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FEDERAL RESERVE BANK O F ST. L O U IS FEBRUARY 1976 Vol. 58, No. 2 Operations of the Federal Reserve Bank of St. Louis —1975 JEAN M. LOVATI T-I- HE operations of the Federal Reserve System are conducted through the Board of Governors and a net work of 12 Federal Reserve Banks located in districts across the country. The Federal Reserve System pro vides a variety of services for member commercial banks, the United States Government, and the public. Federal Reserve Banks clear and collect checks, trans fer funds, distribute coin and currency, and extend credit to member banks. They supervise and regulate member banks and bank holding companies. As bankers for the Federal Government, Federal Re serve Banks carry the principal checking accounts of the United States Treasury and market Treasury securities. The Federal Reserve Bank of St. Louis serves the Eighth Federal Reserve Distriot, which includes all of Arkansas and parts of Illinois, Indiana, Kentucky, Mississippi, Missouri, and Tennessee. Branch offices of the St. Louis Federal Reserve Bank are located in Little Rock, Louisville, and Memphis. This article re views the functions and operations of the St. Louis Federal Reserve Bank and its branches during 1975. Bank Supervision and Regulation The Federal Reserve Bank of St. Louis, along with the state banking authorities, has responsibility for the supervision of the 84 state chartered banks in the Eighth Federal Reserve District which have elected to become members of the Federal Reserve System. Bank supervision is concerned essentially with the safety and soundness of individual banks. To ensure solvent and effective banking institutions and ad herence to bank laws and regulations, each Federal Reserve Bank conducts field examinations of member banks within its district. These examinations involve an evaluation of the banks’ assets and liabilities as well as their capital and liquidity positions and an appraisal of the capabilities of their managements. Page 2 Although they have authority to examine all mem ber banks, Federal Reserve Banks generally do not examine national banks, which are required to be members of the Federal Reserve System. Primary re sponsibility for examination and supervision of na tional banks, which number 344 in the Eighth District, lies with the office of the Comptroller of the Cur rency. The Federal Deposit Insurance Corporation (F D IC ), along with respective state banking authori ties, examines state nonmember banks that are in sured by the FDIC. Noninsured banks are examined only by state authorities. Federal Reserve Banks also supervise bank holding companies. At the end of 1975, the Federal Reserve Bank of St. Louis had jurisdiction over 19 multibank and 71 one-bank holding companies. Prior approval must be obtained from the Federal Reserve System for bank holding company formations and for acquisi tions of additional banks and permissible nonbank subsidiaries. Applications for holding company forma tions and for acquisitions of additional subsidiaries are analyzed by the Bank Supervision and Regulation Department along with the Legal and Research D e partments. In the analyses, these departments con sider the history, financial condition, and prospects of the institutions, and evaluate the quality of manage ment. They also assess the legal aspects of the pro posal and its likely effects on banking and nonbank ing competition. During 1975, the Federal Reserve Bank of St. Louis processed 19 applications to form one-bank or multibank holding companies and 20 applications by holding companies to acquire addi tional subsidiaries, engage de novo in nonbank activi ties, or establish new locations. Upon formation, bank holding companies are re quired to register and thereafter to file annual reports with Federal Reserve Banks. These annual reports are analyzed by the staff of the Bank Supervision and F E D E R A L R E S E R V E B A N K O F ST. L O U IS FEBRUARY 1976 T a b le I VOLUME O F OPERATIONS1 N um ber (th o u s a n d s ) 1975 C h ecks h a n d le d 2 ..................................................................... . . T ra n sfe rs of f u n d s ..................................................................... D o lla r A m ount (m illio n s ) pe 1974 Change 1975 1974 6 2 8 ,0 7 9 6 1 4 ,1 0 4 $ 2 2 5 ,0 6 1 .2 $ 2 1 0 ,4 1 3 .3 816 614 3 2 .9 7 4 8 ,3 9 5 .6 6 9 1 ,2 0 2 .7 8 .3 — 4.1 2 .3 % Co in received an d c o u n t e d ........................................... . . 1 ,1 6 0 ,4 8 5 1 ,2 9 2 ,6 6 9 - 1 0 .2 1 2 2 .5 1 2 7 .8 C u rren cy counted o r w e ig h e d 3 7 .0 % . . 3 0 9 ,6 1 0 2 9 1 ,8 4 1 6.1 2 ,6 4 8 .1 2 ,4 3 4 .1 8 .8 U .S . S a v in g s Bonds a n d S a v in g s N otes4 . . 1 1 ,6 5 9 1 1 ,4 2 2 2.1 6 7 4 .2 6 6 8 .2 0 .9 O th e r 4 2 .4 G o ve rn m e n t .................................. Change S e c u ritie s 4 .................................. . . 576 674 - 1 4 .5 4 0 ,3 3 7 .7 2 8 ,3 2 6 .2 U .S . G o ve rn m e n t co upo ns p a i d ................................... . . 681 646 5 .4 2 6 7 .7 2 5 7 .9 3 .8 Food S tam p s rece ive d an d counted . . . 1 6 3 ,7 3 3 1 8 0 ,3 6 5 5 6 7 .4 4 2 7 .7 3 2 .7 . . . - 9 .2 1Total fo r the St. Louis, Little R ock, Louisville, and Memphis offices. 2Excludes U.S. Governm ent checks and postal m oney orders. 3B eginn in g in 1974, som e currency has been verified by w eighing w ithout counting. 4Issued, serviced, or redeemed. Regulation Department to verify accuracy and com pleteness, to ascertain the financial condition of the holding company and its subsidiaries, and to deter mine compliance with applicable laws and regula tions. Examination reports submitted to the primary Federal supervisory agency of the respective bank subsidiaries are also analyzed by the Federal Reserve Bank to determine the overall condition of such sub sidiaries. In addition, the Bank conducts discretionary on-site inspections of bank holding companies and their nonbank subsidiaries. The purpose of these in spections is similar to that of examinations of member banks. Check Collection Checks drawn on commercial banks can be cleared through facilities maintained by the Federal Reserve System. Settlement for the checks collected is made by entries to member banks’ reserve accounts at Fed eral Reserve Banks. To increase the speed of the pay ments process, the Federal Reserve System has in stituted a network of Regional Check Processing Centers (R C PC s). Through this network checks are processed overnight, thereby achieving prompt credit and payment for the items. Each of the four Eighth District Federal Reserve offices serves an RCPC area. member banks. Similarly, payment for checks drawn on nonmember banks is effected on the same day the checks are presented for payment by an authorized reduction in the reserve accounts of correspondent member banks. Most of the dollar volume of checks cleared in the Eighth District is accomplished through this overnight system. The number and dollar amount of checks handled by the Eighth District Federal Reserve offices in creased slightly in 1975 (Table I). During the year, 628 million checks with a value of $225 billion were cleared through the four offices, an increase of 2.3 and 7 percent, respectively, over the volumes han dled in 1974. The dollar amount of checks cleared has increased steadily since 1970 at an annual rate of 10.2 percent. The quantity of checks, on the other hand, Banks deposit checks at RCPCs according to speci fic time schedules. Personnel at the RCPCs process the checks overnight, deliver them to the paying banks, and obtain payment by an automatic charge to the reserve accounts of Federal Reserve member banks. Checks drawn on member banks are paid on the day of presentment by charges to their reserve accounts or to the reserve accounts of correspondent Page 3 F E D E R A L R E S E R V E B A N K O F ST. L O U IS increased at a 6.9 percent annual rate between 1971 and 1975. This represents a deceleration in the growth of the quantity of checks cleared from an 11.2 per cent rate in the previous eight years. Electronic Transfer of Funds The Federal Reserve Banks make available to member banks a computer-based communication sys tem which can be used to transfer funds from one part of the country to another. Through the Federal Reserve Communications System, member banks may transfer funds to other member banks for their own accounts or for their customers. These electronic trans fers of funds are made through debits or credits to member banks’ reserve accounts. No charge is made for transfers of $1,000 or more. The System’s com munication facilities are often used by member banks to transfer marketable Government securities or to lend their excess reserves to other banks for temporary reserve adjustments.1 Nonmember banks have ac cess to funds transfer services through correspondent banks which are members of the Federal Reserve System. The size of the communication network in the Eighth District has continued to increase. At the be ginning of 1975, three commercial banks in St. Louis and two in Memphis, plus the Louisville, Memphis and St. Louis Federal Reserve offices were already equipped with on-line terminals. During the year, on line terminals were installed at the Little Rock branch plus an additional 14 commercial banks in the Eighth District. Of these commercial banks, five are located in the Little Rock zone, four in the Louisville zone, four in the St. Louis zone, and one in the Memphis zone. Thus, all four Federal Reserve offices and a total of 19 commercial banks in the Eighth District are currently on-line. The terminals are linked directly to the computer at the St. Louis Federal Reserve Bank which serves as the communication and switching center for the entire Eighth District. Through the terminals, the on-line commercial banks are able to initiate funds transfers directly from their offices instead of tele phoning or teletyping the information to the St. Louis Reserve Bank for transmission. The transfers are then switched automatically by computer from the Fed eral Reserve Bank of St. Louis through a central switching unit to the Federal Reserve office of the ]The market which brings banks together for the borrowing and lending o f excess reserves is called the Federal funds market. Page 4 FEBRUARY 1976 receiving commercial banks with no direct involve ment by Federal Reserve personnel. If the receiving bank is also on-line, the transfer is again automatically switched by computer to that bank through its Fed eral Reserve office without being handled by the personnel at that office. In processing a transfer of funds, the computer re cords the accounting data and other information needed to complete the transaction. This information is then used to update member banks’ reserve ac counts. Banks with on-line terminals receive an imme diate record of each transaction. Since the installation of on-line terminals at the 19 district commercial banks, an average of 2,857 trans actions per day sent and received are no longer han dled by Eighth District Federal Reserve personnel, reducing the number of transfers handled by District personnel by 78 percent. Automated switching through these terminals has reduced the time for completion of a typical funds transaction from nearly an hour to only a few minutes. The number and value of transfers facilitated by the four Eighth District offices continues to increase swiftly. This year, 816,000 transfers of funds, with a value of $748 billion, were made by the St. Louis Federal Reserve Bank and its branches. This is a 33 percent increase in the number and an 8 percent increase in the value of 1974 transfers. Since 1973, the number of transfers has increased at an annual rate of 28.5 percent and the dollar value has risen at a 23.4 percent rate. While the quantity of transfers handled by the four Eighth District offices is still far below the quantity of checks cleared, the dollar value F E D E R A L R E S E R V E B A N K O F ST. LO U IS FEBRUARY of funds transferred has surpassed the value of checks handled. Since 1968, the dollar volume of funds trans ferred has grown at a 23.7 percent annual rate. In August 1975, the Federal Reserve Bank of St. Louis implemented the payment of Air Force payroll by electronic means. Payment data on magnetic tape are received twice a month and sorted at the Reserve Bank, which then forwards the data to receiving banks by magnetic tape or paper listings. Settlement is made through credits to the reserve accounts of member banks. Payments made in December, 1975, for example, totalled 21,458 and were transferred to 987 banks. Three of these banks, whose 9,098 items represented 42.4 percent of total payments in Decem ber, receive their Air Force payment data on mag netic tape. 1976 Number of Coins Received and Counted Ratio Scale M illions Ratio Scalo M illi«as 1,300 1,200 1,100 1,000 I V 1,300 1,200 1,100 1,000 900 900 800 800 700 700 600 600 500 500 400 400 300 300 200 19 63 i i 1965 1967 i 1969 l 1971 i 1973 200 19 75 Coin and Currency Virtually all coin and paper currency move into and out of circulation through Federal Reserve Banks. Coin and paper currency play an important role in settling relatively small financial transactions, and cur rently account for approximately 25 percent of the nation’s money stock. There are seasonal fluctuations in circulating cur rency which reflect, in part, changes in retail trade, travel, and variations in agricultural production. Cur rency demand rises, for example, during the intensi fied shopping period before Christmas and just before certain holidays such as Easter and the Fourth of July. To meet the public’s demand for cash, member banks hold stocks of coin and currency which are Pieces of Currency Counted or W eighed* R atio Scale M illio n s R a tio Seal* M illio a s 310 310 300 300 290 290 280 280 270 270 260 260 250 250 240 240 230 230 220 220 210 210 200 200 190 190 1 1963 1 1965 1 1967 1 1969 1971 1973 1975 'B e g in n in g in 1 9 7 4 , so m e c u r r e n c y h a s b e e n v e r ifie d b y w e ig h in g w ith o u t c o u n tin g . maintained through orders from Federal Reserve Banks. These orders are charged by the Federal Re serve Banks to the member banks’ reserve accounts. When the stocks of currency on hand exceed desired levels, member banks forward the excess to their Federal Reserve Banks for credit to their reserve accounts. Member banks generally service the de mand for currency of nonmember banks. During 1975, about 310 million pieces of currency with a value of $2.6 billion were received and counted or weighed by the four Eighth District offices. This represents increases of 6.1 percent in number and 8.8 percent in dollar volume from 1974. Both the number and value of coins received and counted are down from the 1974 levels. Pieces of coin received and counted totalled 1.2 b illio n in 1975, amounting to $122.5 million, decreases of 10.2 and 4.1 percent, re spectively, from 1974. Despite these declines, com bined sorting, counting, and wrapping of coin and currency at all four offices averaged over 6.7 million pieces per working day in 1975. Paper currency is sorted at the Reserve Banks and that which is no longer usable is removed from circu lation and destroyed. During 1975, the Federal Re serve Bank of St. Louis and its branches verified and destroyed currency totalling $865 million. Lending The Federal Reserve Bank provides three types of credit to member banks: short-term adjustment, sea sonal, and emergency credit. Short-term adjustment credit is extended as banks seek funds to make tem porary adjustments in their reserve positions due to Page 5 As of February 1, 1976 DIRECTORS St. Louis Chairman of the Board and Federal Reserve Agent J. S c h n u c k , Chairman of the Board, Schnuck Markets, Inc.. Bridgeton. Missouri Edw ard R a y m o n d C. B u r r o u g h s , President, The City National C. B a i n , Senior Vice President and General Man Bank of Murphysboro, Murphysboro, Illinois ager, Arkla Industries Inc., Evansville, Indiana T o m K. S m i t h , J r ., Group Vice President, Monsanto D o n a l d N. B r a n d i n , Chairman of the Board and Pres Company, St. Louis, Missouri ident, The Boatmen’s National Bank of St. Louis, St. Louis, Missouri W m . E. W e i g e l , Executive Vice President and Chief F r e d I. B r o w n , J r ., President, Arkansas Foundry Com Executive Officer, First National Bank and Trust Company, Centralia, Illinois pany, Little Rock, Arkansas H a r r y M. Y o u n g , J r ., Farmer, Herndon, Kentucky R alph Little Rock Branch Chairman of the Board R onald W. Executive Vice President and General Manager, Producers Rice Mill, Inc., Stuttgart, Arkansas Ba il e y , E. H a y s , J r ., President and Chief Executive Officer, The First National Bank of Hope, Hope, Arkansas G. L a r r y K e l l e y , President, Pickens-Bond Construction Co., Little Rock, Arkansas H e r b e r t H . M c A d a m s , II, Chairman of the Board, Pres ident and Chief Executive Officer, Union National Bank of Little Rock, Little Rock. Arkansas T hom as R. R e m m e l , Chairman of the Board, Southland Building Products Co., Little Rock, Arkansas R oland T. G. V i n s o n , Executive Vice President, The Citizens Bank, Batesville. Arkansas W a s s o n , President, First National Bank, Siloam Springs, Arkansas F ie l d Louisville Branch Chairman of the Board H. S t r o u b e , Associate Dean, College of Science and Technology, Western Kentucky University, Bowling Green, Kentucky H a r o l d E. J a c k s o n , President, The Scott County State J a m e s H. D a v i s , Chairman and Chief Executive Officer. Porter Paint Co., Louisville, Kentucky Bank, Scottsburg, Indiana J. D a v i d G r i s s o m , President and Chief Operating Officer, F r e d B. O n e y , President, The First National Bank of Citizens Fidelity Corporation, Louisville, Kentucky Carrollton, Carrollton, Kentucky W il l ia m C. H e n d e r s h o t , President, Reliance Universal, Inc., Louisville. Kentucky Ja m e s T om G. V o s s , President, The Seymour National Bank, Seymour, Indiana Memphis Branch Chairman of the Board R o b e r t E. H e a l y , Partner-In-Charge, Price Waterhouse & Co., Memphis, Tennessee \\ M. C a m p b e l l , Chairman of the Board and Chief Executive Officer, First National Bank of Eastern Arkansas, Forrest City, Arkansas L. H o l l e y , Associate Professor of Business Education and Office Administration, University of Mississippi, University, Mississippi Jeanne A. J o n e s , J r ., President, Cook Industries, Inc., Memphis, Tennessee Fr a n k Page 6 L i p f o r d , President, First-Citizens National Bank of Dyersburg, Dyersburg, Tennessee S t a l l in g s W o o t e n M i t c h e l l , Chairman, The First Na tional Bank of Memphis, Memphis, Tennessee W il l ia m President and Chief Executive Officer, First Columbus National Bank, Columbus, Mississippi C h a r le s S. Y o u n g b lo o d , Member, Federal Advisory Council S. J o n e s , Chairman of the Board, First National Bank in St. Louis St. Louis, Missouri E d w in OFFICERS St. Louis D arryl A. Eugene R. F r a n c is , L eonard. First Vice President Senior Vice President T c ■ T,. „ . D o n a l d Vv . M o r i a r t y , J r .. Senior Vice President & Controller A natol Senior Vice President, General Counsel, and Secretary of the Board B. Ba lb a c h , p. President F . G a r l a n d R u s s e l l , J r ., ,, H arold L e o n a ll C. A ndersen , E. U t h o f f , Vice President E d g a r H . C r is t , Vice President W o o d r o w W . G il m o r e , J o h n F . O t t in g , Vice President B e r n h a r d t J. S a r t o r iu s , D e l m e r D. W e is z , Assistant Vice President W . M ik e L in d h o r s t , Assistant Vice President C l if t o n B . L u t t r e l l , E. Assistant Vice President A rth ur K e it h M. Carol B. Burger, Carlso n , Claypool, Assistant Vice President A lexander Jo h n W . D r u e l in g e r , J. M . G e i g e r , Assistant Vice President P. Assistant Vice President Orr, Assistant Vice President S c h m e d in g , K a r l E . V iv ia n , Assistant Vice President C harles Assistant Vice President Assistant Vice President Assistant Vice President Assistant Vice President A lan C. W h e e le r , D. Z ettler, Assistant Vice President Assistant Vice President R obert W . T hom as, Assistant Vice President Assistant General Auditor Assistant Vice President Edw ard R. S c h o t t , Assistant Vice President D e n is S . K a r n o s k y , Orf, g ALZ Leslie F' Assistant Vice President R ic h a r d 0 . K a l e y , pA(JL F. O ertel, E ugene C r o n i n Assistant Counsel & Assistant Secretary of the Board R . Q u in n F o x , L. Assistant Vice President Joan P General Auditor Vice President E d w a r d J. B u r d a , A lbert Vice President Vice President Ja m e s R . K e n n e d y , Vice President N orm an N. Bow sh er, Senior Vice President Senior Vice President Economic Adviser R u th A . Bryan t, J o s e p h P . G a r b a r in i. C h a r l e s E . S il v a , Assistant Vice President Assistant Vice President Little Rock Branch Joh n F. Breen, M ic h a e l T . M o r ia r t y , T hom as R. Callaw ay, Vice President and Manager Assistant Vice President and Assistant Manager Assistant Vice President D a v id T . R e n n ie , Assistant Vice President Louisville Branch D onald L. H en ry, Ja m e s R obert E. H arlow , E. C onrad, Senior Vice President and Manager Assistant Vice President and Assistant Manager Assistant Vice President G eorge E. R e i t e r , J r ., Assistant Vice President Memphis Branch L. T e r r y B r i t t , Vice President and Manager Paul I. B la c k , Jr ., Assistant Vice President and Assistant Manager A. C . C r e m e r i u s , Jr ., Assistant Vice President C h a r lie L. E p p e r s o n , Jr ., Assistant Vice President Page 7 F E D E R A L R E S E R V E B A N K O F ST. L O U IS FEBRUARY unexpected or unusual increases in loan demand, deposit losses, or other portfolio changes encountered by the individual banks. Seasonal credit is extended to those eligible member banks, usually small in size, which have highly seasonal loan demands. Such de mands arise from a recurring pattern of movement in deposits and loans. Banks must arrange for this type of credit in advance. During 1975, five banks in the Eighth District made use of this seasonal borrow ing privilege. Federal Reserve credit is also available for longer periods to aid member banks in meeting emergency situations which may result from unusual local, regional, or national financial developments, or from adverse circumstances involving particular mem ber banks. No emergency loans were made in 1975. The interest rate at which member banks borrow from the Federal Reserve Banks is called the discount rate. The volume of credit extended by the Federal Reserve Banks is influenced by the level of the dis count rate in relation to other short-term market in terest rates. When the discount rate is higher than alternative market interest rates, member banks are reluctant to borrow from the Federal Reserve to make temporary reserve adjustments. They may choose, in stead, to obtain funds from the Federal funds market or through markets for other short-term instruments. Influence of Relative Interest Rates on Member Bank Borrowings 11 JA N . F E B . M A R . A PR . M A Y JU N E JU LY A U G . S EP . O C T . IL D is c o u n t ra te a n d lo a n d a ta fo r F e d e r a l R e s e rv e B a n k o f S t. L o u is . [2 M o nthly a v e r a g e s o f d a ily fig u re s . Page 8 NOV. DEC. 1976 On the other hand, when the discount rate is low relative to market rates, Federal Reserve lending is likely to increase as member banks take advantage of the cheaper rates. Member banks which borrow from the Federal Reserve under emergency situations are charged a special interest rate which is higher than the discount rate just described. The discount rate at the start of 1975 was 7.75 percent; it was lowered four times and stood at 6 per cent at year-end. The discount rate remained above short-term market interest rates throughout most of the year. Accordingly, member bank borrowings were low, with the daily average of loans outstanding at $5.3 million. This is a substantial decrease from 1974, when the discount rate remained below other market rates and outstanding loans averaged about $55 million. During 1975, the St. Louis Federal Re serve Bank made 280 advances, amounting to $1.1 billion, to 44 Eighth District member banks. This compares with the 2,164 advances totalling $11.1 bil lion to 111 member banks in 1974. Fiscal Agency The Federal Reserve Banks perform a variety of services for the Federal Government in acting as its fiscal agent. As bankers for the Government, Federal Reserve Banks carry the principal checking accounts of the U.S. Treasury, through which the Treasury makes payments for all major types of Government spending. The Treasury receives funds directly into its accounts at Federal Reserve Banks or through de posit accounts, called tax and loan accounts, at ap proved commercial banks. Such funds are received mainly from the payment of taxes and the sale of Government securities to the public. Funds initially deposited in tax and loan accounts are transferred periodically to the Treasury’s accounts at Federal Reserve Banks in order to maintain a balance large enough to meet all of the Treasury’s near-term payments. The Federal Reserve Banks also act on behalf of the Government in marketing Government securities. When the Treasury offers new securities, the Reserve Banks receive subscriptions from those who wish to buy. Reserve Banks then allot the securities among the subscribers according to instructions from the Treasury, collect payment, and deliver them to the purchasers. With funds from the Treasury’s accounts, the Federal Reserve Banks pay interest on securities and redeem them at maturity. Reserve Banks also pay interest on and redeem the securities of most Govern ment sponsored corporations. F E D E R A L R E S E R V E B A N K O F ST. LO U IS As fiscal agent, Federal Reserve Banks hold in safe keeping the securities pledged by commercial banks to secure Government deposits in tax and loan ac counts. In addition, Reserve Banks will also hold other securities in safekeeping as a service to member banks. U.S. Treasury and most Government Agency securities are held in the form of book-entries in the records of the Reserve Banks. Other securities, such as municipal bonds, are held in physical form in the vaults of the Federal Reserve Banks. Federal Reserve Banks issue, service, and redeem U.S. savings bonds. During 1975, 11.7 million savings bonds with a dollar value of $674 million were issued, serviced, or redeemed by the St. Louis Federal Re serve Bank and its branches. Also, 576,000 other Gov ernment securities totalling $40 billion were issued, serviced, or redeemed, and 681,000 Government bond coupons totalling $268 million were paid by these offices. As fiscal agents, Federal Reserve Banks also redeem U.S. Government food stamps. A total of 164 million food stamps totalling $567 million were received and counted by the four Eighth District Federal Reserve offices in 1975. Research Through its collection of business, monetary, and financial data, the Research Department of the Fed eral Reserve Bank of St. Louis analyzes economic conditions on a regional, national, and international level. These analyses are used by the President of the Bank in making monetary policy recommendations at meetings of the Federal Open Market Committee and in providing information to the public.Economic data and analyses on recent develop ments are available to the public through the Re search Department’s 10 weekly, monthly, and quar terly publications. The Review, with a monthly circulation of 42,000, incorporates much of the analy tical research undertaken by the Research staff. In addition to these functions, the Research D e partment engages in studies of bank market structure. These studies include review and analysis of proposed bank holding company acquisitions and bank mergers. The particular emphasis of the Research Depart-The Federal Open Market Committee consists of the seven members of the Board of Governors of the Federal Reserve System and five of the twelve Reserve Bank Presidents, four of which serve on a rotating basis. It directs the purchase and sale of Treasury and Government agency securities on the open market by the Federal Reserve System. FEBRUARY 1976 ment’s analysis is the expected effects of the proposed acquisitions and mergers on competition and on meeting the convenience and needs of the area to be served. Bank Relations and Public Information The Federal Reserve Bank of St. Louis strives to maintain personal contact with member banks through its visitation program. Through this program, the St. Louis Bank keeps member banks informed of changes in Federal Reserve regulations and procedures and T a b le II COMPARATIVE STATEMENT O F CON DITION (D o lla r A m ou n ts in T h o u sa n d s) ASSETS U .S . G o ve rn m e n t S e c u ritie s : B i l l s ............................................................................. C e r t i f i c a t e s ............................................................ T O T A L U .S . G O V E R N M E N T S E C U R I T I E S ........................................... D iscounts an d A d v a n c e s .................................. A c c e p t a n c e s ............................................................ F ed e ra l A g e n cy O b lig a tio n s . T O T A L LO A N S A N D S E C U R IT IE S . G o ld C e rtifica te A c c o u n t .................................. S p e cia l D ra w in g Rights C e rtific a te A c c o u n t ..................................................................... F e d e ra l Reserve N otes o f O th e r B a n k s . O th e r C a s h ..................................................................... C a sh Item s in Process o f C o llectio n . B a n k Prem ises ( N e t ) ........................................... In te rd istric t S e ttle m e n t A cco un t . O th e r A s s e t s ............................................................ T O T A L A S S E T S ........................................... Decem ber 3 1 , 1975 D ecem ber 3 1 , 1974 $ 1 ,4 1 7 ,4 6 0 — $ 1 ,4 3 7 ,1 6 7 _ 2 1 0 ,3 5 8 1 ,5 6 4 ,0 0 2 1 2 8 ,3 5 1 $ 3 ,3 0 3 ,6 4 8 $ 3 ,1 2 9 ,5 2 0 $ $ 650 — 2 3 1 ,3 2 9 2 ,1 0 0 — 1 8 3 ,8 1 2 $ 3 ,5 3 5 ,6 2 7 $ 3 ,3 1 5 ,4 3 2 $ $ 4 4 9 ,3 7 1 5 1 7 ,9 7 9 2 0 ,0 0 0 5 9 ,2 4 2 2 5 ,4 1 9 4 7 3 ,7 4 4 1 3 ,1 5 1 4 0 3 ,8 9 6 5 1 ,3 0 1 1 5 ,0 0 0 4 7 ,9 9 3 2 1 ,1 9 7 4 2 0 ,9 9 8 1 3 ,5 6 0 — 3 6 ,9 6 1 $ 5 ,0 3 1 ,7 5 1 $ 4 ,3 8 9 ,1 2 0 LIA BILITIES AND CAPITAL ACCOUNTS LIA BILITIES D e p o sits: M em ber B a n k — Reserve A cco un ts . U .S . T re a su re r — G e n e ra l Account . $ O th e r D e p o s it s .................................................... 7 4 0 ,6 6 3 5 2 1 ,8 6 6 8 ,9 2 8 9 ,4 2 0 $ 8 2 8 ,8 0 4 1 5 4 ,6 9 6 9 ,8 6 0 1 8 ,7 3 7 T O T A L D E P O S I T S ................................... $ 1 ,2 8 0 ,8 7 7 $ 1 ,0 1 2 ,0 9 7 F ed e ra l Reserve N otes (N e t) D eferred A v a ila b ilit y C a sh Item s O th e r L ia b ilitie s a n d A ccru ed D ivid en d s $ 3 ,3 2 1 ,4 1 6 3 2 8 ,7 3 3 3 8 ,2 5 1 $ 2 ,9 6 9 ,6 1 0 3 0 5 ,9 6 5 4 1 ,3 8 4 T O T A L L I A B I L I T I E S ................................... $ 4 ,9 6 9 ,2 7 7 $ 4 ,3 2 9 ,0 5 6 CAPITAL ACCOUNTS C a p ita l P aid I n ............................................................ $ 3 1 ,2 3 7 3 1 ,2 3 7 — $ 3 0 ,0 3 2 3 0 ,0 3 2 — 6 2 ,4 7 4 $ 6 0 ,0 6 4 O th e r C a p ita l A c c o u n t s ................................... TO T A L C A P IT A L A C C O U N T S . . $ T O T A L L IA B IL IT IE S A N D C A P IT A L A C C O U N T S . . $ 5 ,0 3 1 ,7 5 1 . $ 4 ,3 8 9 ,1 2 0 M E M O R A N D A : C ontingent liabilities on acceptances purchased for foreign correspondents decreased from $33,415,000 on December 31, 1974 to zero on December 31, 1975. Page 9 FEBRUARY F E D E R A L R E S E R V E B A N K O F ST. LO U IS T a b le III COMPARATIVE PROFIT AND LOSS STATEMENT 1976 5,352 visitors toured the four Federal Reserve offices in the Eighth District. (D o lla r A m oun ts in T h o u sa n d s) T o ta l e a r n in g s ........................................... N et e x p e n s e s ........................................... C u rren t net e a rn in g s N et a d d itio n s ( + ) or d ed uctio n s ( — ) 1974 $ 2 3 1 ,7 9 6 3 4 ,0 8 3 $ 2 2 9 ,8 9 0 3 2 ,7 3 2 1 9 7 ,7 1 3 1 9 7 ,1 5 8 0 .3 % — 6 ,7 1 4 — 2 ,4 1 4 ___ $ 1 9 0 ,9 9 9 $ 1 9 4 ,7 4 4 $ $ . N e t e a rn in g s b efo re p a y ments to U .S . T re a s u ry . D istrib u tio n of N et E a rn in g s : D i v i d e n d s ........................................... In tere st on F e d e ra l R eserve N o t e s .................................................... T ra n sfe rre d to S u rp lu s . T O T A L ........................................... Percent Change 1975 1 ,8 4 5 1 ,7 6 4 1 8 7 ,9 4 8 1 ,2 0 6 1 9 1 ,4 3 3 1 ,5 4 7 $ 1 9 0 ,9 9 9 $ 1 9 4 ,7 4 4 0 .8 % 4.1 - 1 .9 % 4 .6 % - 1 .8 - 2 2 .0 — 1 .9 % provides assistance if questions arise. The Bank Rela tions and Public Information Department makes available to all member banks in the Eighth District the Federal Reserve Functional Cost Analysis Pro gram. This program enables a participating bank to measure its profitability by comparing its cost and revenue figures with System-wide average figures of participating banks. The Functional Cost Analysis program makes possible comparisons by size of banks and particular functions. Last year, 50 banks in the Eighth District participated in this program. It is also through this department that the Bank maintains contact with the public. During 1975, the officers and staff members of the St. Louis Federal Reserve Bank and its branches delivered 302 ad dresses before groups of bankers, businessmen, and educators. The Bank was represented at 469 banker, 500 professional, and 308 miscellaneous meetings. Under the bank visitation program, 1,121 banks were visited. During 1975, 228 groups requested films, and Page 10 Financial Statements At the end of 1975, assets of the St. Louis Federal Reserve Bank and its branches totalled $5 billion, an increase of 14.6 percent from the previous year (Table II). Increases in Federal agency obligations and in U.S. Government notes and bonds were largely re sponsible for the increase in total assets. Approxi mately 66 percent, or $3.3 billion, of the Bank’s total assets were held in U.S. Government securities. The remaining assets, which include the gold certificate account, the special drawing rights certificate account, Federal Reserve notes of other banks, and interdis trict settlement account, amounted to $1.7 billion. Total liabilities of the four offices of the St. Louis Federal Reserve Bank increased to $5 billion in 1975, 14.8 percent higher than the year-earlier figure. A major source of this change was the increase of $367 million in U.S. Treasury deposits held at the Bank. Total deposits rose 26.6 percent in 1975, to $1.3 billion. Federal Reserve notes, the principal type of circulat ing currency, amounted to $3.3 billion, 66.8 percent of the Bank’s total liabilities. Federal Reserve Banks’ earnings result mainly from interest on Government securities, loans to mem ber banks, and other investments. The portion of the Federal Reserve System’s earnings allocated to the St. Louis Bank and its branches increased 0.8 percent in 1975, to $232 million (Table III). After statutory dividends of $1.8 million were paid to member banks and operating expenses of $34 million were covered, $1.2 million was transferred to surplus and $188 mil lion, or 81.1 percent of total earnings, was paid to the Treasury as interest on Federal Reserve notes. Outlook for Agriculture With Special Reference to Eighth District Farm Products CLIFTON B. LUTTRELL HANGES in agricultural conditions in the Eighth Federal Reserve District generally follow the national pattern. Hence, the projections of the national pat tern presented by the United States Department of Agriculture (U SD A ) at the National Agricultural Out look Conference in Washington, D.C. last November, and in more recent reports, may be applied to the District. These projections are generally limited to the current crop marketing year which begins at different dates for the various crops.1 The mid-November forecast of realized net farm income in the nation for the current marketing year (1975-76) is well above that of 1974-75, and the fore cast of total net is larger than realized net since in ventories will be increasing. Cash receipts from farm product sales are projected at $101 billion, $10 billion above the 1974-75 level. Since the forecasts were made, however, prices of some major commodities have declined somewhat and may, therefore, reduce returns from the forecasted levels. Although produc tion expenses are likely to continue up, their rate of increase is expected to be less than in recent years. NATIONAL OUTLOOK Farm Commodity Sales The projected increase in farm product sales this year is based on increased returns from both crops and livestock. There was an 11 percent increase in the volume of crops harvested last fall, and slightly lower average crop prices are anticipated. The vol ume of livestock production for the 1975-76 marketing year is expected to be about the same as in 1974-75, but a sizable increase in average prices of livestock 1Year beginning July 1 for oats, barley, and tobacco; August 1 for rice and cotton; October 1 for soybeans, corn, and sorghum. products is anticipated. Most of the projected yearto-year gain in livestock product prices has already occurred, as prices rose sharply with the declining livestock output during 1975. Livestock output is ex pected to rise this year from the low rate of produc tion experienced in late 1975, and rising output will tend to offset the upward price pressure of further increases in demand. Despite the sharp increase in production since last fall, crop prices during the 1975-76 marketing year are forecasted to average only 5 percent less than a year earlier as a result of rising foreign and domestic demand. Last summer’s higher prices for livestock products provided incentive for increased livestock production and enhanced domestic demand for all types of crop feed. Export Demand Up Sharply Export demand for U.S. grain crops has increased sharply this year (1975-76) as a result of crop failures in some major grain producing areas. The value of farm commodity exports during the 1975-76 market ing year is expected to total $22.7 billion, well above the 1974-75 total of $21.6 billion. The price of such exports is expected to average somewhat less than last year, but the volume is projected to be 15 percent larger. This is the sixth consecutive marketing year of rising dollar value of farm commodity exports. From about $5 billion per year in the late 1960s, the total value of such exports rose to more than $10 billion in 1973 and to $20 billion in 1974. Reflecting both the sharp increase in the amount of crops harvested and an increase in export demand, the volume of exports of some major crops, including wheat and corn, is expected to exceed the 1974-75 levels by 25 to 30 percent (Table I). An increased volume of soybean Page 11 F E D E R A L R E S E R V E B A N K O F ST. L O U IS FEBRUARY 1976 T a b le I ESTIMATED SUPPLY AND USAGE O F MAJOR EIGHTH DISTRICT CROPS IN 1975-76 AND PERCENT CH A N G E FROM 1974-75 B e g in n in g Stocks Production A m oun t Percent Change W h e a t (m illio n b u sh e ls) 320 +30% 2 ,1 3 4 +19% Corn (m illio n b u sh e ls) 359 - 7 5 ,7 6 7 + 24 - 9 + 9 Crop Rice (m illio n c w t.) S o y b e a n s (m illio n b u s h e ls ) Cotton (m illio n b a le s ) Tob acco (m illio n p o u n d s) * 7.1 186 5 .7 2 ,7 3 1 .5 +50 + 2 Am ount 1 2 7 .6 1 ,5 2 1 8 .3 2 ,0 4 9 .0 Percent Change + 14 + 25 -2 8 + 10 Dom estic Use A m ount 707 4 ,0 4 0 4 1 .8 850 7 .0 1 ,1 8 2 .3 Exp o rts Percent Change + 4% + 11 Am ount 1 ,3 5 0 + 30% 1 ,4 5 0 + 26 + 4 1 1 1 .3 + 7 475 + 19 - 4 Percent Change 3 .8 6 1 8 .3 + 1 + 13 — 2 -1 0 •Flue cured types 11-14 and burley type 31. S ou rce: USDA W heat Situation, Feed Situation, R ice Situation, Fats and Oil Situation, C otton Situation, and T obacco Situation. exports is anticipated, whereas rice volume may total about the same as a year ago, and cotton and tobacco shipments may decline. Commercial sales, rather than government subsi dized exports, are likely to account for most of the export increases. Sizable increases in exports of grain to the Soviet Union and Eastern Europe are indi cated. The volume of farm exports to Western Europe and Latin America is expected to equal that of last year, but the dollar value of shipments to these areas may decline. Increases are projected in both volume and value of farm exports to Japan, which continues to be our largest single foreign market for farm products. The sharp increase in Soviet demand for U.S. grain reflects both their increased livestock production of recent years and their much publicized shortfall of crops. The U.S.S.R. grain crop, estimated at 140 mil lion tons, was about 55 million less than a year earlier and 75 million below the original amount planned. It was the smallest grain harvest in the Soviet Union since 1965. Soviet imports of grain during the July 1975-June 1976 period are projected at 27 million metric tons, about one-half of which will be shipped from the United States. Despite these imports, the Soviets are expected to cut feed usage by about 5 percent. Substantial numbers of livestock, primarily hogs and poultry, have already been slaughtered. The feed supply situation in Eastern Europe is somewhat less severe than that in the Soviet Union. Total grain output in these nations is down about 5 percent, and reports indicate a slowdown in livestock feeding. The grain situation improved considerably in the less developed countries this year with production rising about 5 percent from the 1974 level. Even Page 12 though this reverses a four-year deterioration in per capita output in these nations, per capita grain sup plies are still only equal to those in 1973-74, and re main below the average for the 1969-71 marketing years. Production Expenses Rise at Slower Rate Farm production expenses in the United States are expected to continue their upward trend in 1976; however, the rate of increase will likely decline from the relatively high rates of recent years. As gross farm income rose at a relatively rapid rate, farmers bid up the price of production items. Such prices rose at an annual rate of 15 percent from 1971 to 1974. The variable costs for producing six major crops is projected to increase an average of 6 percent this year from the 1975 level.2 These costs rose an average of 19 percent in 1975. The costs per unit of production will rise less than 6 percent, since higher average yields are expected. The slower growth of farm production expenses this year largely reflects the slower rate of increase in the price of farm inputs. In contrast to the substantial price increases for most input items during the past three years, such prices are tending to level off, and the price of some will be less than a year ago. The price of fertilizer, for example, is expected to average 7 percent less (Table II). Fertilizer prices dropped sharply last summer and, with the exception of potash, now average below late 1974 levels. Part of the increase in farm input prices since 1971 has been o f a short-term nature, reflecting maladjust ments caused by higher oil prices, wage-price con 2Crops included are wheat, corn, grain sorghum, barley, soy beans, and cotton. F E D E R A L R E S E R V E B A N K O F ST. L O U IS trols, and some unexpectedly poor crop yields both here and abroad. The actions of the foreign oil cartel led to higher prices for both fuel and fertilizer, but unless more restrictive actions are taken, the cartel will have no further impact on farm input costs. With the reduced incentive to produce during the period of wage-price controls, production of many input items was cut back and “shortages” developed. With the removal of controls and a return to free markets, prices increased sharply to short-run equilibrium levels. Supplies of farm inputs, however, adjust more slowly than input prices as a period of time is required to increase the productive capacity for major input items. For example, the higher prices for fertilizer in 1974 eventually led to a buildup in production last year. Some upward pressure on farm wage costs is ex pected to result from an increase in the Federal agricultural minimum wage rate to $2 an hour, effec tive January 1, 1976. This will result in fewer workers being hired, increased unemployment, and higher per unit labor costs. Relatively high nonagricultural un employment, however, will tend to moderate the over all increase in farm labor costs. PROSPECTS FOR MAJOR EIGHTH DISTRICT FARM PRODUCTS Beef Cattle With the greater incentive for cattle feeding, a re turn to more normal relationships between slaughter of fed and nonfed cattle is expected this year. Fed cattle slaughter has steadily declined, on a seasonally adjusted basis, since the second quarter of 1973. By spring of 1975 such slaughter accounted for only about one-half of the total number of cattle slaughtered, as compared with 80 percent two years earlier. A turn around in the fed-nonfed cattle slaughter ratio is ex pected this year. The number of cattle on feed on January 1 in the 23 major feeding states was up 28 percent from a year ago pointing to a larger slaughter of fed cattle. In contrast, nonfed cattle slaughter is expected to decline as a result of the higher demand for feeder animals and the increased incentive for calf production. Total cattle slaughter picked up in late 1974 and 1975 as feeder cattle prices declined to levels where there was no incentive for further herd increases. The price of feeder cattle for slaughter became competi tive with prices of cattle moving into feedlots, and large numbers of cattle began to move to slaughter FEBRUARY 1976 Tabl e II PRICE INCREASES O F SELECTED FARM INPUT ITEMS SINCE 1973 Item Percent In cre a se 1973 to 1974 Feed 17% Fee d e r livestock -2 3 1 9 7 4 to 1 9 7 5 P re lim in a ry — 3% — 13 1975 to 1 9 7 6 Projected — 9% + 10 M otor su p p lie s 33 +9 M otor ve h icle s 13 + 18 +8 +5 + 11 Form m a ch in e ry 16 + 23 F e rtiliz e r 70 + 15 Farm su p p lie s 24 + 16 Seed 37 +8 W ages 11 + 10 +9 A ll p ro du ctio n item s in clu d in g in tere st a n d ta xe s 16 A ll item s e xclu d in g teed an d fe e d e r livesto ck 21 - 7 - 3 +9 + 3 + 14 +7 +8 S ource: Original data from John G. Stovall, “ The Cost o f Producing Agricultural Comm odities” (p a p er delivered at the National Agricultural Outlook Conference, N ovem ber 18, 1975). houses directly from pastures and ranges. The total number of cattle slaughtered in 1975 was about 10 percent above that of 1974, but the decline in nonfed cattle slaughter in 1976 may more than offset the in crease in fed cattle slaughter, resulting in a small decline in the total. The beef catde inventory, which had been increasing at a relatively rapid rate since the early 1970s, may have declined slightly last year, the first reduction in the beef cow herd since 1958. While beef production is expected to increase some what this year, demand for fed beef cattle is likely to rise, and prices may average for the year near or slightly above the 1975 average. The greater incentive for feeding will also result in an increase in demand for feeder cattle, and rising cow and feeder cattle prices from the relatively low levels of 1975. Feeder prices might again exceed fed cattle prices, rising to $40 to $50 per cwt. for higher grade steers on midwestern markets. This compares with prices of $25 to $30 per cwt. in January and February 1975. Hogs Hog producers have also reacted to the higher profit margins from feeding, but major increases in pork production are not likely to occur before mid-1976. Based on the number of hogs on farms last September, pork production through the first quarter of 1976 will be 10 to 15 percent below the relatively low levels of a year earlier. As a result of the sharp increase in Page 13 F E D E R A L R E S E R V E B A N K O F ST. L O U IS farrowings beginning in the fourth quarter of 1975, however, slaughter in the spring quarter will rise somewhat from the first quarter and will likely con tinue up through the year, with the total for 1976 exceeding that of 1975 by 3 to 5 percent. Despite the upswing in hog production, pork out put will remain relatively low throughout the first half of the year, as compared with recent years. Hog prices are expected to average above year-ago levels through mid-year; however, they dropped below $50 per cwt. near yearend and are likely to move lower during the year as marketings increase. Poultry and Eggs A year ago poultry producers were facing declining profits and bleak prospects for a recovery of earnings; consequently, production declined. Since then, how ever, the spread between feed costs and broiler prices increased, providing incentive for expanded produc tion. Broiler production is likely to be up about 10 percent in the first half of 1976 from a year earlier. Last November USDA analysts did not expect broiler prices to decline much in the first half of 1976 from the fourth quarter of 1975 with the smaller supply of red meat in prospect; but broiler prices have al ready dropped about 10 percent from the mid-October level. In late January such prices were only $0.02 per pound above the year-ago level. Turkey production in the first half of 1976, although small relative to most recent years, will likely be sub stantially above that of a year earlier. Turkey prices rose steadily from last February through August as production declined and prices of other meats rose. In late October New York wholesale turkey prices averaged $0.07 per pound above those of a year earlier, but a seasonal decline occurred near yearend. Similar to the broiler situation, relatively high prices for red meat and rising consumer incomes will tend to maintain turkey demand and prices above year-ago levels during the first half of 1976. Per capita consumption of eggs has trended down ward for a decade or more reflecting consumer prefer ence for other foods; the demand for eggs this year is not expected to reverse this trend. Several egg sub stitutes have been introduced which are making in roads into traditional egg markets. Egg production increased late last summer and fall, but the third quarter production was still slightly below a year earlier. Despite the relatively weak demand, produc tion is expected to continue up in early 1976 as a result of the lower feed prices. Page 14 FEBRUARY 1976 Egg prices began to drift below year-earlier levels late last summer, but in recent weeks they have in creased and moved above year-earlier levels. Never theless, egg prices are likely to average near or below late 1975 levels through the first half of 1976. Dairy Products Milk production has been stable during the past three years with total output ranging between 115 and 116 billion pounds each year. However, net ex ports have trended downward, and per capita sup plies of dairy products have been about constant since 1967. Dairy products are subject to Government price supports, and in early 1975 a substantial amount of Government buying occurred as market prices were below the support level. Production declined some what during the summer, but turned up in October, and is expected to rise throughout 1976 because of the greater incentive for feeding. Milk prices turned up during the year, rising to an average farm price of $9.53 per hundred pounds in October. The price of milk averaged about $8.60 per hundred pounds in 1975, up from $8.32 in 1974. Milk prices will possibly show sharper-than-normal seasonal declines in early 1976, but the decline will be limited by Government price supports, and farm prices for milk are expected to average above yearearlier levels. Feed Grain Estimated feed grain production of 202 million tons in 1975 ( about 80 percent of which was c o m ) was 22 percent larger than a year earlier and only slightly below the record 207.7 million ton crop in 1971. Carryover stocks last year were down to 15.8 million tons, the smallest since 1948. Hence, despite the large crop the total quantity available this year is only 16 percent larger than a year ago. The growth in do mestic demand, however, will be held in check by the relatively small number of grain consuming animals on farms. By yearend, stocks of feed grains were 21 percent above the relatively low year-earlier levels. Nevertheless, domestic use of corn is expected to rise 11 percent from the 1974-75 level (Table I). Export demand for feed grain is relatively strong. As indicated earlier, the drought in the Soviet Union will result in major increases in exports to that nation. Total corn exports are projected at 1.4 to 1.5 billion bushels, compared with 1.15 billion a year ago. Sor F E D E R A L R E S E R V E B A N K O F ST. LO U IS FEBRUARY 1976 ghum grain exports of 250 to 300 million bushels are projected, well above the 212 million of a year ago. Oats and barley exports are also expected to increase. in 1970-74. Domestic use of cotton declined faster than exports, dropping 15 percent from 1960-64 to 1970-74, while exports dropped 12 percent. Given the projected supply and demand situation, com prices at the farm are forecasted to average about $2.60 per bushel during the 1975-76 marketing year. Prices of the other feed grains will tend to move with corn prices. Based on a January 1, 1976, survey of growers, acreage planted to feed grains will be increased again in 1976. Farmers reported intentions to increase corn acreage 4 percent, sorghum 2 percent, and oats 1 percent. The major factors contributing to this decline were the rising competition in the fiber market from both manmade fibers and cotton production abroad. Per capita consumption of manmade fibers in the United States rose almost four-fold from 1960 to 1974, whereas per capita consumption of cotton declined about 33 percent. Cotton production in the foreign noncommunist countries rose from 22 million bales in 1962 to more than 28 million in 1974, somewhat faster than cotton usage grew in these nations during the period. Soybeans Large carryover stocks last year and a near record crop boosted the quantity of soybeans available for the year to a new high, 23 percent above the year-ago level. The harvest last fall was 25 percent larger than a year earlier, and carryover stocks were 9 percent larger (Table I ). Although domestic soybean use plus exports is expected to continue moving upward, rising to 1.3 billion bushels, this may be the third consecu tive year in which total utilization is less than produc tion. By yearend soybean stocks were 26 percent above the January 1, 1975 level, and stocks at the end of the marketing year on October 1 are projected at 375 million bushels — double last year’s carryover. Reflecting the larger supply, prices received by farmers for soybeans last fall averaged less than $5 per bushel, compared with $8 a year earlier. Prices may increase somewhat during the year, but the sea son average price is expected to fall sharply below the $6.50 per bushel of 1974-75. Reflecting the rela tively low price for soybeans, fanners reported inten tions to reduce the acreage planted to soybeans this year by 7 percent. Domestic demand for all fiber is strengthening somewhat this year, however, and mill consumption of cotton is projected to rise. Exports, however, may be down slightly because U.S. cotton prices have been above prices of foreign competitive cotton for about a year. As a result, numerous export contracts were cancelled by foreign purchasers, and a sharp decline in shipments occurred. However, some recovery in foreign cotton prices is expected in early 1976, and U.S. cotton exports for the year may be only slightly below the 1974-75 level. Reflecting the prospects for a relatively small 1975 crop, cotton prices rose sharply from January to Sep tember last year and are now above those of domestic competitive manmade fibers. This slight price disad vantage for cotton, however, is not considered a ma jor factor in domestic cotton consumption for the year. The higher cotton prices have provided incentive for increased cotton acreage. In January farmers reported intentions to increase their acreage of upland cotton by 17 percent this year. Rice Cotton The trend in usage of U.S. cotton has been declin ing. Thus, while production last fall was down 20 percent from a year earlier, carryover stocks were up, and the total available for the year is down only moderately. Production declined to 8.3 million bales from 11.5 million in 1974, but carryover stocks were up almost 2 million bales, resulting in production plus carryover of 14.1 million bales (Table I ). This is the second smallest quantity of cotton available for any year since the early 1930s. Domestic consumption plus exports declined from an average of 13.8 million bales during the five years 1960-64 to 12.5 million in 1965-69, and to 12.1 million The main features in the outlook for rice are the currently large domestic supplies and a continuing growth of demand. The estimated 1975 rice crop of 128 million cwt. was 14 percent larger than the pre vious record crop in 1974. Carryover stocks at the close of the 1974-75 marketing year were 7 million cwt., slightly less than a year earlier, resulting in a total supply of 135 million cwt. — about 12 percent above the quantity available a year ago. However, rice shipments this year have been relatively slow, and on January 1 stocks of rice were about 32 percent above year-earlier levels. Demand for rice, however, is expected to continue upward for the year. Domestic use has increased Page 15 about two percent per year in recent years, and a similar rise is expected this year. Exports are expected to remain at last year’s relatively high level. Exports to the Mid-East rose sharply last year to 15.5 million cwt., reflecting the enhanced oil revenues of OPEC (Organization of Petroleum Exporting Countries). A high level of exports to these nations is expected again this year. Larger commercial sales to the U.S.S.R. and larger shipments through Government aid to Bangla desh are also in prospect. The generally larger world rice crop, however, may result in smaller shipments to some traditional commercial markets. The season average price for rice is likely to fall short of last year’s $10.45 per cwt. Prices to farmers averaged $8.29 in mid-December, down from $9.80 in August. Some increase in price may occur during the marketing season, but the increase is not likely to be as great as a year ago. Tobacco The tobacco outlook is highlighted by increasing supplies both in the United States and abroad. U.S. tobacco production in 1975 was about 10 percent more than a year earlier, and the total amount avail able is up about 5 percent. The quantity of burley tobacco (the major type grown in the Eighth District) available for domestic use plus export this year is up about 3 percent from the year-ago level. Burley usage was down last year, but may increase this year with the somewhat larger amount available. Carry over stocks at the close of the year are expected to be about the same as a year ago. Burley production is subject to government acreage controls, marketing quotas, and price supports. The legal formula requires that price supports go up about 13.5 percent this year. The marketing quota is ex pected to be maintained at about 667 million pounds. U. S. BICENTENNIAL