Disruptions Increase Cost Structures for Many Northwest Agricultural Commodities

SPOKANE, Washington — Northwest Farm Credit Services, the Northwest’s leading agricultural lending cooperative, has released its quarterly Market Snapshot reports covering the state of major agricultural commodities in the region. Northwest FCS teams throughout Idaho, Montana, Oregon and Washington monitor conditions and report outlooks for commodities financed by the co-op.

All Market Snapshots and audio highlights are posted online at Industry Insights.

Northwest FCS’ 12-month outlook for the agricultural commodities most common in the Northwest are summarized below.

Cattle

The 12-month outlook for cattle suggests modest profitability centered around risk management strategies and input costs. Increasing costs of feed, fertilizer and fuel will challenge profitability in the industry.

Dairy

The dairy outlook anticipates slightly profitable returns. Higher feed costs will weigh on producer profitability. Risk management strategies will be increasingly important as the prospect of direct government assistance fades. However, the cost of risk management is higher and producers must adapt to the new cost structure. The USDA projects modestly lower milk prices in 2021 as class III prices wane and class IV prices gain export tailwinds.

Fisheries

Slight profits are anticipated for the seafood industry overall. COVID-19 disruptions, including processing plant and restaurant closures, have challenged the industry. Although restaurants are a huge sales outlet for seafood, consumers continue to show strong demand through retail outlets. Optimism for restaurants reopening in 2021 bodes well for seafood sales.

Forest Products

The forest products outlook expects profitable timberland operations and very profitable processing operations. Mills have reached a new level of profitability as product pricing set new records. For timberland owners, strong domestic demand should keep log prices favorable, supporting profitability even as log supplies remain elevated in some regions.

Hay

The 12-month outlook for the hay industry calls for slightly profitable returns. Producers in drought-stricken areas will face headwinds to production and profitability. Shipping container disruptions will slow exports, potentially leaving supply overhang in key export regions. Higher prices for corn, soybeans and wheat will provide tailwinds to producer returns.

Nursery/Greenhouse

Strong profits are anticipated for nursery/greenhouse producers. The industry continues to benefit from the pandemic’s effects on consumers spending more time at home. Drastic sales increases are expected to continue through 2021 but may normalize in 2022 as society reopens. The housing market is robust, which also supports continued sales.

Onions

Break-even returns are expected for the onion industry. Damage to the Texas onion crop during the February cold snap will shrink national onion supplies. The Northwest is well positioned for the remainder of the 2020 storage crop to capture rising prices in the onion market.

Potatoes

The profitability outlook suggests slightly profitable returns for contract potato producers. Open potato returns are projected to be breakeven as growers face a higher cost of production. Fuel and fertilizer costs are up 8%-25% since the beginning of 2021. The pace at which restaurant sales return to normal will be a key driver for the industry.

Sugar Beets

The profitability outlook for sugar beets expects profitable returns in 2021. The USDA forecast suggests the stocks-to-use ratio will increase to 15.1%, up from 12.9%. Higher stocks-to-use ratios tend to provide headwinds, but the potential for normalized consumer demand looks to bolster producer profitability.

Apples

The 12-month outlook suggests apple growers will breakeven. Although prices are elevated for the current small crop and supply will clean up nicely before the 2021-22 crop, low packouts have damaged growers’ profitability. If a large 2021-22 crop is realized, prices will likely be subdued and capturing profitable returns will be challenging.

Cherries

The 2021 cherry crop is expected to be slightly profitable. Although yields are trending strong, removal of underperforming acres should result in a manageable crop. If growing conditions result in high-quality fruit and growers can prune for appropriate fruit size, good consumer demand will produce favorable pricing.

Pears

The 12-month profitability index foresees pear growers breaking even. Although pears are receiving more favorable pricing due to manageable supplies and good quality fruit, growers’ yields were down. There’s optimism for a larger 2021-22 crop. However, consumer demand might not meet an increased crop, which would result in lower pricing.

Wheat

Profitable returns are anticipated for wheat. Higher prices for wheat and rotation crops should bolster producer returns. The USDA raised export projections for white wheat, while the outlook for hard red winter wheat demand moderated. Drought in eastern Montana will likely provide headwinds to producer profitability.

Wine/Vineyard

Slight profit margins are expected for wineries and vineyards. Reduced supplies have improved market dynamics for vineyards while success of wineries has depended on their sales channels. Yet, overall consumer demand has remained stable and wineries featuring on-premise sales should see some recovery this year.

About Northwest FCS

Northwest FCS is a $14 billion financial cooperative providing financing and related services to farmers, ranchers, agribusinesses, commercial fishing operations, 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. For more information, go to northwestfcs.com.