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Agriculture
AN EIGHTH DISTRICT PERSPECTIVE
WINTER 1986/87

Highlighting the Outlook for Agriculture in 1987
The U.S. Department of Agriculture (USDA) held its
annual Outlook Conference on December 2-4, 1986, in
Washington, D.C. Most speakers emphasized two points
about the future. The first was that ongoing improvements
in technology would continue to increase the supply of farm
products at a rate faster than the growth of demand for them.
A second, and closely related theme, was that the problem
of chronic surplus production could be solved only by basing
taxpayer subsidies to farmers on a criterion not related to
the quantity of farm products produced.
Taking both of these statements at face value, the
conference appeared to draw a fundamental conclusion:
unless export sales of U.S. farm products increase
dramatically and soon, the only solution to the persistent
farm problem of declining prices and income accompanied
by mounting farm surpluses and taxpayer subsidies is a set
of major changes in U.S. farm legislation. With little
improvement in exports expected through the end of the
decade, the cost of government farm programs could well
continue along its recent path of $20 billion or more annually.
In what follows below, highlights of several commodity
forecasts are presented.

Farm Income
The USDA expects net farm income in 1987 to be between
$29 billion and $34 billion. With the estimated value of 1986
net farm income at $29 billion, the USDA is projecting as
much as a 15 percent increase for the year ahead. The
increase, if it occurs, will be the result of two factors.
Although the crop programs will encourage farmers to take
as much as 35 percent of their acreage out
of production, large deficiency and diversion
payments will increase direct payments from
farm programs to a record $14-16 billion. In
addition to swelling receipts, farm programs
will increase net farm income by reducing
input costs: in complying with program
provisions to idle land, farmers will be
purchasing less fuel, fertilizer and seed.



Livestock
Cattle and hogs are two commodities for which prices
received by farmers have increased in recent years and are
expected to continue increasing in 1987. The U.S. cattle
inventory has declined in five consecutive years; its January
1, 1986, value was the lowest since 1963, and preliminary
reports indicate a further reduction in 1987. In recent years,
some of the effects of this inventory decline have been offset
by dairy cow slaughter resulting from legislated payments
to reduce the size of dairy herds. This effect is expected to
be much smaller in 1987 such that the declining cattle
numbers point to reduced beef supplies and steadily rising
beef prices next year. Cattle prices are expected to be near
$65/cwt. by spring.
A similar story applies to hogs. Breeding hog numbers
on June 1, 1986, were the lowest since the June 1 survey
was established in 1964, and low farrowing intentions suggest
a decline in pork output and higher pork prices for much
of 1987. Hog prices are expected to range between $55 and
$60 through the first three quarters before declining in the
fourth quarter.
Poultry output and prices are expected to increase next
year. Producers, who have earned generally good returns
in recent years, should continue to do relatively well as low
grain prices reduce feeding costs and reduced red meat
supplies help strengthen the demand for and increase the
prices of poultry products.

Eighth District Crops
Corn—The enormous volume of surplus product
continues to be the dominant factor in the
corn market. Carryover stocks are expected
to be 5.5 billion bushels by September 1,
1987, or 2 billion bushels greater than the
carryover that precipitated the PIK program
only four years ago. Viewed in a somewhat
different way, carryover stocks will be about
70 percent of one year’s production. Although
U.S. exports are expected to increase

WINTER 1986/87

FEDERAL RESERVE BANK OF ST. LOUIS

moderately, the level of corn exports for the 1986-87
marketing year will be about 40 percent lower than the
1979-80 level. The 1986 yield of 119.8 bushels per acre
established a new record. Even with an 85 percent
participation rate by farmers in the corn program, with its
20 percent acreage reduction and 15 percent acreage
diversion, trend yields would produce a 1987 com crop that,
at best, would not add to surplus product. The season average
corn price is projected to be in the $1.35 to $1.65 range.
Soybeans—Global production is expected to exceed use
such that surpluses should rise. The U.S. share of world
exports is expected to decline because of increased
production both by export competitors and importers. Even
though the effective soybean loan rate will decline to $4.56
per bushel in 1987, down from $5.02 in 1985, an expected
market price between $4.50 and $4.90 makes the ratio of
soybean to grain prices relatively high and may induce some
production shifting in South America from grains to
soybeans. This shifting, of course, would exacerbate the
global excess supply conditions and continue to put
downward pressure on soybean prices.
Rice—The marketing loan program has made U.S. rice
prices competitive in world markets and is expected by the
USDA to increase U.S. rice exports and reduce surplus
stocks. Consumption also is expected to be larger than
production during the remainder of the 1980s, which will
further reduce recent surplus stocks.
Cotton—The 1986 cotton program encouraged lower U.S.
production and reduced domestic prices to levels more near
the world market. These two forces are expected to spur
exports and reduce surplus stocks to about 5.5 million bales,
or 3.8 million bales lower than a year earlier. The U.S. share
of the world export market is expected to rise from a 10
percent share in 1985-86 to 29 percent in 1986-87. The USDA
is prohibited, by law, from making public forecasts of cotton
prices.
Wheat—The acreage reduction incentives of farm
legislation and declining prices have caused fundamental
changes in the U.S. wheat market in recent years and no
immediate turnaround is foreseen. Since 1982, harvested
acreage has declined from 81 million acres to 61 million
acres, production has fallen to 2.1 billion bushels from 2.8
billion bushels and the 1982-83 export volume of 1.8 billion
bushels has been cut in half to just over 900 million bushels.
The continued reductions in loan rates under the 1985 Farm
Act will put 1987 wheat prices, at the farm gate, between
$2.20 and $2.40 per bushel, down from $3.16 the previous
year. The lower farm prices are expected by the USDA to
increase exports significantly, even in the face of large

Table 1
Features of Major Commodity Programs
1986

1987

1.92
3.03
17.5
2.5
1.11
50
60
40
0.73
0
100

1.82
3.03
20
15.0
1.21
40
50
50
2.00
50
50

2.40
4.38
22.5
2.5
1.98
50
60
40

2.28
4.38
27.5
0
2.10
40
50
50

0.55
0.81
25
0
0.26
40
75
25

0.52
0.79
25
0
0.27
30
50
50

7.20
11.90
35
0
4.70
40
75
25

6.84
11.66
35
0
4.82
30
50
50

Com

Loan rate ($/bu.)
Target price ($/bu.)
Acreage reduction program (%)
Paid land diversion (%)
Estimated deficiency payments ($/bu.)
Advance deficiency payments (%)
Percent of advance paid in cash
Percent of advance paid in certificates
Diversion payments ($/bu.)
Percent of diversion paid in cash
Percent of diversion paid in certificates
W h eat

Loan rate ($/bu.)
Target price ($/bu.)
Acreage reduction program (%)
Paid land diversion (%)
Estimated deficiency payments ($/bu.)
Advance deficiency payments (%)
Percent of advance paid in cash
Percent of advance paid in certificates
C o tto n

Loan rate ($/lb.)
Target price ($/lb.)
Acreage reduction program (%)
Paid land diversion (%)
Estimated deficiency payments ($/lb.)
Advance deficiency payments (%)
Percent of advance paid in cash
Percent of advance paid in certificates
R ic e

Loan rate ($/cwt.)
Target price ($/cwt.)
Acreage reduction program (%)
Paid land diversion (%)
Estimated deficiency payments ($/cwt.)
Advance deficiency payments (%)
Percent of advance paid in cash
Percent of advance paid in certificates

SOURCE: Agricultural Outlook, USDA/ERS, December 1986

supplies abroad.
Dairy—The attempt by the government to purchase dairy
herds and remove these producers from the industry for at
least five years has resulted in lower milk production. The
decline has been small, however, because the least efficient
producers were the most likely to sell their herds, and lower
feed costs have caused some expansion in output by
remaining producers. Even though further reductions in the
support price are scheduled, lower feed costs will largely
offset these declines such that production is little affected.
Overall, an expected 3 percent decline in milk output in 1987
and increased commercial use of milk should reduce
government purchases of surplus production.
—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




FEDERAL RESERVE BANK OF ST. LOUIS

WINTER 1986/87

EIGHTH DISTRICT AGRICULTURAL DATA
Percent Change
Prices and Costs1
CONSUMER PRICE INDEX (% change)
Nonfood
Food

Sept.
1986

0,3%
0.4

Oct.
1986

0.1%
0.4

Nov.
1986

0.2%
0.5

Average
for 1985

0.3%
0.2

Year-To-Date
19862

Same Month
Year Ago

0.2%
3.6

0.6%
4.4

PRODUCTION COSTS FOR FARMERS (% change)
Agricultural machinery and equipment
Mixed Fertilizers
Other Agricultural chemicals
Gasoline

0.0
-1 .0
0.3
9.0

-0 .1
- 1 .0
- 0 .3
-8 .2

0.1
- 0 .6
0.3
0.2

0.0
- 0 .2
-0 .1
0.3

0.6
- 3 .6
5.8
-4 5 .4

0.7
- 4 .5
4.6
-4 5 .2

PRICES RECEIVED BY FARMERS (% change)
All products
Livestock
Crops

-2 .4
-2 .1
-4 .0

-0 .8
- 0 .7
0.0

2.5
0.0
5.2

- 0 .4
- 0 .5
- 0 .5

-3 .1
5.8
-1 3 .6

- 2 .4
5.1
-1 0 .5

FEEDER CATTLE
Wholesale price - Kansas City ($/cwt.)

$65.50

$59.65

$64.13

$64.55

5.2

2.0

FEEDER PIGS
Wholesale price - So. Missouri ($/head)

$59.63

$53.23

$50.00

$37.11

74.5

57.9

BROILERS
Wholesale price - 12-city ($/lb.)

60.95$

62.46$

57.50$

50.81$

18.0

7.1

TURKEYS
Wholesale price - New York,
8-16 lb. young hens ($/lb.)

81.21$

83.17$

80.68$

75.48$

- 7 .2

-1 3 .3

CORN
Wholesale price - No. 2, yellow - St. Louis ($/bu.)

$ 1.47

$ 1.46

$ 1.68

$ 2.66

-3 5 .1

-3 2 .8

SOYBEANS
Wholesale price - No. 1, yellow - Central Illinois ($/bu.)

$ 4.96

$ 4.89

$ 5.08

$ 5.56

- 4 .5

0.6

WHEAT
Wholesale price - No. 1, hard winter Kansas City ($/bu.)

$ 2.53

$ 2.60

$ 2.68

$ 3.39

-2 1 .6

-2 0 .0

LONG-GRAIN RICE
Wholesale price - Arkansas ($/cwt.)

$11.50

$11.75

$11.88

$17.70

-3 1 .1

-3 1 .1

- 0 .8

- 5 .5

COTTON
Average price received by U.S. Farmers ($/lb.)

47.40$

47.10$

52.90$

U.S. Exports

Sept.
1986

Oct.
1986

Nov.
1986

Average
for 1985

81.0
30.2
103.9
11.7
387.0

125.0
89.7
92.1
7.8
314.0

115.0
96.6
68.1
N.A.
571.0

145.8
53.7
81.7
5.2
418.7

55.84$

Percent Change

Corn (mil. bu.)
Soybeans (mil. bu.)
Wheat (mil. bu.)
Rice (rough equivalent, mil. cwt.)
Cotton (thou, bales)




Year-To-Date
19862
- 35.8o/o
2.7
- 5 .4
69.6
191.3

Same Period
Year Ago
-4 5 .5 %
21.4
- 2 1 .7
27.9
143.3

3

Non-Real-Estate Farm Debt Outstanding
Banks
Outstanding
($ millions)

u.s.
Eighth District4
Arkansas
Kentucky
Missouri
Tennessee

$33,737
2,780
537
629
1,166
344

PCAs3

Percent Change
9/84 - 9/86
9/85 - 9/86
-1 3 .8 %
- 9 .6
- 3 .7
- 3 .6
-1 5 .5
- 8 .9

-1 8 .8 %
-1 3 .4
-1 4 .5
- 2 .6
-2 4 .5
-1 3 .7

Outstanding
($ millions)

Percent Change
9/84 - 9/86
9/85 - 9/86

$12,517
NA
240
234
238
240

- 25.4%
NA
-3 2 .4
-2 8 .2
-3 1 .5
-2 3 .6

- 36.4%
NA
-4 9 .0
-4 8 .3
-4 8 .3
-4 2 .8

A g r ic u ltu r a l B a n k L o a n P e r f o r m a n c e 5

Percent of Farm Loans
Overdue at
Agricultural Banks
9 /8 6

U.S.
Eighth District4
Arkansas
Kentucky
Missouri
Tennessee

3.1%
3.2
1.2
4.4
3.0
1.6

Percent of Total Loans
Written Off at
Agricultural Banks
9 /8 4

9 /8 5

3.1%
3.5
1.9
3.9
4.3
3.1

2.6%
3.0
1.3
3.0
3.9
2.4

9 /8 6

9 /8 5

1.27%
.96
.72
.52
1.82
.75

1.48%
.90
.59
.63
1.42
1.23

Agricultural Production Loan Interest Rate6
PCAs

Banks
11/86
Eighth District Average

10.0%

11/85
11.9%

12/86

12/85

11.2%

12.20/0

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.




9 /8 4

.68%
.55
.33
.44
.91
1.05

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