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Federal Reserve Bank of Chicago . . .
November 26, 1976

Agricultural
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THE 1977 AGRICULTURAL OUTLOOK
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characterized by prospects for large supplies of mosPi
crops and near-record livestock production. Grain
prices will probably average lower in the upcoming
year in contrast to expectations for higher oilseed and
Number 1406
cotton prices. Supplies of red meat—measured on a 8
capita basis—are projected to decline marginally fr I
the estimated 1976 record of 192 pounds; a reduction
beef supplies will likely offset increased pork production. These developments suggest that the income of
The livestock outlook for 1977 is one of guarded
the livestock producers will likely be enhanced comoptimism. Cattle inventories will likely decline
pared to that of crop producers.
further, albeit at a sharply lower rate than occurred in
1976. Current estimates place the ending-1976 cattle
Information presented at the annual National
inventory at 121 million head, down 7 million from a
Agricultural Outlook Conference last week suggests
year earlier. The expected drop in the rate of nonfed
that carryover stocks of wheat will be sharply higher
steer and heifer slaughter should impart price strength
next June. In addition, wheat growers are expected to
to the cattle market. Choice steer prices will likely
plant almost the same acreage for the next crop as they
move to the low-to-mid-$40 per hundredweight level
did for the 1976 crop. Although some cutback in spring
in the first half of 1977 according to USDA estimates.
wheat acreage seems likely, it now appears that a large
Higher fed cattle prices coupled with slightly lower
wheat crop is in the offing for the third consecutive
feed costs should provide an incentive for feeders to
year. The USDA predicts that the average farm price
expand their operations as the year progresses and
for wheat during the 1976/77 crop marketing year will
may ultimately result in some downward pressures on
range between $2.75 and $3.25 per bushel. Since prices
fed cattle prices towards the latter part of 1977, paraveraged $3.04 per bushel in the first five months and
ticularly the last quarter.
the current price level is around $2.50 per bushel, the
annual average price could fall very near the low end
Hog production will likely reach the peak of the
of the given range.
current upward cycle in 1977. Consequently, per
capita pork consumption may rise by 10 percent or
Recent upward revisions in feed grain production
more in 1977 and be reflected by lower average annual
estimates suggest that supplies will exceed utilization
hog prices. However, hog prices are expected to
and permit further buildup of carryover stocks at the
average around $35 per hundredweight in 1977 and to
end of the crop year. For example, at the start of the
remain fairly stable throughout the year.
present crop year, corn supplies—the major feed grain
—are estimated to total nearly 6.5 billion bushels, up 3
Dairy producers will face growing stocks and the
percent, from last year and more than sufficient to hanprospect that prices may average lower in 1977. While
dle the projected increase in use and still leave ending
demand was firm in 1976, milk production showed the
stocks 45 percent larger than year-earlier. Farm prices
largest year-to-year gain since 1953. After three years
for corn could range between $2.25 and $2.75 per
of virtually stable output milk production will rise
bushel, according to USDA officials, in comparison to
about 4 percent this year. Prospects for another 1 to 2
the 1975/76 average of $2.55 per bushel. As with
percent rise in 1977 milk output suggest lower prices,
wheat, the upper portion of the range may be — perhaps approaching support-level prices sometime
somewhat optimistic in light of the present supply/deearly next year.
mand situation.
Farm income prospects for 1977 remain subject to
In contrast to wheat and corn the supply/demand
a number of uncertain variables, weather conditions
situation for soybeans is very tight and prices have
both in the United States and abroad being one of the
increased accordingly. During the past two months
most important. If the expectations for continued large
farm prices for soybeans averaged $6.30 per bushel,
grain crops are met, and total meat production is held
up $1.15 per bushel from the same year-ago period.
at—or slightly below—the 1976 level, livestock
Offsetting the U.S. situation to some degree are
producers will be in a relatively strong income posiprospects for increased competition from foreign
tion compared to this year, while crop producers will
sources, such as soybeans from Brazil and palm oil
likely experience some decline. Realized net farm
from Malaysia. Furthermore, given the anticipated
income—income before adjustments for changes in infuture price relationships, corn will be substituted for
ventory values—will total about $24 billion in 1976
soybeans in many livestock rations. Wheat may also
and could range within plus or minus $1 billion of that
be incorporated in rations, particularly for cattle,
figure in 1977.
although the experience of the last few months
suggests that the amount of wheat utilized for feed
Terry Francl
may fall considerably short of earlier estimates.
Agricultural Economist

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