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June 29,1973 (Sksals The conflicting goals of the export drive and the price freeze were highlighted in the President's anti inflation message, when he called upon Congress to grant him au thority to impose export controls whenever such action seemed nec essary to stabilize domestic prices. In recent years, farm exports have been one of the few bright spots in the balance-of-payments picture, but at the same time, they have drained resources out of the do mestic economy, and have helped push retail food prices to everhigher levels. The President's "basic decision" thus was almost auto matic: "In allocating the products of America's farms between markets abroad and those in the United States, we must put the American consumer first." Shipping reports As a first step toward this goal, the President requested further au thority to impose export quotas, in the form of an amendment to the Economic Stabilization Act of 1970. (Present law already gives him lim ited powers in this regard.) As a second step, he imposed an export reporting program: all exporters henceforth must furnish weekly reports to the Commerce Depart ment, listing anticipated shipments of a number of food and feed grains, oilseeds, and grain and oil seed products. Previously, export data were avail able only after a considerable time lag. Today, such data will be avail able prior to shipment, thus pro viding Administration planners with sufficient information to determine whether export restrictions are nec essary. The monitoring system is now concerned only with commodi ties that affect the price of animal feeds—the major problem items in recent months— but other com modities (such as lumber) could be added to the list at any time. The legislation authorizing further export-quota powers is now working its way through the Con gressional mill. Its future is some what uncertain; the House Banking Committee voted to give the Presi dent less authority than he had requested, and other hurdles must also be surmounted prior to enact ment. Some Congressmen look with disfavor upon the proposal because of their belief that the several devaluations of the dollar provide a singular opportunity for stimulating farm exports. Spectacular reports Whatever the fate of the exportcontrol legislation, there is no un certainty about the recent record of farm exports, which has been no thing short of spectacular. In the first three quarters of fiscal 1973, exports rose 49 percent above the year-ago figure, to a record $8.9 billion. Grain exports alone ac counted for three-fifths of the total increase, but shipments of soy beans, cattle hides, cotton, meat, poultry, fruits, nuts and vegetables also rose substantially. (continued on page 2) m o Exports to the USSR increased six fold over this period, to $0.6 billion, but a solid expansion also occurred in the larger and more traditional markets. Western Europe took $2.8 billion, up about 40 percent over a year ago. Japan, our most important customer, reported an 83-percent increase, to $1.6 billion, which offset much of the trade imbalance in nonfarm commodities with that country. U.S. farm exports over time have become crucially important to world trade and to our own balance of payments— and also to the well being of the nation's farmers. Last year, American farmers supplied about one-sixth of the products in the non-Communist world's agricul tural trade, and a rapidly growing share of the Communist world's trade as well. In addition, they made a significant contribution to the balance of payments, as agricul tural commodities accounted for 18 percent of total U.S. exports as against 12 percent of its imports. In nonfarm commodity trade, a long string of surpluses came to an end in 1968, and was followed by ex traordinarily large deficits in 1971 72. In agricultural trade, however, substantial surpluses have occurred throughout the past decade, capped by very large surpluses of $1.9 billion in 1971 and $2.9 billion in 1972. Foreign sales accounted for 16 per cent of the farm sector's marketing receipts last year. Export sales ac counted for more than one-half of the U.S. production of soybeans Digitized for F R A S E R http://fraser.Stlouisfed.org/ Federal Reserve Bank of St. Louis and rice, over two-fifths of its cattle hides, and over one-third of its wheat production. Of course, the recent spectacular performance may not continue forever. In partic ular, with Great Britain and others now standing on the other side of the Common Market's trade barrier, the U.S. could lose some important markets for its grains, tobacco, fruits, and other products. Production problems This problem does not loom so important at the present time, how ever, since the agribusiness com munity is concerned right now with overcoming its production prob lems, and thereby curbing the price upsurge. Livestock marketings re cently have been affected by a number of problems— especially the weather,with unusually large losses of cattle and calves occurring because of a series of harsh winter and spring storms. But other factors have also hurt, such as the con sumer meat boycott, the ban on the growth stimulant DES, and the im position of ceilings on retail prices. The crop sector has been equally affected, just at a time when farmers were attempting to bring 25 million more acres under cultivation—the largest increase of the past 30 years. The worst disaster has been the widespread floods in the Midwest, which have seriously delayed plantings of grains and soybeans. This weather factor, combined with very heavy demand and low prospective carryover, has caused an upsurge in feed prices that will eventually impact on meat supplies as well. The situation has been complicated also by shortages of fuel and fertilizer in various loca tions, and by transportation tie-ups affecting overseas grain shipments. Price problems This crushing set of supply prob lems has been the primary cause of the failure of the Administration's farm economists to foresee the scope of the recent price upsurge. Last fall, these forecasters came out with an estimate of a 3-percent rise in food prices this year, but they have long since been forced to junk that estimate, and now anticipate a rise of 12 percent or more for the year. Several demand factors have also caused the forecasters' price equa tion to go awry. One major factor was the boom-based upsurge in consumer incomes, felt most se verely in the demand for red meat. Another factor was the Soviet wheat sale, and still another was the sti mulus of two devaluations (and a floating dollar) on foreign demand for U.S. feed grains and other prod ucts. Altogether, perhaps one-sixth of the total increase in food prices this year may be attributable to the export boom. Consequently, any attempt to halt the price spiral in volves some curbs on the export trade. Phase 4, as it develops over the next month or so, undoubtedly will in volve some such restrictions, ac cording to the present thinking of Herbert Stein, chairman of the Council of Economic Advisers. Stein said last week that the food-price controls envisioned under the new program will have to be combined with adjustments of food supplies, and he called export controls "the only powerful instrument in that area available for the medium-term future." Bright prospects Over the longer term, once the present domestic difficulties are surmounted, the American farmer should again be unleashed to help solve the nation's international diffi culties. In no other area are the prospects so bright for an improve ment in the U.S. balance of pay ments, as has been shown by the record of the past several years. This April, an interagency task force reported that the liberalization of trade in grains, feeds, and livestock could lead within a decade to an $8billion annual gain in the balance of payments. This same report—the Flanigan report— envisioned at the same time a $4-billion rise in net income to farmers and a compa rable reduction in taxpayer pay ments for wheat and feed-grain support costs. This bright forecast assumes that the forthcoming trade talks this fall will bring about a liberalization of agricultural trade worldwide, in cluding the easing of restrictions in the Japanese and European mar kets. The task may be eased, how ever, by the present burgeoning demand in overseas markets, which will undoubtedly lead foreigners to increase their reliance on American farmers, operators of the world's foremost granary. William Burke C=3 m o c=3 U O jS u iljS F / W • IJtfin • U O tfO JQ • CpPAOISj . O lje p i ijeMPj-i • ciujo)j|e3 • e u o zu y • e>j$e|y BANKING DATA—TWELFTH FEDERAL RESERVE DISTRICT (Dollar amounts in millions) Selected Assets and Liabilities Large Commercial Banks Loans adjusted and investments* Loans adjusted— total* Commercial and industrial Real estate Consum er instalment U.S. Treasury securities O ther securities Deposits (less cash items)— total* Demand deposits adjusted U.S. Government deposits Time deposits— total * Savings O ther time I.P.C. State and political subdivisions (Large negotiable CD 's) Weekly Averages of Daily Figures Member Bank Reserve Position Excess reserves Borrowings Net free (+ ) / Net borrowed ( - ) Federal Funds— Seven Large Banks Interbank Federal funds transactions Net purchases ( + ) / Net sales ( - ) Transactions: U.S. securities dealers Net loans (+ ) / Net borrow ings ( - ) Am ount Outstanding 6/13 / 73 Change from 6 / 6 / 73 73,748 56,584 19,910 16,270 8,278 5,718 11,446 70,992 21,474 420 47,913 17,994 20,255 6,987 9,703 + 861 + 885 -2 9 6 + 106 + 18 + 106 -1 3 0 + 106 + 334 - 25 + 8 - 57 + 194 -2 1 3 + 266 W eekended 6/13/73 Change from year ago Dollar Percent + 10,655 + 11,264 + 3,304 + 2,724 + 1,354 904 + 295 + 8,742 + 1,748 103 + 7,020 — 61 + 5,051 + 1,178 + 4,514 W eekended 6 /6 /7 3 + 16.89 + 24.85 + 19.90 + 20.11 + 19.56 -1 3 .6 5 + 2.65 + 14.04 + 8.88 -1 9 .6 9 + 17.17 - 0.34 + 33.22 + 20.28 + 86.99 Com parable year-ago period 35 229 -2 6 4 114 193 - 79 - 40 0 40 + 626 + 487 - 949 + 575 + 116 - 80 - * Includes items not shown separately. Opinions expressed in this newsletter do not necessarily reflect the views of the Federal Reserve Bank of San Francisco. Information on this and other publications can be obtained by callin g or w riting the Adm inistrative Services Departm ent. Federal Reserve Bank of San Francisco, P.O, Box 7702. , SanFrancisco, California 94120. Phone (415) 397-1137. Digitized for F R A S E R
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