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WAITE MEMORIAL BOOK COLLECTION
DEPARTMONT OF AGRICULTURAL. AND APPLIED ECONOMI
232 CLASSROOM OFFICE-BL
1994 BUFORD AVENUE, UNIVERS;r,'

•

FRB CHICAGO

ST. PAUL, MINIESOTF,

55108

)ft SOTA

AGRICULTURAL LETTER
FEDERAL RESERVE BANK OF CHICAGO
Number 1755
March 10, 1989

Cattle numbers stabilize
The USDA's latest enumeration of the cattle herd suggests that the seven-year cyclical decline is ending.
The survey indicated that the nation's cattle herd
numbered nearly 99.5 million head as of January 1.
The estimate was larger than analysts had expected
but still nominally below the 27-year low set a year
ago. Despite the nominal decline, it appears that
cattlemen started to rebuild their herds last year. The
calving rate increased considerably and the inventory
of both beef cows and beef replacement heifers was
up from last year. These developments imply that the
decline in beef production this year will be smaller
than had been expected.

•

An upturn in last year's calf crop was the major factor
contributing to the larger than expected cattle inventory estimate. The inventory of cows and replacement
heifers at the beginning of 1988 numbered 2 percent
less than the year before. However, the survey indicated that the 1988 calf crop rose 2 percent from the
cyclical low of 1987. This implies a calving rate (the
number of calves born as a percent of the beginning
inventory of cows and replacement heifers) of 77.5
percent for 1988, up from 74.5 percent the year before
and, along with 1980, the highest for any year since
1972.
Despite the 1988 drought, cattlemen apparently responded to the improved operating returns of recent
years by curtailing somewhat further their culling of
the breeding herd and by raising more animals for herd
replacement. Federally inspected slaughter of all cows
and heifers (which accounts for the bulk of all such
animals slaughtered) declined to 16.6 million head in
1988, down 2 percent from the year before and down
about 8 percent from the annual average during the
heavy-culling years of 1983 through 1986. Beef cow
slaughter, at about 3.3 million head in 1988, led the
decline last year by falling nearly 7.5 percent.

•

The cut in slaughter helped boost the current inventory of breeding cattle for the beef herd. As of January
1, the inventory of beef cows was up nearly 2 percent
from a year earlier, while the inventory of heifers held
for beef cow replacements was up more than 5 percent. The dairy component of the cattle breeding
herd, however, stabilized last year. Milk cow numbers
on January 1 were down nearly 1 percent from a year

ago which about offset a 2 percent rise in the number
of heifers being held for milk cow replacements.
While a rebuilding of the nation's cattle breeding herd
apparently got underway in 1988, that does not appear to be the case for District states. The calving rate
in District states improved slightly last year, but not
enough to offset the 2.6 percent decline in the inventory of cows and replacement heifers at the beginning
of last year. Hence, the calf crop in District states declined modestly again last year. Moreover, the current
inventory of all beef cows and beef replacement
heifers in District states is essentially unchanged from
a year ago as a decline in beef cow numbers about
offset the estimated rise in the number of heifers being
held for beef cow replacements. The dairy component
of the cattle breeding herd in District states is down
2.1 percent, reflecting declines for both dairy cows and
dairy replacement heifers.
The January 1 survey of all cattle also provides a more
complete state-by-state tally of the number of cattle
on feed than is the case with the 7-state monthly survey or the 13-state quarterly survey. (Cattle "on feed"
are those fed a full ration of grain or other concentrates and expected to produce a carcass that will
grade "select" or better.) As of January 1, the number
Cattle inventory, January 1, 1989
District states

United States
Percent
change*

Million
head

Percent
change*

Million
head

13.3

-1.3

99.5

1.1
1.7
-0.8

All cattle and calves

0

All cows
Beef cows
Dairy cows

5.2
2.4
2.8

-1.7
-0.7
-2.5

43.9
33.7
10.2

Heifers 500 lbs.
and over
Beef cow replacements
Dairy cow replacements
Other

2.7
.4
1.2
1.1

-1.1
8.4
-1.0
-3.9

17.3
5.5
4.2
7.6

1.1
5.3
2.0
-2.3

Steers and bulls 500 lbs.
and over
Calves under 500 lbs.

2.4
3.0

3.3
-4.1

18.0
20.2

0.7
-3.9

1.5
5.0

-1.9
-0.3

11.2
40.9

-3.2
2.0

Addenda:
Cattle on feed
1988 calf crop
From previous year.
SOURCE: USDA

of cattle on feed nationwide was down more than 3
percent from a year earlier but up nearly 2 percent
from two years earlier. In District states, the inventory
of cattle on feed was down about 2 percent from a
year earlier and down nearly 9 percent from two years
ago. Cuts in Illinois, Iowa, and Wisconsin last year
offset gains in Indiana and Wisconsin.
The continuing decline in cattle feedlot activity in District states extends a trend of the past two decades.
The January 1 inventory of cattle on feed in the five
states comprising the Seventh Federal Reserve District
peaked in 1969 at 3.7 million head. At that time, District states accounted for more than 29 percent of the
inventory of cattle on feed nationwide. As of the start
of this year, feedlot inventories in District states were
down 59 percent from the peak of two decades ago
and equivalent to only 13.5 percent of the total nationwide. The number of cattle on feed in Iowa has
declined 71 percent over the past two decades, accounting for a proportionately large share of the decline in all District states. Feedlot inventories in Illinois
are down 57 percent from two decades ago, while
those in Indiana and Wisconsin are off more than a
third. The number of cattle on feed in Michigan is up
5 percent from two decades ago, but still some 14
percent below the all-time high for that state set in
1973, the year feedlot numbers peaked nationwide at
14.4 million head.
With cattle numbers stabilizing and the apparent rebuilding of the breeding herd already underway, the
USDA has narrowed its projected decline in beef production for this year to 3 percent from the 7 percent
cut that was forecast in January. Most of the decline
is expected to come in the second half of this year.
The decline in the current quarter is expected to be
about 1 percent from a year ago, followed by a 2 percent decline in the second quarter. With lower beef
production, cattle prices this year will probably surpass the record high of $69.55 per hundredweight set
for choice steers at Omaha in 1988. Prices so far this
year have averaged about $73 and could move into
the mid $70s range during the second quarter.
Gary L. Benjamin

Farm machinery and equipment sales
After increasing rapidly during the early months of
1988, the onset of the drought began to temper gains
in farm machinery sales last spring. By the third quarter of last year, figures from the Farm and Industrial
Equipment Institute (FIEI) were indicating year-to-year
declines in unit sales. Although preliminary sales figures for early 1989 are somewhat mixed, larger than
expected farm sector income last year and forecasts

Sales of new farm machinery
and equipment
1985

1986

1987

1988

•

number of units
Tractors
two-wheel drive
40-99 HP
100-139 HP
140 HP or more
four-wheel drive
Total
Self-propelled combines
Small balers
Forage harvestors
Mower conditioners
Windrowers
Grinder-mixers

37,842
7,300
10,400
2,912

30,848
5,149
9,113
2,037

30,694
5,084
10,818
1,653

33,154
4,320
11,802
2,729

58,454

47,147

48,249

52,005

8,411
7,038
2,460
11,243
2,026
1,914

7,660
5,734
2,164
10,898
1,461
1,797

7,170
5,352
2,280
11,239
1,570
2,478

5,995
5,735
2,405
11,043
1,706
2,656

SOURCE: Farm and Industrial Equipment Institute.

for continued strong income this year along with increased acreage in production point toward continued
improvement for the farm machinery and equipment
industry this year.
Farm equipment sales during the first half of 1988 registered substantial year-to-year gains, continuing a
trend that had started in mid 1987. By June of last year
cumulative sales of farm tractors with 40 or more
horsepower were almost a third higher than during the
same period a year earlier, while sales of combines had
more than doubled the year-earlier pace. However,
the strong first half performance gave way to a sharp
slump in sales during the summer months as the
drought wore on. During the third quarter of 1988,
unit retail sales of farm tractors dropped 23 percent
from a year earlier. Although sales recovered somewhat in October and November to post year-to-year
gains, sales of tractors with 40 or more horsepower fell
below a year ago again in December. Combine sales
suffered an even more extensive decline. Monthly
sales of combines posted year-to-year drops throughout the second half of 1988, cumulating to a 40 percent decline from a year ago through the period.
The sharp drop in combine sales during the second
half of 1988 more than offset the year-to-year gains
that had been registered through June. For all of 1988,
unit sales of combines were more than 16 percent below the previous year's level, registering a seventh
consecutive annual decline. Sales of mower conditioners registered a slight decline in 1988 as well, falling
less than 2 percent from a year earlier.
Unit retail sales of other major farm equipment items
all recorded annual gains. Despite the third quarter
slump, sales of farm tractors with 40 or more horsepower increased almost 8 percent in 1988, recording
a second consecutive annual increase. Unit sales of

•

•

four-wheel drive tractors, a relatively small portion of
total sales, registered year-to-year gains of almost
two-thirds in 1988. Among two-wheel drive tractors,
units with between 40 and 100 horsepower and those
with over 140 horsepower recorded increases of 8 and
9 percent, respectively, from 1987 levels. However,
farm tractors with between 100 and 140 horsepower
slipped 15 percent from the sales level of the previous
year.
Several other types of farm machinery and equipment
items recorded sales gains in 1988. Sales of small
balers and combination grinder-mixers were both up
more than 7 percent from the year-earlier level, while
windrowers sales registered an almost 9 percent increase. Sales of forage harvesters in 1988 totaled 5.5
percent more than in 1987.
Tractor and combine sales in 1988 fared somewhat
worse in the five District states than in the nation as a
whole. Sales of tractors with 40 or more horsepower,
although up from last year, recorded an increase of
only about 2 percent. Unit sales were essentially unchanged from a year ago in Illinois and Indiana, while
sales were off almost 3.5 percent in Wisconsin. Sales
of tractors with at least 40 horsepower were up more
than 7 percent from the previous year in both Iowa
and Michigan.

•

•

The reductions in sales during the latter half of last
year, on the heels of increased manufacturing schedules for many items, boosted year-end inventories of
most farm machinery and equipment cited in the FIEI
report, reversing the downtrend of the last several
years. The unsold inventory of farm tractors at the
end of December was up 16 percent from the yearearlier level, although inventories were still 19 percent
below the level that prevailed two years earlier. Inventories of balers and windrowers were up more than
a fourth from a year earlier, while grinder-mixer inventories at the end of December had jumped 60
percent from the previous year. Somewhat smaller
increases of 7 to 10 percent were recorded in year-end
inventories of mower conditioners and forage
harvestors. Combine inventories, on the other hand,
continued to drop in 1988, and at year end were down
more than 5 percent from ending 1987 levels.
The build up of stocks of farm machinery and equipment last year raised the inventory-to-sales ratios for
the industry, but did not lead to a return to the sharp
misalignment that occurred during the early 1980s.
At year end 1988, tractor inventories stood at almost
61 percent of sales during the previous twelve month
period, up slightly from the 56 percent ratio recorded

at the end of 1987. At that level, the year end
inventory-to-sales ratio is comparable to the levels
that prevailed in the late 1970s, but well below the 80
and 90 percent levels of a few years ago. Combine
inventories as a percent of annual sales edged higher
last year as well. At almost 57 percent, the inventoryto-sales ratio was up about 7 percentage points from
a year earlier, and remained well above the historical
range of 25 to 30 percent. As with tractors, however,
the year end inventory-to-sales ratio for the industry
is well below the burdensome levels of the early 1980s.
Ending stocks-to-sales ratios of other farm equipment
items moved higher last year as well. Ending inventories of mower conditioners, forage harvestors,
windrowers, and combination grinder-mixers about
equaled 1988 sales of these items, while the
inventory-to-sales ratio of forage harvesters was
somewhat lower at about 80 percent. However, baler
inventories at the end of last year exceeded 1988 unit
sales by almost a fourth.
Despite some sluggishness in the market suggested by
preliminary sales figures for January, most analysts expect further recovery in farm machinery and equipment sales in 1989. Farm income is expected to stay
strong in 1989, providing a foundation for machinery
and equipment demand. Moreover, adjustments in
government price support programs along with relatively strong commodity prices will likely buoy planted
acreage in 1989. Set aside requirements for participation in support programs for major crops have been
reduced substantially and most analysts expect some
decline in the very high program participation rates of
the last few years. The resulting significant shift of
acreage back into production is expected to provide
additional impetus to demand for farm machinery and
equipment this year.
Peter J. Heffernan

AGRICULTURAL LETTER (ISSN 0002-1512) is published bi-weekly by the
Research Department of the Federal Reserve Bank of Chicago. It is
prepared by Gary L. Benjamin, economic adviser and vice-president,
Peter J. Heffernan, economist, and members of the Bank's Research
Department, and is distributed free of charge by the Bank's Public Information Center. The information used in the preparation of this
publication is obtained from sources considered reliable, but its use
does not constitute an endorsement of its accuracy or intent by the
Federal Reserve Bank of Chicago.
To subscribe, please write or telephone:
Public Information Center
Federal Reserve Bank of Chicago
P.O. Box 834
Chicago,IL 60690
Tel.no. (312) 322-5111

Selected Agricultural Economic Indicators
Percent change from
Latest
period

Value

Prior
period

Year
ago

Two years
ago

February
February
February
February
February
February

148
138
2.54
2.33
7.23
4.03

-0.7
-1.4
-2.3
-7.5
-6.0
0.5

14
27
39
27
21
44

21
39
79
60
54
59

Livestock and products (1977=100)
Barrows and gilts (Sper cwt.)
Steers and heifers (Sper cwt.)
Milk (Sper cwt.)
Eggs (Cper doz.)

February
February
February
February
February

157
40.70
75.80
13.10
62.1

-0.6
-2.6
-0.1
-2.2
-2.8

5
-13
6
7
32

9
-17
21
2
6

Prices paid by farmers (1977=100)

January
January
January
January
January

175
163
141
202
166

1.2t
0.6t
0.0t
3.1t
0.6t

6
7
26
5
1

11
15
42
23
8

January
January
January
January

111
114
108
112

0.9
0.4
2.8
1.3

5
4
14
5

7
4
33
9

January
January

121
122

0.5
1.2

5
6

9
9

7,071
1,367
1.90
1.31
10.5

N.A.
N.A.
1.3
-8.0
2.3

-28
-22
-3
5
3

-31
-30
-10
5
6

Prices received by farmers (1977=100)
Crops (1977=100)
Corn (Sper bu.)
Oats (Sper bu.)
Soybeans (Sper bu.)
Wheat (Sper bu.)

Production items
Feed
Feeder livestock
Fuels and energy
Producer Prices (1982=100)

Agricultural machinery and equipment
Fertilizer materials
Agricultural chemicals
Consumer prices (1982-84=100)

Food
Production or stocks
Corn stocks (mil. bu.)
Soybean stocks (mil. bu.)
Beef production (bil. lbs.)
Pork production (bil. lbs.)
Milk production (bit /bs.)tt

December 1
December 1
January
January
January

N.A. Not applicable
tPrior period is three months earlier.
tt21 selected states.

AGRICULTURAL LETTER

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.4

FEDERAL RESERVE BANK OF CHICAGO
Public Information Center
P.O. Box 834
Chicago, Illinois 60690
(312) 322-5111

AG001
HEAD-DEPT OF AGRIC ECON
INSTITUTE OF AGRICULTURE
UNIVESITY OF MINNESOTA
ST PAUL MN 55101

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