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Posted on Jul 20, 2018

Trade tensions take a toll on Northwest agriculture

Slight profits are expected in most agricultural sectors in the Northwest while tensions in international trade generate headwinds, according to Northwest Farm Credit Services.
The company, which describes itself as an $11 billion financial cooperative with customers in Washington, Montana, Idaho, Oregon and Alaska, provided the following highlights for Northwest agriculture on July 3 – some of the company’s quarterly snapshots of commodities that the company finances.

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.

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.

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.

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, fire blight issues could reduce the current production estimate as trees are taken out of production.

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.

Northwest FCS surveys its nursery customers to collect sales numbers through May 31, and this year’s poll found 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.

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.

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.

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 and 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 of years of robust growth.

By Post-Register Staff