FOR IMMEDIATE RELEASE

Lackluster Markets for Northwest Ag

Spokane, Washington - March 9, 2015 – Markets are generally lackluster for Northwest agricultural industries so far in 2015. Prices for dairy, wheat, potatoes and apples have been pressured to near breakeven levels by strong supplies and headwinds in global markets. Export market sales have been constrained by slowdowns at West Coast ports, increased competition and a stronger U.S. dollar. Bright spots in the Northwest’s agricultural economy include strong cattle and beef prices, and continued growth in wine sales. Nursery producers are also seeing steady demand for product that is supporting continued industry recovery.

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 -- U.S. cattle and beef prices remain strong. Prices for most cattle classes peaked during the fourth quarter of 2014 before experiencing a moderate correction. Prices began moving upward again in March. Factors such as competitively-priced alternative proteins, improved weather conditions in major cattle producing areas, and lower exports due to the strong dollar and slowdowns at West Coast ports influenced markets. Although rebuilding of the cattle herd has begun, prices across all cattle classes are projected to remain high in 2015. Consumer beef demand is resilient even in the face of historically high retail prices.

Dairy -- Milk prices are forecast near breakeven for most of 2015. Dairy producers are weathering weaker markets with strong balance sheets that were bolstered by exceptional profits in 2014. Producers’ profitability is unlikely to improve based on near-term milk price increases. Although the pace of growth has slowed, U.S. milk production and product ending stocks continue to rise. Export sales face headwinds including discontinuation of the European Union quota system, sharp declines in Chinese imports, and 12-year high in the value of the U.S. dollar. However, expected declines in feed costs should push breakeven levels lower throughout the year.

Hay -- The Northwest hay market is tepid ahead of new crop harvest. Despite continued drought across the Western U.S., a number of factors are likely to limit hay price increases this year. Lower milk prices find dairies cheapening feed rations by taking advantage of low-cost grains and alternative feeds. Hay exporters are reeling from the impact of West Coast port slowdowns. The volume of hay exported in 2014 was at the lowest level since 2008, resulting in a cautious approach to the market. However, the expectation of acreage decreases outside the Northwest continues to position the region as a supplier of hay to other Western states. This is likely to create a price floor in Northwest hay markets.

Wheat -- Wheat prices remain precariously close to growers’ breakeven prices. Bearish market fundamentals - including higher than expected global wheat supplies, abundant supplies of corn and soybeans (adding price pressure to all grains), and a strong dollar that is exacerbating already uncompetitive U.S. wheat prices – don’t support an upward price trend in the near-term. However, profit opportunities are provided in market upswings, where concerns over domestic and foreign droughts, and geopolitical uncertainty drive prices higher.

Potatoes -- Fresh, open market potatoes opened the 2014-15 marketing season low, with returns below breakeven for most producers. Current open potato prices remain low, but growers are optimistic late marketing season markets will improve, with prices for larger potatoes projected to increase most significantly. Looking ahead, Northwest potato acres are projected to remain similar to 2014 given profitable 2015 potato contracts and lower prices for substitute crops. However, fresh potato markets are expected to remain volatile.

Sugar Beets -- Global sugar production is expected to decline in 2014-15, led by lower yields in Brazil, Thailand and China. Sugar production in Brazil, the world’s leading sugar exporter, is also down as current government policy encourages ethanol, versus sugar, production. Accompanied by rising global sugar consumption, lower production will move supply and demand closer to equilibrium and support minor price increases. Looking ahead, sugar supply deficits forecasted for the 2015-16 marketing year sweeten the outlook for continued price improvement. Risks to the forecast include rising Brazilian sugar production, incented by exchange rate advantages and relatively low oil prices that reduce the diversion of sugar cane to ethanol production.

Apples -- The Northwest is experiencing a downturn in apple markets. For 2014-15, the largest crop in the region’s history is matched with large U.S. and global crops. Additionally, exports sales have been hampered by trade restrictions and slowdowns at U.S. West Coast ports. Lost sales opportunities won’t be made up. These dynamics are pressuring prices for nearly every major apple variety lower. While Northwest apple growers will experience profit margin compression during the 2014-15 season, the industry is financially well positioned to work through this down market given a string of profitable crops.

Wine/Vineyard -- The outlook for the Northwest wine and vineyard industries is generally positive. Warmer, dryer weather so far in 2015 mirrors conditions seen in 2014. If this trend continues, wine grape yields could be strong again this year following last year’s record crops. According to national statistics, wine sales continued to increase in 2014. An informal survey of 34 wineries in Oregon and Washington conducted by Northwest FCS reflects similar trends. Sales for these wineries increased by 7.8 percent to $107.9 million in during 2014. As consumer confidence continues to strengthen, industry experts expect fine wine prices will increase further in 2015, while demand for bargain wines will decline.

Forest Products -- U.S. housing starts are the primary driver of U.S. forest products markets. Housing starts for single-family homes surged to the highest level in more than six-and-a-half years at the end of 2014, reaching 1.08 million in total. However, seasonally adjusted housing starts fell to a rate of 897,000 units in February 2015, the sharpest month-to-month decline in four years. The decline was largely attributed to winter weather that slowed construction projects. Meanwhile, lumber and panel prices dropped in the first quarter of 2015 and are expected to remain low through the second quarter. Despite a slow start, the housing market is expected to gain momentum in 2015, generating increased demand for forest products.

Nursery/Greenhouse -- The outlook for the nursery/greenhouse industry remains positive. Spring shipments for 2015 are well underway and most producers are reporting steady demand for product. Tough winter weather on the East Coast and in the Midwest is likely to result in consumers’ need to replace damaged plants, while economic factors related to consumer confidence and consumer spending should have a positive impact demand for plant material. However, if adverse weather hangs on through June, delayed plant purchases may lead consumers to spend discretionary dollars elsewhere.

Knowledge Center quarterly Market Snapshots include information on 19 industries. If you’d like to receive these updates on a regular basis, sign up to receive the e-newsletter version of Market Snapshots at northwestfcs.com/resources. Also available on the resource pages are other Knowledge Center tools, a Land Value Survey and regular columns by Dr. Dave Kohl and Dr. Ed Seifried.

Northwest FCS is a customer-owned financial cooperative providing $13 billion in 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 provide approximately $208 billion in loans to rural America.

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