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The latest reports from several industries that track the movement and health of the farming sector show that the sector is up significantly over last year. Shipments of farm products (excluding grains) are up 18.7% in the first week of February against the same time frame last year. For the full year-to-date, shipments are up 9.6%. In contrast, grain shipments are down for the year by 11%, so much of the activity in the farming sector is speculation on a better season in 2013 and the need to improve everything from irrigation systems to processing equipment.
We are also getting some indication that the terrible drought conditions are lifting for much of the growing belt. Although ponds and lakes have not been able to improve their water levels sufficient to reverse the damage done by the drought; we see that 1) the conditions have stabilized for now and are not getting worse and 2) soil moisture needed to help the winter wheat crop is sufficient to add a bit of optimism into the farming sector.
Businesses should see some increases in manufacturing activity for the farm products sector and a slightly improving grains market – including grain shipments and grain exports. As prices move downward, countries will bolster their stockpiles of grains – stockpiles that have been depleted over the past two years during the drought. For the US farmer, this should pose so positive market conditions. First, the price of grains should remain a bit stronger for 2013 as depleted global inventories are replenished. Secondly, purchase activity and demand for those goods will increase at the same time – which will keep prices elevated for part of the spring and early summer. However, coming out of what should be an improved harvest season for all grain commodities should be a drop in food prices toward the second half of the year. That will be positive for boosting the 70% of GDP accounted for by consumer discretionary spending.Tweet