DENVER, Colo. — U.S. farm income will continue to be challenged by a confluence of global economic factors, mounting supplies of grain and oilseeds, the U.S. dollar’s continued strength and China’s slowing economy well into 2016, according to CoBank’s new Quarterly Rural Economic Review.

"In the face of mounting supplies and downward pressure on prices, U.S. agricultural exports now occupy center stage across the board – for grains and oilseeds, ethanol, animal protein and dairy," said Leonard Sahling, manager of CoBank’s knowledge exchange division, which produced the report.

"The new pricing paradigm will accelerate the pace and scope of supply chain realignments, throughout the entire U.S. agricultural sector. Moreover, we’re beginning to see an increased need for access to debt capital as margins narrow further and savings begin to dry up."

CoBank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers as well as wholesale loans and other financial services to affiliated Farm Credit associations.

According to the 25-page report, with growing grain and oilseed inventories, crop prices should remain near their current levels well into 2016, which will adversely impact producers, as well as farm-supporting businesses.

"As we begin the final quarter of 2015, the outlook for most U.S. agriculture is less than ideal," said Dan Kowalski, CoBank director of industry research. "The over-arching theme will continue to be building supplies and weak prices.

"However, the weak crop prices will also support the ethanol industry, as well as the animal protein and dairy sectors, which have already seen price declines in recent months.

"So as we look out over the next several months, we anticipate some margin erosion and some challenges for these sectors, as meat and dairy supplies continue to build and ethanol is challenged by some things that are happening in China, as well as energy prices," he said.

Dave Miller, Iowa Farm Bureau Federation director of research and commodity services, said China’s grain purchases are welcomed by Iowa farmers – although some question the Communist country’s motives behind its increased procurements.

"In a year when prices are substantially below those seen just a couple years ago, operating margins are slim and profits are hard to come by," he said, "internal Chinese grain policy can be difficult to understand, especially for those with more of a market-based philosophy.

"While China has slightly reduced its internal price supports for corn and other grains, their internal pricing policies designed to support their farm and rural economy make it very difficult for many of their processors to remain viable."

Thus, Miller said, China often continues to allow those users to access lower-priced imported grains, while stockpiling higher-priced domestic production. "Any speculation about other motives are just that – speculation."

Moreover, the report said ethanol, animal protein and dairy sectors have all suffered their own declining prices of late. "Animal protein – beef, pork and poultry – supplies are all on the rise after several years of challenges brought on by drought, higher feed grain prices and disease. In fact, the animal protein complex is now growing per capita meat supplies at the fastest rate in nearly 40 years."

At the same time, water continues to be a challenge in California where a severe drought is now in its fourth year, the report said. "Many Californians are convinced that El Nino will be their deliverance, unleashing torrential rains that will end the drought. However, even if an El Nino event does end California’s drought, the state’s water woes will probably still persist.

"California will need to get several years of heavier-than-normal annual rainfall just to restore the underground aquifers to the levels where they were prior to the onset of the current drought – much more rainfall than even an exceptionally strong El Nino event will deliver in a single year," the report added.

To read CoBank’s full report, visit http://bit.ly/1NiOUye