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LIBRARY

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CURRENT SRIAL RECORD

Federal Reserve Bank of Chicago --

•

October 15, 1954

A Western Corn Belt Credit Conference was held
at Iowa State College last week, and judging from the
spirited participation of the 60 credit nen in attendance,
this promises to be the beginning of a long succession
of successful conferences. The program included a
wide variety of topics with the discussions led by
specialists of the College staff and by bankers.
AGRICULTURAL INCOME AND PRICES will
continue to drag somewhat in the years immediately
ahead, according to Professor F. A. Kutish, with the
parity ratio hanging near the 85 per cent level. In
recent months the ratio has stood at 88-89 per cent.
Cotton, wheat and butter were tabbed as problem areas
in the farm sector of the economy.
"There is little_chance to eat our way out,of_the
surplus problem," he believes. Even over the long pull
increases in farm production will keep pace with the
growth in the domestic economy and only moderate increases in exports can be expected.
In attempting to control agricultural output, three
approaches were briefly outlined. One approach is a
shift toward a larger production of forage crops relative
to feed grains and food crops. This shift would have
the effect of lowering total food output as less calories
are produced from an acre of grass that is fed to livestock than from an agriculture which is based on a
higher proportion of food crops. "Tough" production
controls are a second possibility. To date, however,
production controls have had little effect on total agricultural output as acres diverted from one crop are used
to produce other crops. "Total acreage allotments"
designed to cope with this problem have been discarded.
Cross-compliance regulations are still in effect but are
considerably less restrictive. A third alternative is to
shift labor and capital resources out of agriculture.
If agriculture should go "through the wringer" while
other segments of the economy continued to expand, a
shift of this sort would occur involuntarily.

•

The cattle;ifeeding outlook was described as having-lower profit possibilities than during the year just being
completed. Recent profits of around $30 per head may be
trimmed substantially. For example, 500 pound feeder
calves cost almost $3 more per hundredweight than in
1953-- $15 more per head. Assuming 50 bushels of corn
are fed to each calf and that it is worth an additional
10 cents per bushel, costs are increased another $5.
This, the $30 per head profit margin would be repeated
only if fat cattle sell for around $2 a hundredweight
higher next year than in the season now ending. While
substantial profits will be made by some feeders in the
coming year, this example highlights the importance of
efficient gains and careful purchasing of feeders.

•

The worst of the hog situation is close at hand,
according to Professor Kutish. The low point on the
market is expected to be around 17- 18 cents. Next year
the hog market is expected to show seasonal fluctuations
near the average price for the last half of 1954.
Incomes from poultry and dairy are not expected to

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improve. Moderate decreases in income through 1955 are
in the picture as many operators do not curtail production
in the face of lower prices. In cases where farmers have
a net profit margin, the tendency frequently is to produce
more in an attempt to offset the effects of lower prices.
Relatively stable land values were projected for
the next few years by Professor W. G. Murray. Deviations from present land prices are expected to be
small as he sees little change in the near-term level of
farm commodity prices. Professor Murray also commented
that the relatively few voluntary sales of farms in recent
years have been a firming influence in the land market.
Many owner-operated farms are transferred to other
members of the family and hence do not come onto the
market. Another factor is the capital gains tax which
causes many owners to refuse to sell.
Financing young farmers was a topic which again
generated considerable interest. It is clear that many
agricultural lenders are quite aware of the key position
they hold in determining who gets started farming and
recognize the need for better information on which to
base credit decisions. It was suggested that character
is perhaps the most important asset to look for in the
extension of credit to those getting set up in farming.
One of the problems involved in making loans to
borrowers with little collateral is the large amount of
time required for loan supervision. One banker stated
that perhaps 15 loans could be made to established
farmers in the same time required to make one loan to a
young farmer_ with limited_ experience and resources._
Rewards accrue, of course, in the form of good bankcommunity relations and from the fact that the borrower
will probably continue to be a customer of the bank the
rest of his life.
It was agreed that continued study of the problems
of young farmers and what can be done to help them is
needed. Some sort of insured credit arrangement was
suggested as meriting consideration. It was pointed out
also that, while a large amount of capital is needed to
make most efficient use of a farmer's labor, there are
risks to the borrower as well as the lender if there is
excessive dependence on borrowed funds. Hence, since
beginning farmers typically are "long on labor" and
"short on capital," it was suggested that they might be
set up on farms having good potential, but with less than
the optimum amount of capital. Under this arrangement,
a smaller loan would be required and more capital would
be forthcoming both from his earnings and additional
credit as the young farmer demonstrated progress and
management skill.
Research Department