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r FEDERAL RESERVE BANK OF CHICAGO 1SSN 0002 - 1512 G>ctober 19, 1979 CROP PRODUCTION ESTIMATES recently released by the USDA raised domestic fall harvest prospects but lowered grain harvest prospects for other areas of the world. These revisions, plus the dissipation of earlier concerns about a premature killing frost, reinforce the developments that have been emerging the past few months. It is now fairly clear that grain and soybean prices in 1979/80, in the face of much larger domestic supplies, will hinge largely on the capability of the distribution network to meet exceptionally strong world import demands. Carryover stocks of grain on a worldwide basis will be reduced next year. But domestically, carryover stocks of corn may be little changed and could be up appreciably if bottlenecks disrupt the export potential. And carryover stocks of soybeans could double next year. The latest production estimates point to a domestic grain harvest of 288.5 million metric tons, nearly 6 percent above last year's record. The total includes 224 million tons of feed grains, 3 percent more than last year, and over 64 million tons of food grains (wheat, rice, and rye}, 16 percent more than last year. The latest corn estimate was pegged at 7.39 billion bushels, 1.7 percent above the September estimate and 4.4 percent above the record set last year. Soybean production is now expected to exceed 2.21 billion bushels, 1.8 percent more than the previous estimate and 18 percent more than last year. In contrast to the record domestic prospects, grain production in other areas of the world will be down this year. USDA estimates now show that grain production in countries other than the United States will approximate 1,215 million metric tons in 1979/80. That would be 6.5 percent less than in the previous crop year and only 2 percent above the level of two years ago. This estimate is still subject to considerable revision, particularly since it includes a number of important Southern Hemisphere countries where harvest is still several months away. But the downturn is widespread among Northern Hemisphere countries where the harvest is, or soon will be, completed and production estimates are presumably somewhat more reliable. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Number 1510 Most of the shortfall in grain production outside of the United States is in the Soviet Union. The USDA now estimates Soviet grain production will be more than a fourth below last year's record and the lowest in four years. But in addition to the Soviet Union, significant declines are occurring in other major areas. For instance, the Canadian grain harvest is expected to be down 14 percent and the lowest in five years. Despite another record wheat crop, shortfalls in rice and coarse grains are expected to lower total grain production in India by 12 percent. A large decline in Eastern Europe's wheat crop will likely reduce total grain production in that part of the world 5 percent to a five-year low. And although Western Europe will harvest another bumper grain crop, it will likely be 4 percent smaller than last year's record. In contrast to grains, oilseed production domestically and worldwide will be up sharply this year. In addition to the large increase in soybeans, huge increases in cottonseed and sunflowerseed are expected to boost total U.S. oilseed production to 70.8 million metric tons. That District states share in the record corn and soybean harvests expected this year Per acre :rields 1978 1979* (bushels) Corn Illinois Indiana Iowa Michigan Wisconsin United States Soybeans Illinois Indiana Iowa Michigan Wisconsin United States Total eroduction 1978 1979* Change (million bushels) (percent) 111.0 108.0 117.0 81 .0 98.0 120.0 115.0 119.0 85.0 98.0 1,191 637 1,462 182 270 1,260 673 1,499 187 279 6 6 3 3 4 101.2 106.4 7,082 7,390 4 33.5 34.5 38.5 24.0 32.0 38.0 36.0 38.0 29.0 31.0 308 144 291 19 7 369 158 310 28 10 20 10 7 47 31.5 1,870 2,213 18 29.5 *USDA estimates based on October 1 conditions. 40 2 is more than a fifth larger than a year ago and more than a fourth larger than two years ago. Oilseed production in countries other than the United States is now estimated at 106.7 million metric tons, 6 percent more than last year and 13 percent more than two years ago. The implications of large domestic crops, in the face of world shortages of grains and abundant world supplies of oilseeds, are somewhat mixed for corn and soybeans. Evidence of the continuing expansion in hog production and the likelihood of further increases in pou Itry production support prospects for increased domestic feed demand for the 1979/80 crop year. And it is clear exports will register large gains, although soybean exports may encounter greater competitive pressures next spring and summer. Current USDA projections indicate grain and soybean exports in 1979/80 (aggregated over the different marketing years) will approach 136 million metric tons, nearly a sixth larger than the estimate for 1978/79. Among individual crops, wheat and corn exports are projected to rise 17 percent to 1.4 and 2.5 billion bushels, respectively. Soybean exports are projected to rise nearly 10 percent to 825 million bushels. Many observers feel these projections are somewhat optimistic because of constraints and bottlenecks that have already hampered export shipments and may continue to do so. Reports indicate the backlog created by the Duluth/Superior strike this summer is not likely to be cleared out by the time the St. Lawrence Seaway closes in mid-December. Moving that backlog to other ports will be costly and will further tax the already overburdened rails and barges. In addition, there is a great deal of uncertainty regarding the effectiveness of the recent restructuring of operations on the Rock Island Railroad and the potential impact of the pending reorganization of the Milwaukee Road. Constraints at locks on the Mississippi River (which handle more than a third of grain exports) and potential weather disruptions this winter are also of concern. FARM ASSET VALUES totaled roughly $820 billion at the end of 1978, according to the USDA's Balance Sheet of the Farming Sector, 1979. This marked an increase of 15 percent, the largest one-year gain since the 21 percent increase in 1973 and the third largest since at least 1940. The increase was paced by a three-fifths rise-to $51 billion-in the value of livestock. Even so, the single most important factor behind the gain in total assets was the 14 percent increase in the value of farm real estate. Valued at nearly $600 billion on January 1, 1979, farm real estate a_c counted for 73 percent of total farm assets, up from 69 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Prejudging the capacity of the grain exporting system is d ifficu It, if not impossible, because of the many variables associated with the vast system. Nevertheless, export inspections of all grains and soybeans will have to average close to 100 million bushels per week during the next year if official export projections are to be achieved. Since midyear, weekly inspections have averaged 92 million bushels, 15 percent more than a year earlier. Virtually all of the increase has been in corn as wheat and soybean export inspections have held close to the yearago pace. Stepping up the export pace to the necessary level to achieve projections will be a monumental task this winter and spring requiring at the very least minimal disruptions. Corn and soybean prices have held surprisingly strong into the harvest season, although the abnormally wide margins between terminal and local elevator prices have greatly distorted general price comparisons. Corn prices at Chicago have recently averaged about $2.80 a bushel, 55 cents above year-ago levels. Soybean prices, however, have fallen from around $7 a bushel in early October to less than $6.50 this week. A year ago, soybean prices averaged about $6.75 a bushel. Many had expected lower prices during the harvest season but spillover from the incredibly strong precious metals markets has apparently supported grain prices. The USDA's latest projections for 1979/80 farm level prices point to an average of around $2.50 a bushel for corn and $6 to $6.25 a bushel for soybeans. Last year, corn averaged $2.20 a bushel and soybeans averaged $6.75. In light of the high carrying costs, and depending on local basis patterns, these projections suggest farmers should consider harvesttime selling alternatives. Gary L. Benjamin Agricultural Economist percent at the start of the decade, 65 percent at the start of the 1960s, and 58 percent at the start of the 1950s. Net farm borrowings increased a record $18 billion last year. This boosted the amount of farm debt outstanding to an estimated $138 billion, more than 15 percent above the year-earlier level and the fourth largest percentage gain on record. The increase compares with average annual increases of less than 13 and 10 percent for the preceding five and ten-year periods, respectively. In the nine years since the start of the decade, farm debt 3 Farm assets and debt concentrated among the few large farms January 1, 1969 legend: farms by sales class D bill $5,000 to $19,999 ~ $20,000 to $39,999 number of farms (3.0 million) total farm assets ($302.8 billion) total farm debt ($50.5 billion) less than $5,000 m $40,000 to $99,999 ■ $100,000 and over January 1, 1978 debt-to-asset ratio 1969 1978 --(percent)-- □ 9.0 5.6 Ea 16.3 10.0 17.9 19.2 20.2 23.1 24.2 19.5 ~ ~. ■ number of farms (2.7 million) has increased 2.6 times, equaling the increase in the value of farm assets. As a result, the debt-to-asset ratio of 16.8 percent was equal to the level nine years earlier. Mortgages on real estate accounted for about 53 percent of the outstanding farm debt at the beginning of 1979. Outstandings at federal land banks (FLBs) of $24.6 billion were only $150 million less than the amount held by individuals and others, the largest holder of mortgage debt historically. Just ten years earlier individuals and others accounted for 37 percent of the total, while FLBs held only 22 percent. Nonreal estate farm debt has increased at a faster pace in recent years than mortgage debt. In the five-year period since 1973, nonreal estate outstandings have nearly doubled compared to the 75 percent increase for real estate debt. The surge in nonreal estate borrowings since 1973 has been paced by government agencies. Since 1973, farm debt held by the Commodity Credit Corporation (CCC), the Farmers Home Administration (FmHA), and the Small Business Administration (SBA) has jumped almost sevenfold to $12.8 billion. Nonreal estate outstandings at banks increased by nearly two-thirds in this period, yet their share of the total fell from 52 to 43 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis total farm assets ($713.0 billion) total farm debt ($119.3 billion) percent. By comparison, the combined shares of CCC, FmHA, and SBA rose to 20 percent from 5. Although balance sheet data by sales class of farms are not as current as the aggregate data, some striking trends are evident in the updated information through 1977. In the nine years ended January 1, 1978, the number of farms declined nearly 11 percent to 2.7 million. Because of farm consolidation and much higher commodity prices, however, the number of farms with annual sales of $100,000 and over recorded a fourfold increase in this period. By contrast, farms with sales of less than $20,000 annually decreased 30 percent in number. The data indicate that large farms tend to have more debt relative to total assets, while the converse is true for the smaller farms. At the beginning of 1978, 8 percent of the nation's farms-those with $100,000 and more in sales-controlled a third of the total farm assets. This same group of farms accounted for nearly two-fifths of the total farm debt. Other evidence suggests these large farms accounted for slightly over half of gross farm income in 1977. Don A. Langford Agricultural Econ~mist 4 Selected agricultural economic developments Percent change from Subject Farm finance Total deposits at agricultural bankst Time deposits Demand deposits Total loans at agricultural bankst Production credit associations Loans outstanding United States Seventh District states Loans made United States Seventh District states Federal land banks Loans outstanding United States Seventh District states New money loaned United States Seventh District states Interest rates Feeder cattle loanstt Farm real estate loanstt Three-month Treasury bills Federal funds rate Government bonds (long-term) Unit Latest period 1972-73=100 1972-73=100 1972-73=100 1972-73=100 September September September September 199 238 133 254 mil. dol. mil. dol. September September mil. dol. mil. dol. Value Prior period Year ago 1.5 1.4 1.9 1.7 + 8 +10 0 +12 17,452 3,541 + 1.2 + 2.3 +17 +21 September September 1,880 392 - 1.6 + 1.2 +19 +19 mil. dol. mil. dol. September September 28,430 6,392 + 1.2 + 1.4 +19 +25 mil. dol. mil. dol. September September 412 106 -25.6 -20.1 +18 +18 percent percent percent percent percent 2nd Quarter 2nd Quarter 10/4-10/10 10/4-10/10 10/8-10/12 10.64 10.65 11.21 12.00 9.73 + + + + + 3.5 3.1 7.5 6.2 5.9 +18 +16 +40 +38 +13 Agricultural trade Agricultural exports Agricultural imports mil. dol. mil. dol. August August 2,735 1,310 + 0.7 + 2.4 +14 +27 Farm machinery sales Farm tractors Combines Balers units units units July July July 8,471 2,972 3,752 -32.2 +35.2 +58.1 - 5 -25 -18 + + + + tMember banks in Seventh District having a large proportion of agricultural loans in towns of less than 15,000 population . ttAverage of rates reported by District agricultural banks. FEDERAL RESERVE BANK OF CHICAGO Public Information Center P. 0. Box 834 Chicago, Illinois 60690 Tel. no. (312) 322-5112 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis FIRST-CLASS MAIL U .S. POSTAGE PAID ~ Chicago, II. Permit No. 1942