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Agriculture
AN EIGHTH DISTRICT PERSPECTIVE
WINTER 1986

The Outlook for Agriculture in 1986
To understand the outlook for agriculture in 1986, it is
instructive to look at the sector’s status at the end of 1985.
Bumper harvests, not only in the U.S. but around the world,
produced large additions to U.S. surplus stocks and a
worldwide decline in agricultural trade; it is now estimated
that crop supplies in the U.S. at the end of 1985 will far
exceed total usage during 1986. Livestock prices were
relatively weak in 1985 as a number of factors led to a larger
slaughter of heavier animals. Overall, most farm prices
declined in 1985 and, as a consequence, real net farm income
fell from $15.5 billion in 1984 to an estimated $11 to $13
billion in 1985, near its 1982 value. With falling commodity
prices and income, real farm asset values fell by 4 to 8
percent. Finally, at the time official price and production
forecasts were released by the U.S.D.A. in early December,
Congress had not yet passed new farm legislation which,
of course, could have substantial effects on prices, output
and income. In this environment of uncertainty, we report
brief summaries of the outlook for farm income and major
commodities in 1986.1

Farm Income
The table on the next page shows that, except for a one­
time increase in 1984 associated with inventory rebuilding
after PIK, real net farm income continues along its persistent
secular decline. Although forecasts for 1985 and 1986 place
real net farm income near $11 billion, only slightly below
the $11.9 billion figure for 1982, several important changes
in the composition of farm income must be noted. While
production expenses have been fairly constant since 1982,
cash receipts from product marketings have
d e c lin ed about 5 p e rc e n t and d ire c t
governm ent paym ents have m ore than
'These forecasts are taken from printed materials distributed
at the U.S. Department of Agriculture’s Annual Outlook
Conference held in Washington, D.C., from December
3-5, 1985. Some important Eighth District commodities are
not included in the summary because printed copies of the
relevant outlook speeches were not distributed.




doubled to between $6 to $10 billion. In fact, net outlays
for price support programs are estimated to be $16.8 billion
for 1985, only slightly lower than the record of $18.9 billion
in 1983. Moreover, with bin-bursting stock levels, it is
reasonable to expect a larger share of farm income to be
derived from government support in 1986.

Crops
For both feed and food grains, stocks in excess of prePIK levels and uncertainty concerning potential reductions
in loan rates and target prices dominate the outlook. With
an expected 4 percent increase in world coarse grain
production over this year’s record level and world wheat
production only slightly below the previous record high,
world grain trade continues to decline, and price competition
among exporters is keen. So long as the U.S. loan rate serves
as an effective price floor, many U.S. producers will find
it more profitable to place grain under loan while foreign
producers expand exports by selling below the U.S. loan rate.
Moreover, if acreage reduction programs are employed to
retard growth in U.S. stocks and to minimize the costs of
price support programs, U.S. exports of the major grains
will continue to decline. Finally, it is important to note that,
despite a 20 percent decline in the value of the dollar since
March, grain exports have been flat or declining, and it is
expected that grain exports in 1986 will be at or below the
levels of a decade ago.

Red Meats and Poultry
Cattle prices and beef production have
been dominated in recent years by producers
holding cattle on feed longer in anticipation
of higher prices. The higher prices failed to
materialize and resulted in large inventories
of overweight cattle. Thus, despite reduced
sla u g h te r n u m b ers, beef p ro duction

WINTER 1986

FEDERAL RESERVE BANK OF ST. LOUIS

1986 Farm Outlook Summary

Year*
1982

1983

1984

1985f

1986f

Net

2 4 .6

1 5 .0

3 4 .5

25 - 29

22 - 26

R e a l n et ($ 1 9 7 2 )

1 1 .9

7 .0

1 5 .5

11 - 13

9 - 11

Farm Income

($

bil.)

Commodity Prices
C o rn ($ p e r bu.)

2 .6 8

3 .3 8

2 .6 5

2 .6 5

2 .3 5 - 2 .5 5

W h e a t ($ p e r bu.)

3 .5 5

3 .5 6

3 .3 8

3 .0 5 - 3 .2 5

3 .0 0 - 3 .2 0

1 8 2 .5 2

1 8 7 .1 9

1 8 8.21

1 2 5 .4 0

1 2 0 - 15 0

6 4 .2 2

6 2 .3 7

6 5 .3 4

5 8 .0 0

6 5 .0 0

2 .4 3

2 .3 8

2 .4 0

5 5 .0 7

4 7 .3 3

4 8 .8 6

1 .7 5

1 .7 0

0 .2 8

0 .2 9

S o y b e a n m e a l ($ p e r ton)
C h o ic e F e d S te e rs ($ p e r cw t.)
R e ta il-c h o ic e b e e f ($ p e r lb.)
B arro w s an d gilts ($ p er cw t.)
R e ta il-p o rk ($ p er lb.)
B roilers

(<P p e r lb.)

2 .3 3

2 .4 0

4 4 .5 0

45 - 48

1 .6 2

1 .6 2

1 .6 8

0 .5 7

0 .5 0

0 .5 0 '

A For corn, wheat and soybean meal, the years are marketing years; for example, the figures for 1986 actually apply to the 1985-86 marketing year.
F Denotes forecast.

increased. At the same time, poor returns to hog producers
have led to sharp reductions in breeding inventories despite
low feed costs. In contrast, poultry production was up 5
percent in 1985.
With a continuation of changes in production costs and
consumer demand that favor poultry over red meats, poultry
production is expected to expand 4 percent in 1986 while
red meat output will remain unchanged. As the data in the
table indicate, these production levels imply some increase
in cattle and hog prices, but little change in retail red meat
prices. Broiler prices are expected to hold near their current
levels.

farm debt are expected to reduce the volume of outstanding
farm debt 3 to 4 percent in 1985, with further reductions
expected for 1986. Real estate debt is expected to fall between
$2 to $7 billion in 1985, the largest annual decline since 1944,
while nonreal estate debt should fall $1 to $5 billion. The
largest declines will be at Federal Land Banks and PCAs,
respectively, while FmHA and, to a lesser extent,
commercial banks expand market share. Return to assets
for farmers is expected to be unchanged at about 4.3 percent
in 1985, while total return to equity is expected to fall slightly.
For 1986, equity is expected to fall again while debt/asset
ratios rise slightly.

Farm Credit
Farmer paydowns of existing debt and write-offs of bad

—Michael T. Belongia

Agriculture—An Eighth District Perspective is a quarterly summary of agricultural conditions in the area served by the Federal
Reserve Bank of St. Louis. Single subscriptions are available free of charge by writing: Research and Public Information Department,
Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, Missouri 63166. Views expressed are not necessarily official
positions of the Federal Reserve System.
2 FRASER
Digitized for


WINTER 1986

FEDERAL RESERVE BANK OF ST. LOUIS

EIGHTH DISTRICT AGRICULTURAL DATA
Percent Change
P ric e s a n d C o s ts 1

Sept.
1985

Oct.
1985

Nov.
1985

A v e ra g e
for 1984

Year-To-Date
19852

Same Month
Year Ago

C O N S U M E R P R IC E IN D E X (% c h a n g e )
N o n foo d

0 .2 %

0 .3 %

0 .5 %

0 .3 %

3 .7 %

3 .9 %

Food

0 .3

0 .2

0 .9

0 .3

1 .0

1 .4

P R O D U C T IO N C O S T S F O R F A R M E R S (% c h a n g e )
All inputs
F e rtilize r

-1 .3

0 .0

0 .7

0 .0

-3 .7

0 .0

-2 .0

-2 .6

0 .2

-6 .5

-7 .8

0 .2

-0 .1

A g ricu ltu ral c h e m ic a ls

0 .0

0 .0

0 .0

-0 .8

-0 .8

F u e ls an d e n e rg y

0 .0

-0 .5

1.5

-0 .1

3 .5

2 .5

P R IC E S R E C E IV E D B Y F A R M E R S (% c h a n g e )
All pro du cts

0 .0

1 .7

-2 .4

-0 .3

-6 .7

-7 .4

L ivestock

0 .0

4 .7

3 .0

0.1

-4 .8

-3 .5

-1 .8

-0 .9

2 .7

-0 .7

-8 .8

- 1 1 .6

$ 6 0 .2 8

$ 6 2 .3 6

$ 6 2 .8 6

$ 6 5 .2 8

-5 .2

-3 .9

$ 3 1 .1 0

$ 3 6 .4 9

$ 3 1 .6 7

$ 3 9 .1 2

-1 1 .0

-1 3 .5

C rop s
FEED ER CATTLE
W h o le s a le p rice - K a n s a s C ity ($ /c w t.)
F E E D E R P IG S
W h o le s a le p rice - S o . M issouri ($ /h e a d )
B R O IL E R S
W h o le s a le p rice - 12-city ($ /lb .)

5 2 .2 0 $

4 8 .3 0 $

5 3 .7 0 $

5 5 .5 4 $

1 0 .0

3 .0

8 2 .3 7 $

9 0 .2 0 $

NA

7 4 .4 6 $

-7 .3

9 .2

TURKEYS
W h o le s a le p rice - N e w Y o rk,
8 -1 6 lb. young h en s ($ /lb .)
CORN
W h o le s a le p rice - N o. 2, ye llo w - St. Louis ($ /b u .)

$ 2 .3 8

$ 2 .2 7

$ 2 .5 0

$ 3 .2 7

-9 .1

-9 .8

$ 5 .1 9

$ 5 .0 5

$ 5 .1 9

$ 7 .0 5

- 1 3 .1

- 1 6 .3

$ 3 .0 7

$ 3 .1 5

$ 3 .3 5

$ 3 .8 0

- 1 0 .9

-1 3 .0

$ 1 7 .5 0

$ 1 7 .3 5

$ 1 7 .2 5

$ 1 8 .4 3

-4 .6

-5 .5

-0 .2

-9 .7

SOYBEANS
W holesale price - No. 1, yellow - Central Illinois ($/bu.)
W HEAT
W h o le s a le p rice - N o . 1, hard w in te r K a n s a s C ity ($ /b u .)
L O N G -G R A IN R IC E
W h o le s a le p rice - A rk a n s a s ($ /c w t.)
CO TTO N
A v e ra g e p rice re c e iv e d by U .S . F a rm e rs ($ /lb .)

5 5 .0 0 $

5 6 .7 0 $

5 6 .0 0 $

6 5 .5 8 $

P e rc e n t C h a n g e
U .S . E x p o rts

July
1985

Aug.
1985

Sept.
1985

A v e ra g e
for 1984

Year-To-D ate
19852
-6 1 .1 %

Same Period
Year Ago
-2 5 .7 %

C o rn (m il. bu.)

9 7 .0

9 2 .0

8 1 .0

16 2.1

S o y b e a n s (m il. b u.)

1 9 .2

2 6 .3

3 1 .5

5 9 .6

-6 3 .9

6 6 .7

W h e a t (m il. bu.)

6 9 .0

9 0 .0

7 7 .0

1 3 4 .2

-4 2 .5

- 6 8 .7

R ic e (ro u gh e q u iv a le n t, mil. cw t.)
C o tto n (thou, b ales)




5 .0

5 .4

6 .7

5 .4

4 5 .9

-1 7 .4

2 6 8 .0

2 0 6 .9

2 0 0 .3

5 8 0 .4

-6 9 .7

- 2 8 .4

3

NonReal Estate Farm Debt Outstanding
Banks
O utstanding
($ millions)
U .S .

Percent Change
9/84 - 9/85

A rk a n s a s
K e n tu c k y

Outstanding

Percent Change

($ millions)

9/84 - 9 /85

9/83 - 9/85

$ 1 6 ,0 2 0

- 1 8.70/o

-3 .7 0 /0

- 5 .9 %

0 .0 %

-4 .3

5 .8

NA

NA

NA

557

-1 1 .3

7 .4

355

-2 4 .6

7 .3
-1 7 .0

12.0

-2 .4

326

- 2 8 .0

1 ,3 8 0

-1 0 .7

-9 .3

347

- 2 4 .5

-3 .9

377

-5 .3

-4 .4

314

- 2 5 .1

-1 7 .3

652'

M isso u ri

9/83 - 9/85

3 ,0 7 5

$ 3 9 ,0 8 6

E ig h th D istrict 4

PCAs3

Tennessee

-

Agricultural Bank Loan Performance5
Percent of Farm Loans

9/85

Overdue at

Percent of Total Loans
W ritten Off at

Agricultural Banks

Agricultural Banks

9/84

9/83

9/85

9/84
.680/0

9/83

U .S .

3 .1 %

2 .6 %

2 .3 %

E ig h th D istric t 4

3 .5

3 .0

2 .4

.9 4

.5 5

.39

A rk a n s a s

1 .9

1.3

2 .1

.7 2

.3 3

.2 9

1 .2 6 %

.4 5 %

K e n tu c k y

3 .9

3 .0

2 .3

.5 2

.4 4

.5 5

M isso u ri

4 .3

3 .9

2 .7

1 .7 7

.91

.5 3

Tennessee

3.1

2 .4

3 .4

.7 5

1 .0 5

.7 9

Agricultural Production Loan Interest Rate6
Banks

E ig h th D istrict A v e ra g e

PCAs

11/85

11/84

9/85

9/84

1 1 .9 %

1 3 .3 %

1 1 .7 %

1 2 .6 %

1 The consumer price index components are seasonally adjusted. All other data are not seasonally adjusted.
2 Percent change from December of previous year, based on the most recent month available.
3 Source: Farm Credit Banks of Louisville and St. Louis, Farm Credit Administration.
4 Includes all of AR and parts of IL, IN, KY, MO, MS and TN.
5 Agricultural banks are defined as those with more than 25 percent of total loans in agricultural loans.
6 Interest rate data are for different dates. PCA rates are weighted averages for Arkansas and Missouri, not adjusted for stock purchase requirements.
Source: Farm Credit Banks of St. Louis.





Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102