Northwest FCS News
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Fundamentals Good, Trade Taking a Toll on Many Northwest Ag Industries
Northwest FCS examines the state of Northwest agricultural commodities in its release of second-quarter 2018 industry reports
SPOKANE, Wash. (July 3, 2018) – Northwest Farm Credit Services, the Northwest’s leading agricultural lending cooperative, has released its quarterly Market Snapshot reports that look at the state of major agricultural commodities in the region. Northwest FCS industry teams working throughout Idaho, Montana, Oregon and Washington monitor conditions and report outlooks for commodities financed by the co-op.
All Market Snapshot reports are posted online at Industry Insights.
The following are Northwest FCS' 12-month profitability outlooks for major Northwest commodities financed by the company.
Cattle – Cattle producers should see slightly profitable returns over the next year. Drought conditions in the Midwest pushed calves into feedlots sooner than anticipated. As a result, the number of cattle on feed is the highest since data collection began. Slaughter rates are correspondingly high. Domestic consumption and export demand continue to grow, helping to offset high supplies. Uncertainty surrounding trade provides opportunities with falling feed costs, and headwinds as export demand is called into question.
Dairy – Dairies are expected to remain below breakeven. Absent the potential of trade wars, fundamentals of supply and demand remain encouraging. In April, both dairy product exports and domestic cheese consumption reached the highest levels on record. However, tariff rhetoric drove July class III milk futures down 14 percent in a month.
Fisheries – Fisheries should have solid returns as strong demand supports profitable pricing. 2018 ‘A’ season prices for pinbone-out pollock increased 30 percent over last season. Cod prices remain favorable; halibut and sablefish prices have softened from elevated levels due to inventory buildup. However, geopolitical tensions could threaten the positive outlook for fisheries. China, Alaska’s major export market, announced a 25 percent tariff on about $1 billion of seafood, effective July 6.
Forest Products – Timberland producers could show very profitable margins for timberland and mills should see profitable margins. Reaching a seasonally adjusted annual rate of 1.35 million in May, housing starts are driving strong demand for building materials and boosting lumber prices to record levels. Tight log supplies across the region are keeping log prices robust. However, sawmill margins could soften if prices of the lumber they sell don’t keep pace with the cost of logs they buy.
Hay – The hay industry should see profitable returns. Absent potential trade wars, fundamentals of supply and demand remain encouraging. Northwest hay inventory is down 19 percent from last year while nationally, hay inventory is down 36 percent. Lower inventory suggests higher prices and improved producer profitability year over year.
Nursery/Greenhouse – The nursery/greenhouse industry should operate profitably. Every year, Northwest FCS surveys its nursery customers to collect sales numbers through May 31. This year’s poll reported year-over-year sales growth of 5.65 percent for the industry as a whole. This is not surprising as a strong economy supports consumer demand for discretionary expenditures on plants and landscaping.
Onions – Onion growers should harvest slightly profitable returns. Growing conditions across the Northwest are near optimal for onions. However, trucking strife and strong production in other onion-growing regions could create headwinds to profitability.
Potatoes – Uncontracted potato producers could bring in slightly profitable returns and contracted potato growers should see profitable returns. Favorable growing conditions suggest strong yields for the new crop. However, trade tensions indicate lower exports and headwinds to producer profitability.
Sugar Beets – Sugar beet producers should reap slightly profitable returns. Unfavorable early weather conditions led to a slower start to the growing season, which may hinder production. Although sugar imports from Mexico have increased, total sugar imports are forecast down. Lower imports and lower production foreshadow tighter ending stocks and slightly higher prices.
Apples – Slight profits may be typical in the apple industry. The 2017-18 crop year yielded an abundance of small fruit. Low-quality and small fruit is sent to processors; this reduces packs per bin and decreases growers’ returns. Growers expect next year’s crop to be smaller compared to this season, which could increase prices. However, geopolitical tensions dampen this optimism. Washington’s biggest export markets for apples are Mexico, India and Canada. Mexico announced a 20 percent tariff on apples, and India announced a 30 percent tariff in addition to an already-levied 50 percent tariff.
Cherries – Cherry growers are predicted to see slight profits. A light California crop and an extended Northwest harvest window will allow markets to successfully sell the crop at profitable margins. The biggest threat to the cherry market is tariffs. China, the Northwest’s biggest export market, enacted a 15 percent tariff on cherries in April and another 25 percent tariff will be added on July 6, which aligns with peak cherry season.
Pears – Slight profits are expected in the pear industry. Growers’ returns were subdued for the 2017-18 crop due to the lowest production on record. There is optimism around a larger 2018-19 crop, currently projected at 18.9 million boxes. However, significant fire blight issues could reduce the current production estimate as trees are taken out of production.
Wheat – Wheat growers may see slightly profitable returns. As global supplies continue to grow, U.S. wheat production is projected 25 percent lower, which may provide price support into the 2018-19 crop year. USDA’s pre-tariff projections suggest the 2018-19 season-average farm price for all-wheat will be between $4.60 to $5.60 per bushel. However, trade issues will provide material headwinds if a resolution is not reached.
Wine/Vineyard – Profitable margins are foreseen for wine/vineyard operations. Mild winter weather and a favorable transition into spring have set vineyards up for a promising growing season. On the winery side, wine sales have flattened over the last year after a couple years of robust growth. Demographics are likely changing alcohol consumption and preferences in beverages.
About Northwest Farm Credit Services
Northwest FCS is an $11 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.
Deb Strohmaier, Communications Specialist