Evening Report | October 25, 2023

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House finally has a new speaker... The House elected Mike Johnson (R-La.) as its speaker, ending a three-week stretch during which the chamber was unable to conduct business. In a letter to colleagues, Johnson vowed to advance overdue spending legislation and ensure the U.S. government does not shut down when current funding expires on Nov. 17. He will also have to respond to Democratic President Joe Biden's $106 billion spending request for aid to Israel, Ukraine and U.S. border security. While his Republicans broadly support funding for Israel and the U.S. border, they are divided over further support for Ukraine. Johnson also said he wants to consider a new farm bill in December but a lot of issues remain unresolved.

Cold Storage Report: Beef, pork stocks remain well below average... USDA’s Cold Storage Report showed frozen beef stocks climbed more than average during September, largely because the previous month’s figure was revised down 15.1 million pounds. Pork stocks declined last month, whereas there is normally a small buildup in supplies.

Beef stocks at the end of September totaled 420.2 million lbs., up 24.8 million lbs. (6.3%) from August, which was greater than the five-year average increase of 11.1 million lbs. during the month. But beef inventories dropped 105.9 million lbs. (20.1%) from year-ago and were 60.7 million lbs. (12.6%) below the five-year average.

Frozen pork inventories totaled 462.8 million lbs., down 6.5 million lbs. (1.4%) from August, whereas the average over the past five years was a 3.0-million-lb. increase during September. Pork stocks fell 74.3 million lbs. (13.8%) from last year and were 69.4 million lbs. (13.0%) lower than the five-year average. Frozen ham inventories at 149.5 million lbs. dropped 4.8 million lbs. and were 10.0 million lbs. under September 2022. Belly stocks at 29.6 million lbs. declined 7.2 million lbs. during September and were 6.9 million lbs. under year-ago.

Total poultry stocks declined 12.5 million lbs. (1.0%) from August and were virtually unchanged versus September 2022. Chicken breast meat inventories increased 15.5 million lbs. last month to a September record 236.586 million lbs., up 28.7 million lbs. (13.8%) from last year.

Food price outlook unchanged for 2023... USDA forecasts all food prices will increase 5.8% this year, within a range of 5.5% to 6.1%. Food-at-home (grocery) prices are predicted to increase 5.1% (range of 4.5% to 5.5%). Food-away-from-home (restaurant) prices are predicted to increase 7.1% (range of 6.9% to 7.3%). While the predicted ranges changed slightly, the average increases were unchanged from USDA’s outlook last month.  

In 2024, all food prices are forecast to increase 2.1%, with USDA using a range of -2.1% to 6.7%, down slightly from last month’s 2.2% expected rise. Food-at-home prices are predicted to increase 1.0%, (range of -5.5% to 7.8%), down from 1.6% previously. Food-away-from-home prices are predicted to increase 4.4% (range of 2.2% to 6.7%), up from 2.3% last month.

Of note: External factors, including Federal Reserve monetary policy and geopolitical tensions such as the Russian invasion of Ukraine, could affect these forecasts. High energy prices may particularly impact restaurant food price inflation. While consumers are expected to experience lower increases in 2023 compared to previous years, the forecasts still exceed the 10-year averages for all food, restaurant and grocery prices. For 2024, the current outlook suggests all food and grocery prices will be below their 20-year averages, while restaurant prices are expected to remain above that level.

USDA relies on CCC funding amid farm bill uncertainty... USDA Secretary Tom Vilsack on Tuesday highlighted the challenges facing the ag industry due to the lack of a new farm bill, budget uncertainty and the absence of a House speaker. With these uncertainties looming, Vilsack noted the possibility of a farm bill extension becomes more likely the longer the situation persists.

To address these challenges, Vilsack revealed that USDA will utilize funds from the Commodity Credit Corporation (CCC). The $2.3 billion in CCC funding from the last fiscal year will be directed towards boosting international markets for farmers, with a particular focus on specialty crop producers, many of whom operate small and mid-sized farms. High-value products like wine and whiskey will also benefit from this funding.

Additionally, $100 million will be allocated to address phytosanitary and technical trade barriers for specialty crops.

Vilsack expects this funding to be utilized over several years. He explained the funds will not be required to be spent within a single fiscal year but will remain available until fully utilized. USDA aims to establish regulations for the programs by the end of 2023 or early 2024. Furthermore, USDA plans to allocate $1 billion for international food aid, with the specifics of where the funds will be directed left to USAID’s discretion to determine where they are most needed.

To address the fiscal year 2023 agricultural trade deficit of $19 billion, which is projected to grow to $27.5 billion in fiscal year 2024, $1.3 billion will be allocated to create the Regional Agricultural Promotion Program (RAPP). RAPP will facilitate market access for exporters in both new and growth markets. It will be available to cooperators who currently receive funding from the Foreign Market Development program (FMD) and the Market Access Program (MAP). While FMD and MAP will continue to operate under appropriations, CCC funds cannot directly support these programs due to federal law restrictions.

Farm groups welcomed this move, emphasizing the importance of export market development programs in increasing farm income. However, they also stressed that while this funding is beneficial, Congress needs to take further action, including increasing long-term funding for programs like the Market Access Program (MAP) and Foreign Market Development Program (FMD) in the next farm bill. Farming organizations believe these programs are essential for expanding exports and ensuring the competitiveness of American agriculture in global markets.

Iowa farmland values plateau after two years of record highs... Iowa’s farmland values, which saw consecutive record-breaking increases for two years, are now showing signs of cooling, though they remain near historic highs. Several factors contributed to this slowdown, including drought, declining farm profits and rising costs and interest rates, the Des Moines Register reports.

Despite these challenges, Iowa's farmland prices inched up 0.6% in September compared to the previous year, as reported by the Realtors Land Institute-Iowa Chapter. Additionally, the Chicago Federal Reserve reported a 2% annual increase in farmland values in July.

While the rapid, double-digit growth of the late 2020s has tapered off, experts emphasize the market’s overall stability. In 2022, values surged 10.4%, averaging $13,742 an acre, after a strong 43.3% increase in 2021. However, in the first half of this year, average farmland values dipped 2.6% to $13,385 an acre.

Market observers note that, although record-breaking sales are not as frequent as before, they are still occurring, and farmland remains a highly sought-after commodity. Factors like strong farm profits and limited availability contribute to this market’s continued strength. However, ongoing drought conditions in Iowa and rising interest rates have affected buyers’ confidence and created downward pressure on the market.

Despite these challenges, experts anticipate that better-than-expected yields this fall and potential supply disruptions in global markets could boost interest in Iowa farmland, potentially leading to another increase in land prices.

Additionally, Iowa’s rising farmland values impact land rental costs, with rents increasing by 17% since 2020. High-quality farmland, in particular, is seeing rent rates well above the average. Despite rising input costs, interest rates and the possibility of lower crop and livestock prices, farmers continue to view farmland as a long-term investment.

Bottom line: The optimistic outlook among farmers suggests a continued demand for farmland in Iowa, even in the face of current challenges and uncertainties. The limited availability of farmland, with some tracts not becoming available for decades, underscores the importance of seizing opportunities to acquire land for future generations.

California House Democrats want farm disaster relief in domestic priorities supplemental request... California Democratic Representatives Salud Carbajal, Julia Brownley, Jim Costa, Zoe Lofgren, and Jimmy Panetta have called on the Biden administration to allocate disaster relief funding for California farmers and growers in an upcoming supplemental request for domestic priorities. In a letter addressed to Office of Management and Budget Director Shalanda Young, the lawmakers emphasized the urgency of federal aid for the agricultural community to support a swift and complete recovery. They highlighted the severe impact of atmospheric storms earlier in the year, which led to intense rainfall and catastrophic flooding. These events delayed planting schedules, saturated fields and caused damage to crops, making the recovery process more challenging. The representatives underscored the significance of this assistance to ensure the continued production of fruits and vegetables, which has broader implications for the nation's food supply.

Of note: The Washington Post reported the White House is considering a roughly $50 billion proposal for the supplemental spending request, citing two people familiar with the matter. A White House fact sheet published Friday said in “the coming days,” the administration will send a request for “funds to address recent natural disasters, avoid the risk that millions of Americans lose access to affordable high-speed internet or child care, provide additional resources for FEMA’s Nonprofit Security Grant Program, and avert a funding cliff for wildland firefighter pay.” Congress should also provide funding for the Special Supplemental Nutrition Program for Women, Infants and Children, the fact sheet said.