October 6, 2015

Northwest FCS News

Spokane, Washington - October 7, 2015 – Extreme summer heat throughout the Northwest adversely impacted yields and quality for most crops. For wheat producers, these challenges are magnified by unprofitable prices. Hay growers are experiencing tepid demand as heat and untimely rains resulted in an abundance of lower quality hay. The outlook for apple prices improved with the harvest of a smaller crop, but quality issues in select apple varieties will reduce profitability for some growers. Wine grape harvest in the Northwest was an exception. Heat brought on an early harvest, but no material production or quality challenges are reported. Continued improvement in the U.S. economy is supporting a sustained period of profitability for cow-calf producers and continued recovery in the nursery industry. Meanwhile, a stronger U.S. dollar is resulting in commodity price pressure in the dairy and forest products industries.

The following highlights depict the general health of select industries included in Northwest Farm Credit Services’ Knowledge Center Market Snapshots, which are available at northwestfcs.com/resources.

Beef – Cattle and beef prices have experienced a prolonged period of strength, including steady gains that resulted in historically high prices through the first half of 2015. Despite a sharp decline in fed cattle prices at the end of the third quarter, analysts predict historically high cattle prices will continue through the year, supported by historically low supplies and strong domestic beef demand. Beef prices dropped from record levels, pressured by lower prices for pork and chicken. Overall prices are below those reported a year ago, but still significantly higher than historical averages.

Dairy – Northwest dairy producers face lower milk prices in a situation much different than 2008-09. Although current milk prices are below breakeven for most dairies, feed prices are lower and balance sheets are strong. Milk prices are expected to remain relatively low through the fourth quarter. Bearish factors facing U.S. milk producers include continued increases in U.S. and EU milk production, a strong dollar, and lower Chinese and Russian milk powder imports. Drought in California, the potential for Indian imports given a disappointing Monsoon season, and lower production in New Zealand may help offset bearish factors moving forward. 

Hay – The Northwest hay market remains tepid. Untimely rain and extreme heat across the region challenged the production of quality alfalfa this season. While the Northwest continues to experience a general shortage of quality hay, stocks of lower quality hay are abundant. The lack of quality hay in the market, marginal dairy profitability and slow export markets are keeping buyers cautious. The sheer volume of lower quality hay in the market is expected to weigh on prices and marketing pace through the winter months.

Wheat – Drought limited Northwest wheat production and created protein levels either too high for soft white wheat or too low for hard red wheat. In addition to poor production, wheat market prices are below most growers’ breakeven price between $5.50 and $6.00 per bushel (net). Low prices are attributed to record-setting world wheat production and ending stocks. Winter wheat planting intentions are uncertain for producers in areas where arid conditions persist.

Potatoes – Harvested fall potato acres are forecast up 1.6 percent in the U.S. and 1.7 percent in the Northwest. Growers’ initial harvest reports suggest yield and quality issues associated with an atypically hot growing season. Processors in Washington were initially active in open (un-contracted) potato markets, purchasing supplies to offset lower early potato yields. However, current Northwest open potato markets are oversupplied and returns are below breakeven. Growers are hopeful low potato prices will incent demand, reduce new crop inventories and raise prices later in the marketing season.

Sugar Beets – Early sugar beet harvest reports are positive. Although growers anticipated production challenges associated with an atypically hot growing season, yields are average and sugars are high. Globally, sugar markets are pressured by abundant supplies and record carryover stocks. Northwest sugar beet producers’ rotations are expected to remain stable in a period of lower prices for substitute crops.

Apples – With the expectation of smaller Northwest and U.S. apple crops, the outlook for the Northwest apple industry has improved following last season’s downturn in pricing. Early market sales and prices were positive. However, as supplies from competing regions are harvested markets will be pressured. Apple prices are likely to reach seasonal lows this winter and rebound in the first quarter of 2015. Due to extreme heat that damaged crops, lower than average packouts for some apple varieties will adversely impact producer profitability.

Wine/Vineyard – Most Oregon and Washington wine grape producers began harvest earlier than normal due to above average growing season temperatures. Although the growing season was atypically hot, no material production or quality challenges are reported. Conversely, production is forecast lower in California due to drought. Overall, wine inventories are expected to remain balanced, supported by prior years’ strong production. Demand remains strong for wine, supporting a positive market outlook.

Forest Products – Modest improvement in U.S. housing starts in 2015 is offset by oversupply in lumber markets. Production of lumber in North America rose 4.2 percent in the first half of 2015 compared to 2014, reaching the highest level since 2007. With the stronger U.S. dollar, domestic lumber prices are under pressure from Canadian imports. Expiration of the Softwood Lumber Agreement on Oct. 12 is expected to further pressure prices. The lapse will allow Canadian lumber to flow into the U.S. without penalty. Although a few mill curtailments have been announced, it’s uncertain if cutbacks will continue through the remainder of the year.

Nursery/Greenhouse – The outlook for the nursery and greenhouse industry is positive, supported by steady demand and rising sales. Many buyers are visiting nurseries and pre-ordering product to lock in orders for spring deliveries. Buyers are more focused on access to supply than price concessions, allowing producers to lock in profit margins. This dynamic is helping to support continued recovery in the industry.

Jennifer Rohrer
Media Relations Coordinator
509-340-5303 or Jennifer.Rohrer@northwestfcs.com