January 11, 2016

Northwest FCS News

Northwest Producers Face a Jumbled Bag of Challenges and Opportunities

Spokane, Wash. - Jan. 12, 2016 – The Northwest agriculture, forest products and fisheries industries enter 2016 with different outlooks, according to industry analysts at Northwest Farm Credit Services.

“The economy and strong dollar overseas, carryover effects from drought and summer fires, El Niño, global production, ending stocks and import/export activity are all influencing the markets for Northwest products,” said Michael Stolp, Northwest FCS Vice President – Customer Insights. “These external factors are impacting the profitability of Northwest producers.”

Lower prices challenge wheat, dairy and hay producers’ bottom lines, where prices are pressured by large supplies and slowed exports. After an extended period of high prices, beef cattle prices are falling, but expected to remain profitable. Potato exports are a contrast to other commodity export slowdowns, up more than 4 percent from 2014. The outlook for sugar beets is also sweeter, with global consumption outpacing production. Apple prices are improving with slower shipping rates.

A relatively stable economy continues to sustain a recovery in forest products and fuel profitability in the nursery/greenhouse and wine/vineyard sectors. Uncertainty looms in select West Coast fisheries as they grapple with the effects of El Niño.

Beef – A prolonged period of strength and steady gains resulted in historically high cattle prices through the first half of 2015. However, market cycles pressured prices lower through yearend as the 2015 calf crop increased with rising numbers of heifers coming into calf production. Exports were also lower through the third quarter, slowed by a strong dollar. Beef and cattle prices are expected to stabilize near the long-term trend in the next three years.

Dairy – Headwinds facing the dairy industry include strong global production, reduced milk exports and falling cull cow prices. In international markets, European Union milk production gains and lower milk exports to China and the Middle East are pressuring markets lower. Although feed prices are also lower, milk prices are projected below most producers’ breakeven prices through the first half of 2016.

Hay – Northwest hay markets are tepid, pressured by exporters’ and dairies’ ample supplies of hay on hand. The lack of quality hay in the market, marginal dairy profitability, slow export markets and excess hay stocks are keeping most buyers out of the market. Although quality hay is generally in short supply, stocks of lower-quality hay are up significantly due to untimely rain and extreme heat in 2015. Likewise, dairy producers are reducing hay in rations and increasing relatively low-priced corn, soybeans and other feeds.

Wheat – Wheat producers entered 2016 celebrating weather, but lamenting markets with prices below most producers’ breakeven points. Late fall and early winter precipitation exceed the prior year’s levels, setting the stage for a positive start to spring. However, record global production and ending stocks leave usable world wheat stocks at 32 percent, their highest since 2001-2002. With a world flush in wheat, U.S. wheat exports are their lowest since 1971-1972, constrained by fierce foreign competition and a strong dollar.

Potatoes – Although Northwest potato growers harvested more acres in 2015, production was down almost 3 percent due to lower yields. A smaller crop is matched with quality challenges associated with an unseasonably warm growing season. Notwithstanding these challenges, U.S. potato exports are up 4.3 percent, while frozen potato stocks are down 4.5 percent.

Sugar Beets – Sugar beets remain a profitable alternative in growers’ cropping mix. Northwest sugar beet production increased 3.3 percent in 2015. However, ending sugar stocks are lower, down 6.1 percent due to lower sugar imports. Globally, record world sugar consumption is forecast to outstrip production in 2015-2016.

Apples – The outlook for the Northwest apple industry continues to improve, supported by lower 2015-2016 production, down 16.4 percent from the prior year. A smaller crop is attributed to smaller apple size, crop damage and fewer acres in production. Although early-season apple sales were brisk, prices are improving as the shipping pace slows. Continued strength in apple prices may be constrained by slower than normal export sales, limited by a strong dollar.

Wine/Vineyard – Wine sales are strong and bulk wine markets are active. Despite an early harvest due to unseasonably warm temperatures, Northwest wine producers’ 2015 crop was heavy and relatively high quality. Overall wine sales continue to increase, with active consumer interest in premium wines priced between $12 and $30 per bottle. Relatively mild winter weather to date favors Northwest wine grape production in 2016.

Forest Products – The forest products industry continues to experience a lethargic, but sustained recovery as demand improves, supported by employment and household formation increases. Demand improvements are met with increasing lumber supplies from the U.S. and Canadian imports. Overall, results for forest products companies in 2015 are below 2014 performances.

Nursery/Greenhouse – Nursery and greenhouse sales results were encouraging in 2015, with many reporting higher sales and profitability in 2015. Sales and profitability are expected to continue their climb in 2016. New crops for 2016 include drought-tolerant plants, native plants and legal/medical marijuana.

Fisheries – The El Niño in the tropical Pacific is an important factor influencing West Coast fisheries, where total landings often decrease in the year following above-average ocean temperatures. This impact is most relevant in California, but also evident in Oregon and Washington. Additionally, El Niño creates warm water “blobs” and toxic algae blooms of unprecedented size. These blobs delayed the opening of the California, Oregon and Washington Dungeness crab fisheries in late 2015.

Additional Market Snapshots are available for cherries, pears, onions, crop inputs, land values and energy.

About Northwest Farm Credit Services
Northwest FCS is a $10.5 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 Farm Credit System, a nationwide network of borrower-owned lending institutions that is the largest provider of credit to U.S. agriculture. For more information, go to northwestfcs.com.

Debra Strohmaier
Communications Specialist
509.340.5443 or debra.strohmaier@northwestfcs.com