Northwest FCS News
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Ample Water and Supplies Factor into a Mixed Outlook for Pacific Northwest
Agricultural Commodities Face Relatively Healthy Domestic Economy while Strong US Dollar Still Hampers Exports
Spokane, Wash. - April 7, 2016 – Most Northwest reservoirs and stores of select commodities share a common trait entering spring – they’re full or nearly full. Ample water supplies suggest a positive production season in all but Montana. However, oversupply of commodities in the dairy, hay and wheat markets weighs heavily on higher prices, and returns are near breakeven. A strong dollar and beleaguered exports further challenge most markets.
Despite these challenges, cattle markets are stable after falling in late 2015. Returns for sugar beet growers remain positive, supported by a global sweet tooth outpacing sugar supplies. Similarly, contract potato growers are optimistic, supported by contracts at par with the prior year. A relatively healthy economy supports confidence in the wine-vineyard and nursery-greenhouse industries, where returns are positive. The forest products industry is stable, where fates are tied to a strengthening economy and improving housing starts, but faces near-term headwinds with falling log and lumber exports. A smaller crop translates into higher prices in the apple industry, while smaller harvests challenge several fisheries’ returns.
Beef – Cattle markets stabilized after a volatile second half of 2015. Prices will continue moving toward equilibrium in 2016, with traditional cyclical price trends anticipated. Although a strong U.S. dollar presents export challenges, rising U.S. beef production and lower prices support USDA forecasts for higher beef exports in 2016. U.S. cow numbers are expected to increase for the third consecutive year.
Dairy – Ample feed supplies provide some relief to milk producers facing markets with prices at or below breakeven. Milk markets are expected to face headwinds for the foreseeable future, pressured by rising production and imports of inexpensive global dairy products. Key foreign factors impacting markets include European Union oversupply and Russian import bans.
Hay – The Northwest hay market is lackluster, challenged by a shortage of quality hay, low dairy profitability, tepid export markets and excess hay inventories. After a challenging 2015 production season, the region continues to experience a general shortage of quality hay. Conversely, stocks of lower quality hay are relatively high and finding little marketplace interest. Hay growers’ strategy for reversing near breakeven returns in 2015 includes quality versus quantity in 2016.
Wheat – Although weather conditions are mixed throughout the Northwest, all areas face a common storm – low wheat prices. Wheat markets continue to languish below most producers’ breakeven price. Near-term market upswings are likely short-lived, pressured by surging global supplies. Alternative crops are increasingly being explored to diversify producers’ income streams.
Potatoes – Potato growers enter 2016 buoyed by favorable weather and profitable contracts. Snowpacks across the Northwest are generally above average, promising full irrigation water allocations for most producers. Expectations for a positive growing season are matched with processor contracts generally at par with the prior year. With lower grain and substitute crop prices, Northwest potato acres are expected to be similar to 2015.
Sugar beets – Sugar beets are a profitable alternative relative to other, lower priced commodities. Stable to higher sugar prices are expected as global supplies dwindle and world sugar demand exceeds production. The favorable sugar market outlook is met with projections for adequate irrigation water supplies buoyed by Northwest snowpacks.
Apples – At 116.7 million boxes, Northwest fresh apple production is down from last year. The smaller crop is translating to profitable prices for most varieties; however returns for some growers are negatively impacted by high cull rates. Looking ahead, the industry has the potential to produce a 150 million to 160 million box crop in 2016. Under the most likely scenarios this will result in unprofitable prices for many growers, especially those focused on producing traditional apple varieties.
Wine-Vineyard – The wine industry is positioned for another strong year in 2016. Northwest 2015 wine grape harvest results are mixed; down slightly in Washington, but up in Oregon. In California – the nation’s largest wine and vineyard state – the 2015 crush is down 7 percent from 2014, constrained by drought. Favorable weather, adequate irrigation water and strong demand for premium wines reinforce a positive outlook for the Northwest wine-vineyard industry in 2016.
Forest Products – The forest products industry remains stable, with prices for logs and lumber expected to increase as the U.S. economy strengthens. However, a positive outlook for the industry faces near-term headwinds in housing starts. Although housing starts are up year over year, they’re slow relative to late 2015. Forest products exports are weaker than the prior year, constrained by the strong U.S. dollar and China’s stunted economic growth. Conversely, Canadian lumber imports to the U.S. are up, fueled by these same factors.
Nursery-greenhouse – Nursery-greenhouse industry prospects are positive. Demand is expected to remain strong, supported by rising housing starts. Although nursery-greenhouse producers face competition for business, entry by new producers or expansion by existing producers doesn’t appear to be occurring. Supply-related challenges in the near future aren’t a concern.
Fisheries – The Northwest fisheries industry includes mixed results. Although several fisheries experienced favorable harvest outcomes and returns in 2015, others fought tough fishing conditions, poor prices and a strong U.S. dollar that impeded exports. Moving into 2016, the industry faces weather and biomass uncertainties. Anomalies associated with warmer weather include catches farther from traditional fishing grounds and unseasonable delays. Positive developments include a healthy Bering Sea biomass and Pacific whiting fishery.
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Northwest FCS is a $10.6 billion financial cooperative providing financing and related services to farmers, ranchers, agribusinesses, commercial fishermen, 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.
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