Back to Markets
Stocks● Neutral
Farm Margins in a Squeeze: El Niño vs. Middle East Costs
The Fed's Eleventh District ag survey: 53 bankers report low commodity prices and high input costs squeezing farm margins. Super El Niño rains and record-high cattle prices provide a partial hedge.
Continue with
Bankers in the Eleventh Federal Reserve District see a second quarter defined by cross-currents. Commodity prices remain low. Cattle prices sit at historically high levels. Input costs have increased, a development bankers link to the Middle East conflict. The outlook improved on forecasts of a super El Niño weather pattern that could bring rain to most of the district. The survey, based on responses from 53 bankers collected June 1-10, captures this tension.
Profit margins are the dominant concern. One survey respondent said "depressed commodity prices combined with inflated input costs are going to make margins extremely tight." Another noted that "farming is not projected to be profitable based on today's prices." The squeeze on growers has implications for equipment and fertilizer suppliers. Farmers delay purchases and shrink planted acreage when cash flows are negative.
For ranchers, the picture is different. "The cattle market is still historically high," a banker said. The threat is not price. It is the New World screwworm. "The threat of New World screwworm crossing the border is on people's minds," said another respondent. The pest could force herd reductions and disrupt supply chains. For beef producers, the risk is binary: either the worm stays south of the border and margins hold, or it crosses and the market's strength becomes irrelevant.