despatched extra cows to slaughter to make the most of record-high red meat costs. Futures markets point out that the general quarter of the 12 months may well be significantly better, with projected Elegance III milk costs at $17.30 in step with cwt. The largest wild card for milk costs is China, the sector’s main dairy-product importer, which is going through an financial downturn.