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(~ .~ ' FEDERAL RESERVE . '1' ,., .,~ X-3794 :BOARD STATEMENT FOR THE PRESS For relea.se in Morning Papers, Wednesday, August 1, 1923· The following is the Review of the Month a.s contained in the forthcoming issue of the Federal Reserve Bulletin. AGRICULTURAL OUTLOOK· During the n::onths of July and August the general harvesting of crops begins, Government forecasts of the volume of crop produc- · tion become ava.ilable, and plans are w.a.de for marketing a.nd financing the crops. Harvesting of winter whea.t is already under wa.y, its movement to the world Il1.8.rkets will soon begin, and during the next few months as other crops are harvest&d the banks will be enga.ged in providing the credit incident to an orderly Im.rketing movement. The use of credit ordina.rily reaches a. sea.sona.l peak a.t crop-moving time when the credit rr.achinery is carrying the load of both domestic marketing and export firumcing. The present strength and liquidity of the banks and the added fa.cilities for agricul tura.l financing assure a supply of credit a.deq_ua.te to meet this yea.rts seasonal requirements. · · In view of their bearing upon proS.fB ctive returns to the farmer and therefore U.i.)On the general business situa.tion. especial interest atta.ches to the recent forecasts of crop production and preva.iling farm prices 1 shown in the table. These afford the best ba.sis now ava.ila:Ole for ma.king a.h estimate of the present a.gricultura.l outlook com1Ja.red with tha.t of a. yea.r a.go. f,.....'.~·llf'! \.' ; ',· '-!..: -2- X-3794 Price a.t the farm ... PRODUCTION Unit. Corn ••......• Whea.t, total. Winter ... Spring .• Cotton •••..• * Bushel do do· do Ba.le ·1922 final 1923 J July July l, July l, estima.tes forecast 1922. 1923. 2,890,712,000 862;091.,000 2,877,437,000 820,628,000 585,889,000 234 '739 ,000 11,412,000 $0 .. 622 1-026 $o.865 ·951 586~204}000 275 ;1537 ,coo 9.762,000 . . . . . ..... -.......... . . ... .. . . .. ............... " * ·.204 I • .262 Price per pound. '!he July l foreca.st of winter wheat indicates a. crop of a.bout the same size a.s last year, while the spring wheat foreca.st, which a.t this time of the year is much less definite, shows an axpected reduction of about 40,000,000 bushels. .A slight reduction in the corn crop a.nd a large increa.se in the cotton crop are a.lso forecast. While fa.rm prices on July l can not be taken a.s indica.tive of the prices the farmer will receive for this yearts crops, they constitute a basis for. compa.rison of cul'rent conditions with those preva.iling a. year a.go. Corn and cotton prices a.re mu.ch higher than a.t this time last yea.r, while the price of Wheat is lower.. The aggregate value of this year 1 s \"ihea.t crop a.t July 1 farm prices would be in round numbars $BOO ,000,000, compared with $900,000,000 for last yea.r's crop a.t prices prevailing in July, 1922. The a.ggrega.te value of the cotton crop on the saro3 basis, on the other hand, was $1,500,000,000 this year, compared with $1,000,000,000 last year, an increese of 50 per cent over last yea:r. The agricultural outlook is conditioned by the world supply of leading farm pro duets and the buying power of consumers, both domes tic and foreign, during X-3794 -3the coming yea.r. Competition fixes substantia.lly the same price in all countries for those agricul tura.l sta.ples which are sold in world ma.rkets, and this continues to be true even under the existing disorga.nized currency comdll;ions. The return to the .Ansrican farmer, is, therefore, the outcome of world supply and world demand, of which the domestic production and demand constitute only a. pa.rt. While foreign / demand is more impor·~ant in the marketing of s orne a.gricul tural products than of others, in the aggregate the doll'.estic ma.rket consum3s much the larger proportion of our a.gricul tura.l products. T.he domestic demand for fa.rm products during the past yea.r ha.s incree.sed a.s a. result of the larger buying power of industrial workers arising from fuller employment and wa.ge advances. During the first five months of 1923 the sale of groceries a.t wholesa.le exceeded that of the same period of the pre-gious year by 14 per cent and the sale of mea.t by 20 per cent, the domestic consumption of pork being unusua.lly la.rge. These la.rge food purcha.ses, hov.ever, were made a.t rela.tively low prices, though these were not due· to any limitation in the buying power of domestic consunsrs, but to the conditions of the world supply and the limited buying power of foreign consumers.. In fact, it is ha.rdly likely that the total food consumption in the United States would have been much reduced even if prices ha.d been higher. With the present relatively large earnings of workers the effect of a. rise in food prices on the family· budget would ha:ve been to increase the expenditure for food rather tha.n to reduce consumption. For the ultimate consurr.er in the United Sta.tes the chief result of relatively low food prices, therefore, ha.s been to increase the zr.a.rgin ava.ila.ble for the purchase of other conmodi ties and for savings. For the farmer this ha.s meant that the selling price of his products ha.s been out of line with the prices of the things he buys.. In this respect there ha.s been a better adjustment during the pa.st yea.r, taken a.s a. whole. though latterly -4- /'"" \ "_) . X-3794 a.gricul tura.l prices ha:ve shared in the decline in the general level sale prices 1 the fall in the prices of Whea.t and hogs attention. ,~~~·- oi v.bole- a.ttra.cting~pa.rticula.r Price movements in the sensitive, highly organized produce ma.rkets at this sea.son of the year a.re a:pt to reflect the a.tti tude of the speculative dealer and are not invariably indica.tive of the prices that will be realized by the American farmer during his cro~l marketing period. With reference to the present situa.tion this is particularly true in view of the many uncertain fa.ctors which must be taken into account in estirr.a.ting at this time the market outlook for a.gricul tura.l products. FOREIGN DEMAND In the sa.J.e of his products the .American farmer is confronted with world conditions, a.nd the price which these products will bring in the international markets depends chiefly upon the extent of European dew.and and the supply available from other food exporting countries besides the Urited Sta.tes. From present estimates i t a.ppea.rs probable tha.t a. larger proportion of European consumption requirements than in recent years will be met by European crops a.nd tha.t consequently European imports of food products this year are likely to be smaller. Agricultural production in leading food export- ing countries • largely stimula.ted by condi ticns prevailing during the war, is still considerably above the prewar level, a.nd the exported product of the .AI.rarican fa.rmer has to meet in the European ma.rket the competition of this enlarged world p\-oduction. The ability of Europe to pay for imports is still much less than before the war, though there ha.s been some increa.se in its beying power during the past year arising out of industrial revival. .A large share of the reduced buying power of these foreign countries during 1923 has been used in the purchase of food; the imports of food into Grea.t Bri ta.in, for exa~le, during the first five months of this yea.r were 50 per cent ... I,..,-,,..._, \ X-3794 -5- greater than during the Sal'!'e period of last year and constituted a. la.rger percent of her total imports. On the Continent, particularly in those countries where a.bil i ty to make foreign purcha.ses has b;aen limited by their depreciated currencies, there ha.s been a. shift from the more expensive imported foods, such as v.hea.t, to the cheaper domestic foods, particularly potatoes and rye. Fc~od exports from the United States, which were greatly during the war and the years imnediately folJowing, hava enla.rgedj during the pa.st year continued well a.bove the p-ee-war level. Cotton exports on the other hand, have been much lower. The quantity of European purchases in the American market in view of Europe l s limited buying power depends both on the prices prevailing in this country a.nd on the level of exchange rates, with the :result that Eu-rope has bought larger quanti ties of such corrmodi ties as pork and la.rd and of the cheaper grains. Cha.nges in the volume and character of Europaan }?Urchases of Amarican fa.rm products ha.ve bean accompanied by an important changa in tha saa.sonal distribution of these purchases and in the size of the stocks ca.rt'ied in Europe. In recent yeal."s European buyers of American cotton a.nd vmea.t have distributed their purchases more evenly throughout the yeo.r. Under the practice thG'>.t prevailed before the war the bulk of cot ton exports took pla.ce during the five months following the ha.rvesting season.* Since the war 1 however 1 exports have b;:;2n more closely related to the immedia.te consumption requirements 1 and stocks carried in Europe are relatively smaller. A similar change in prca.ctice has affected the sea.sonal distribution of wheat Jxports. Stocks now carried in Europe a.re ma.teria.lly below the arr.ounts carried in the years preceding the war. Tha change in pra.ctice began during the war, when supplies wert) short. and this * ha_nd-:o-o:o~th p_olicy_ ha.s C_?n- See a.rticle on cotton financing. FEDEiv\L RESERVE 5ULLETIN • Mey, 1923, P· 566. .• .. .. -- tinui;;d to the pr0sent time. -,~ X-3794 l . -6- 0 Moreover, the holder of stocks in Europe is exposed to unusua~ hazards arising from wide fluctua.tions in prices and exchange rates. Also the cost of storage and handling a.t the docks ha.s increased, and this has tended to reduce stocks carried in wa.rehouses end to increase the direct movement from the ship to the milL The reduction of these European stocks h9.S increased ·the amounts of agricultur~ staples that had to be ca.rrisd in the United States a.nd lengthened the period for marketing the exportable surplus.. particularly the This chang3 of pra.ctice has affected size of the ..m:erican carry over of wheat and must be recognized both by farmers and banker~ a.s a. factor in the rrarketing and financing of the 1\rneri cax1 crop. OBDEELY MAfu:"tETING. Since the harvesting of the ~4.merican crops takes place during the summer and auturnn months, while their consumption is distributed over an entire year 1 the rr:a.rketing r:rn:;.st be a.djusted to the f1ow of products from other exporting areas and to the req_uir')ments of the consumer. In this respect there is a. distinction between the rr.a.rketing of such crops a.s cotton and tobacco, in which world supply is prirra.rily dependent upon ;.~.m3ric;;;n produc- tion, and the ma.rkating of whe.Jt, which is produced in a.ll parts of the vvorld and rna.rketed throughout the year. The function of credit in the marketing of fa.rm products is to finance the flow of products from the producer to the over the entire period of consumption. cons~~er in an orderly manner Products not irrmedic..tely consumed are necessarily ca.rried :::md finc.mced at some point in the distrbuting process, and consequently require the use of storage and credit facilities. Credit can not create a msrket where none exists, but i t can assist in ·~ .. X-3794 -7- adjusting the movement of products ir.to the w.zrket a.t any given moment to the actual stat.~ of the del7lond, ond thereby insure to the producer in so fa.r a.s conditions will a.t all permit of it a. rr.ore settled price situation than he would face if his products were dumped upon th0 rr:a.rket a.s soon a.s ha.rvested. It is worth noting that this is a.ls o the chief and a.imed at by producers in organiz:tng themselves into coopera.tiva ma.rketing associations. :But these a.ssocia.tions also work within the limits of consumptive derm.nd, and their chief service to their members is to pro•ride more a.d.equate financing and better marketing arrangements. In a. letter to the Federal Reserve a.gents the Federal Reserve Boa.rd recently called attention to the added fa.cilitL:s for a.griculturo.l financing made possible through legislation ene.cted during the le.(;t Congress and t..'lrough the board. 1 s regulations -putting into effect the amendments to the Federal reserve a.ct. Facilities available to farmers for securing credit to carry their crops in the process of orderly ma.rketing were consid.e:ra.bly enlarged by the agricul tura.l credits a.ct of 1923. This a.ct, in ado.i tion to creating new· ma.chinery for granting longer term credits to fa.rmers. conta.ined a. number of amendments to the Federal reserve act. services tha.t the With the view to increa.sing the ·reserve banks can render fa.rmers in financing their current short-term operations, the act extended thJ ma.ximuro ma.turi ty of a.gricul tura.l pa.par eligible for discount vv'i th tha r.;;serve banks from six to nine months. It a~so extended the maturity of ba.nkars' acceptances eligible for discount or purchase by the Federal reserve bank from three to six months, provided these acceptances a.re dra:wn for a.gricul tural purposes and a.re secured by warehouse receipts for a.gricul tUi':'al products. Other changes a.ffecting the length of period for which a.gricul tUt'al paper is eligible for disco"Ul'lt were .' .-- > • X-3794 -8- provisions that certain classes of pa.par of cooperative ma.rketing associa.tions were to be construed. a.s agricultural pa.per rather than a.s commarcial pa.per, thereby making them eligible for discount for nine months instead of 90 days, and that certain a.gricllltural drafts without definite maturity (sight a.nd demand drafts) might be discounted by the reserve banks. The act also ad- mitted to discount paper of coopera.tive marketing associations, the proceeds of which are to be lent to mem·bers to finance their a.gricul tural operations, and fa.ctors t paper issued for the sta.ple a.gricul tural prod:1cts. pU..t'J;OSe of rns.king advances to producers of A nontecl;nica1 surrnary of the facilities for agricultural credit provided by the Federa.l Reserve act a.s amended is published elsewhere in the BULLETIN· In surveying the agricultural si tua.tion, i t is still too early to estima.te even with approximate accura.cy the proceeds to the farmer from the approaching harvest. Neither the volu.'lle of production nor the prices through the period of ma.rketing can now be definitely l;:noil\ln. It is evident, ho'J'Jever, that with the inproved credit facilities and the strong position of the banks the credit available is adequate to provide for the needs of o:.cde.;.~ly marketing.
@FedFRASER