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Federal Reserve Bank of Chicago

INES 1111.1 ••111

July 2, 1954
PRICE SUPPORT levels for 1955 and subsequent crops still are on the legislative anvil. Their
final shape and size will not be known until Congress
has hammered the many sharply divergent views into
a single form and pas'sed it along to the White House
for consideration.
The financial requirements of the current program
were highlighted again this week by the Secretary of
1 2 billion dollar increase
Agriculture's request for a 1/
in borrowing authority for the CCC. This would raise
its total obligational authority to 10 billion dollars.
At the end of April, CCC obligations totaled
6.2 billion dollars, reflecting an increase of 2.6 billion
in the previous year. Agriculture Department estimates
indicate the present borrowing authority of 8.5 billion
dollars will not be enough to finance CCC operations
after November.
THE FINANCIAL DRAIN on the Treasury can be
reduced by lowering the level of support as was done
with dairy products or by effective control of produc tion and marketing. It is not an easy matter, however,
to achieve a reduction in total agricultural output.
Acreage control programs in the past have limited the
output of certain crops but probably have had only
nominal effect on total production of farm commodities.
A step in this direction was taken recently with
the announcement of a further cutback of 13 per cent
in wheat acreage allotments for the 1955 crops. To
assure compliance with allotments, marketing quotas
have been declared and will be in effect if approved
by two - thirds of the wheat growers voting in a referendum on July 23. Approval of the quotas will mean
than farmers can sell only the amount of wheat pro duced on their allotted acres. Any excess over this
is subject to heavy penalty.
The Secretary announced also that farmers must
comply with all acreage allotments established for
their farms in 1955 if they are to be eligible for
price support on any crop produced on the farm.
This is in sharp contrast with the 1954 program in
which "cross compliance" was not required. This
year cotton farmers, for example, could comply with
the cotton allotment but plant diverted acres to corn
or other supported crops and still obtain price support
for their cotton. This will not be possible next year.
Furthermore, on farms where the 1955 acreage
allotments call for a diversion of more than 10 acres,
a total acreage allotment will be established for the
farm and the farmer must stay within that total as
well as the individual crop allotments to be eligible
for price support. Diverted acres may be left idle
or used for hay and pasture crops.
THE RIGID CONTROL of land use on individual
farms -- inherent in a program which attempts to sup port prices of individual commodities at higher than
market levels-- has stimulated a search for alternative
types of programs which would enable the nation to
live with excess capacity in agriculture without
bringing severe financial distress to many rural communities. The objective is to retain a large degree
of freedom in the decisions of individual farmers as

Number 255
to how they use their land and other resources.
A suggestion which has acquired some following
is to promote a shift to grass and livestock. This
is the type of adjustment which wOuld normally take
place if market prices were left free to guide pro ducers and consumers. It is the type of adjustment
that will occur under the present program also, but
largely as a by - product rather than as an accepted
objective.
It would have the effect of reducing total food
supply since it takes about seven calories of feed
consumed by livestock to make one in the form of
meat, milk or eggs for human consumption. Furthermore, shifts from grain -consuming livestock to grassand roughage- consuming livestock further reduce the
output of food per acre. Agricultural economists at
Purdue University point out, for example, that a
shift from corn and hogs to grass and beef reduces
the total output of meat to about one-fourth, as
measured on a caloric basis.
To encourage such a shift at the present time
and to minimize its effects on farm income, the
Purdue economists suggest that payments be made to
farmers for land planted to grass and legumes. The
payments would be in proportion to the productive
capacity of the land. Farms and ranches in which
most of the land is used for hay and pasture would
receive most of the payments, but the producers of
cash crops such as wheat and cotton would benefit
from reduced acreage and higher prices for these
crops. But prices would not be so high as to interfere with the marketing of the available supply. The
cost of the program would vary depending upon the
per acre payment and the amount of land shifted
from harvested crops into hay and pasture.
It is pointed out that this program would promote
soil conservation and that land of improved productivity
would be available for immediate use whenever the
demand arose. Furthermore, insofar as it increased
the number of livestock on farms, these animals
would be available for slaughter if the need arose.
Hence, the program would provide an "ever- normal
granary" in the form of livestock rather than grain.
A 10 million increase in the number of cattle on
farms would be equivalent to the storage of about
500 million bushels of corn.
As the strains and stresses inherent in measures
which attempt to maintain prices at a level either
above or below that which will just clear the market
of available supplies become more intense, the search
for means of relieving such pressures is stepped up
and alternatives appear more and more palatable.
Research Department