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IN THIS ISSUE Profile o f Short-Term Interest Rates in the United States and A b ro a d , 1 9 6 5 to 1 9 6 7 . 3 Farm O p e ra to rs and Bank D e b t FEDERAL RESERVE BANK OF . . . 13 CLEVELAND Additional copies of the ECO N O M IC REVIEW may be obtained from the Research Department, Federal Reserve Bank of Cleveland, P.O. Box 6387, Cleveland, Ohio 44101. Permission is granted to reproduce any material in this publication. JULY 1967 PROFILE OF SHORT-TERM INTEREST RATES IN THE UNITED STATES A N D ABROAD, 1965 TO 1967 A gradual upward movement in shorMerm tion of 1962 to 1965 trends would have indi interest rates began in many nations of the cated. Because of changes in economic con western world in 1962 and 1963. The upward ditions, the marked increase in money market movement w as interrupted temporarily dur rates in late 1965 and 1966 proved to be ing 1965, as can be seen in Chart l . 1 However, unsustainable, and following that period, beginning around Septem ber 1965, interest there was a sharp turnaround in rates in most rates in W estern Europe, the United States, of the countries under review (through April and C anad a again rose, eventually reach 1967). ing historic highs during November and De This article traces short-term interest rate cem ber 1966. From Chart 1, it is clear that in developments in W estern Europe, Canada, late 1965 and 1966 the increase in interest and the United States from the beginning of rates in the countries under review was much 1965 through April 1967 — a period that in faster than earlier, and faster than extrapola cludes both a rapid increase and a decline in interest rates. W hile both the climb and the 1 Chart 1 is intended only to provide an overview of the retreat in interest rates were due in part to short-term interest rate experience in seven national m ar economic developments within individual kets as well as in the Eurodollar market. Admittedly, the use of end-of-quarter figures masks, in part, monthly countries, they also reflected the susceptibility movements in interest rates that represent a change in of financial m arkets of individual countries trend. to what w as happening elsewhere. That is to 3 E C O N O M IC R E V IEW t NETHERLANDS say, interest rate developments in the m ajor nations are no longer isolated phenom ena; Treasury bills) and one-day money (day-today or overnight money) are used. (See Ap the money markets of individual nations have pendix: Description and Sources of Data.) The becom e increasingly interrelated and sophis three types of interest rates are used to m ake ticated, with the effects of changes in domes comparisons with sim ilar rates in the United tic credit conditions spilling over into the in States — the three-month Treasury bill rate ternational money market. and the Federal funds rate as well as the In reviewing the behavior of short-term in Federal Reserve discount rate. In the case of terest rates in m ajor industrial nations during Eurodollars, only the three-month and single 1965 to 1967, a discussion of relationships to day rates are used. rates in the United Slates is presented. For each country under review, three individual INCREASES IN INTEREST RATES interest rates are used (where available) to As shown in Chart 2, short-term interest provide a fuller perspective of the total short rales in most countries began to move sharp term interest rate picture. Thus, central bank ly upward after midyear 1965. Septem ber rates as well as interest rates on both three- can be used as the reference point of the month funds (usually the rate on three-month period under review, since both three-month Digitized for 4 FRASER t 1-DAY M ONEY 3-MONTH MONEY ♦___ 1 -D A Y M O N E Y 3-M ONTH MONEY — /~ x E C O N O M IC R EV IEW and day-to-day money rates in the Eurodollar tling of capital controls by countries making market seem to have established a take-off the most active use of the Eurodollar market. point in that month. From Septem ber 1965 to Dismantling began in earnest in 1958, with 1966, the rate on three-month the return to convertibility by the m ajor W est money in the Eurodollar market increased by ern European countries; it was most recently 237 basis points, and from Septem ber 1965 evidenced in the French monetary reforms to November 1966, the rate on day-to-day announced in November 1966. Decem ber money increased 220 basis points. Both peaks Using the behavior of Eurodollar rates as represent historic highs. The rates on Eurodollars provide a useful reference, national m arkets that led the gen b asis of comparison since they more closely include W est Germ any, C anada, and Switzer eral marked upswing in interest rates in 1965 reflect the interaction of national and inter land (see Chart 2). This pattern reflected in national financial market developments than does the trend in any single national money part the fast pace of economic activity in those countries, generally, with correspond market. Furthermore, the Eurodollar market ing increases in credit demand. Interest rates is sensitive to financial developments and in W est Germ any were actually rising sharp money market conditions in the United States; ly at the beginning of 1965. In an effort to re it thus serves as a link between the Canadian strain the demand for credit, the central bank and United States markets on one side of the Atlantic O cean and the W estern European markets on the other. The interdependence increased its discount rate in August 1965 and again in M ay 1966; the rate on threemonth money in Frankfurt moved to 7.75 per between cent (in October-November 1966) and day-to- the Eurodollar market and the United States market has been fostered by day money to 6.31 percent (in lune 1966). In the growth of transactions of com m ercial Canada, interest rates began to increase banks in the United States with their foreign strongly in the spring of 1965, approxim ately branches as well as by the increased use of five months earlier than in the Eurodollar Eurodollar facilities by United States corpo market; the advance was accom panied by rations. The extent of interdependence is two increases in the Canadian discount rate evidenced by the competitive relationship as (in Decem ber 1965 and March 1966). However, money market instruments betw een Eurodol as Chart 2 shows, the climb in Canadian in lars and CDs issued by United States banks. terest rates was steadier and sm aller in m ag Eurodollar rates, in a sense, have taken on the quality of a wide market average, even nitude than the W est Germ an experience. Interest rates in Switzerland began rising though they often fluctuate sharply. More as early as 1962, although Switzerland did not over, the Eurodollar market provides an im experience the marked increase in rates in portant link between all the national money 1965 that occurred in W est Germ any and markets under review. The linkage has been Canada. The increase in Sw iss rates after a greatly facilitated by the gradual disman pause in early 1965 was more or less the 6 JULY 1 9 6 7 conlinualion of a longer-ierm Irend. The Swiss Pronounced interest rate increases in two did not adjust the central bank rate until July countries — France and the United Kingdom 1966. As shown in Chart 2, the Swiss day-to- — tended to lag the rate advance in the Euro day rate moved somewhat at variance with dollar market. In both instances, however, the rale on three-month money, largely fluc there were special circum stances. France had tuating around the discount rate since July been following an economic program that, 1966. from an internal point of view, required high Short-term interest rates in the United interest rates; in addition, the French money States, Belgium, and the Netherlands seem market to a considerable extent w as insulated to have moved coincidentally with Eurodollar from foreign money market developments by rates. In fact, the Netherlands rates showed existing institutional arrangem ents. Never a leveling tendency after rising very sharply theless, with the marked increases in the cost in late 1963 and early 1964. It w as not until of money in the other W estern European Septem ber 1965 that the Netherlands rates countries, interest rates in France began to again moved persistently upward. The sam e move up early in 1966, even though the cen is true, although less markedly, in the case tral bank rale remained at 3.5 percent. In the of Belgium. In both countries, the increases United Kingdom, the movement of money occurred at a time of conscious m onetary market rates paralleled movements in the restraint. central bank rale of that country. In turn, the It is not surprising that interest rate devel sterling crisis during the summer of 1966 opments in the United States have a strong forced the Bank of England to raise the bank influence on the Eurodollar market. Both are international markets and are interdependent. rate to 7 percent, and interest rates then N evertheless, increases in United States rates (see Chart 2). moved up after being stable for about a year in 1965-1966 were not nearly as dram atic as those in the Eurodollar market. The Federal DECLINE IN INTEREST RATES funds rate in the United States reached a high The turnaround in interest rates in late 1966 of 5.77 percent in November 1966, an increase and early 1967 was associated generally with of 167 basis points from the rate prevailing a a change in the m onetary policies of most year earlier. The three-month U. S. Treasury countries from restraint toward ease — re bill rate climbed to a high of 5.36 percent in flecting a shift from concern about inflation Septem ber 1966, an increase of 156 basis to concern about a slackening of economic points from the level in July 1965. In contrast, activity. One variation on the general situa a s mentioned earlier, the high in the Euro tion would be the United Kingdom, where dollar market for day-to-day funds was policy reflected a cautious attempt to reflate reached at a level 220 basis points above the economy with as little inflationary pres Septem ber 1965; the high for three-month sure and detriment to the b alan ce of p ay funds was up 237 basis points. ments as possible. The result, however, was 7 E C O N O M IC R EV IEW essentially the sam e type of rate movement, 3.5 percent in July 1966; but, since money but with a different impetus. Another varia market rates in Switzerland did not retreat tion would be Switzerland, where interest after that time, no central bank action was rates showed no declining trend and there taken. was no move to a posture of m onetary ease As w as the case on the upside, leads and on the part of the Sw iss central bank. Thus, lags in interest rate adjustm ents developed except for Switzerland, a slowdown in the rate on the downside in relation to the Eurodollar of econom ic growth in most countries resulted market. Money market conditions apparently in sim ilar types of monetary policy designed eased first in the United States and Canada. to bring about easier credit conditions and The United Kingdom is also a candidate for lower interest rales. consideration in this context. The question of In Decem ber 1966, various central banks how to reflate the econom y in the face of lag moved to counter the seasonal tightening in ging private investment demand was perhaps the Eurodollar market and supplied funds on the m ajor factor in the easing of money a short-term basis. Rates on Eurodollars turn market conditions there. C anad a lowered its ed down sharply in January 1967; in one discount rate first by a quarter of a point in month, the three-month rate fell by 92 basis January, following the decline in market rates points and the day-to-day rate fell by 75 basis that began in December, and then by half a points. The reversal in Eurodollar rates cul minated a period of lessening pressures in point in April, coincident with a discount rate reduction in the United States. In the United most of the continental money markets, as Slates, a reduction in reserve requirements well as in the United States. From the beginning of 1967 through the end and an expansionary open market policy, followed by a reduction in the discount rale of April, there were 11 separate reductions in April 1967, eased money market conditions in central bank discount rates in the countries appreciably. Short-term interest rales de under review. Central banks in three coun clined quite steadily beginning in the fall of tries — Belgium, C anada, and the United 1966. Kingdom— lowered their discount rates twice The decline in W est Germ an rales occurred and W est Germ any, three times. Of all the al about the sam e lime as Ihe decline in the countries under review, only the central Eurodollar market rates. From the beginning banks in Switzerland and France did not of 1967, there w as a greal deal of concern in lower their discount rates. During the period W est Germ any about the slowing of eco of pronounced increases in interest rales, nomic conditions, leading to three half-point when most central banks adjusled their dis reductions in the central bank rate to a level count rates upwards, France did not. Conse of 3.5 percent (al the end of April) as w ell as quently, no downward adjustment w as nec reductions in reserve requirements. In March essary as market rates of interest declined. 1967, the Netherlands central bank rate w as Switzerland raised its central bank rate to cut to ihe year-earlier level; and in Belgium, JULY 1 9 6 7 a succession of discount raie cuts pul the C anada, France, ihe Netherlands, and the central bank rate at 4.75 percent. The central United Kingdom. bank rate reductions during M arch in Belgium and in the Netherlands paralleled the down EXPERIENCE OF THE UNITED STATES ward movement in their three-month market Chari 3 provides a comparison of interest rates. Through April, rates on day-to-day rate experience in ihe United States with money did not establish a clear trend in that of ihe other countries discussed here. either country. In contrast, rates on day-to-day The top line in each panel (discount rate, money in France dropped sharply in Feb day-to-day money, three-month money) is the ruary and March, after peaking in December. Switzerland is the only country where the highest rate recorded within the group under three-month money raie did not move down. is the lowest rate; all other rates fall within Also, a s indicated earlier, the day-to-day rate the shaded area. The middle line represents review for each month, and the bottom line showed no discernible trend in that country. the experience of each type of interest rate The interdependence of money m arkets that appeared during the period of pro in the United Stales. In the first panel (discount rale), the range nounced rate increases is also evident during from top lo bottom narrowed considerably the period when m oney market rates de during ihe period under review (from 4.5 per clined. W hile the general decline in money centage points in January 1965 to 2.5 points market rates w as obviously encouraged by in April 1967). In addition, the discount rate the em ergence of broadly sim ilar economic in the United States, following the reduction conditions in most of the countries under re view (Switzerland is the exception), the de in early April, moved closer to the lowest rate cline in Eurodollar rates coincided with cen tral bank actions in various countries. At the through April 1, 1967. The narrowing of the sam e time, market demands for Eurodollars ing by United States banks subsided and a more money m arket and individual national money accom m odative m onetary policy was initi markets, as well a s the coincident tapering off aled in the United Stales; both actions con of economic activity in m any countries. tributed to an improvement of supply-demand than at any time from the beginning of 1965 range of discount rates reflected the in creas interdependence of the international The second panel (one-day money) shows relationships in the Eurodollar market. With that the rate in the United States (Federal the Eurodollar market providing an alterna funds) increased almost as fast a s the highest tive source of funds for some potential bor day-to-day rate until November 1966. At that rowers in the national markets under review, time, there w as a sharp decline in the United the move toward lower domestic m oney m ar States rate, which, through April, had not ket rates was facilitated, becoming most ap been m atched to the sam e extent by day-to- parent in W est Germ any and Ihe United day money elsewhere. Nevertheless, the rate States, and to a lesser extent in Belgium, on one-day money in the United Stales re- 9 E C O N O M IC R E V IEW mained closer to the highest rale than to the lowest rate, except in the last few months of the period covered by this review. The spread betw een the lowest and highest rate narrow ed during the later months of the period. In HIGHEST \ \ April 1967, the difference amounted to 152 basis points, down from 357 basis points in January 1965. I U. S. The three-month money rate picture is quite different, with the United States rate (threemonth Treasury bills) consistently close to the t LOWEST Digitized for10 FRASER lowest rate. As with day-to-day money, the range betw een the highest and lowest rates on three-month funds narrowed considerably, with the highest rate moving downward sharply. In January 1965, the range amount ed to 340 basis points; in April 1967, the range was 156 basis points. It is interesting to note that the three-month bill rate in the United States w as close to the bottom of the range in its maturity group, while the rate on Fed eral funds in the United Slates w as close to the lop. In general, the recent decline in interest rales in Ihe United Slates w as faster than for most continental rates. Uniled Slates rates at the end of April were lower than year-ear lier levels, as were those of C anada and W est Germ any. At the end of April, W est Germ any w as the only nalion in Europe to have both day-to-day and three-month money rates b e low year-earlier levels. The sam e siluation existed in the Eurodollar market. CO N C LU D IN G CO M M EN TS Events move so quickly in the money m ar kets of the world that it would be foolhardy to predict either the direction of interest rate JULY 1 9 6 7 movements in the months ahead or what in concomitant of improved understanding and terest rate relationships might be. Neverthe greater cooperation betw een and among less, the experience of the recent period countries. Consequently, the recent parallel m akes it abundantly clear that international ism of interest rates reflects the increasing money m arkets are moving closer together. speed with which m oney market develop To some extent, this reflects the dismantling ments in one country are being transmitted of capital controls in national m arkets as a to other countries. 1 1 APPENDIX: DESCRIPTION OF DATA A N D SOURCES M a rk e t EU RO DO LLARS CANADA S W IT Z E R L A N D W EST G E R M A N Y B E L G IU M NETHERLANDS U N IT E D STA T ES FRAN CE U N IT E D K IN G D O M Rate Description Sources O n e -d a y m oney A v e ra g e s of the bid rate of interest p aid on call, United States d o lla r denom inated time deposits by b a n k in g in stitutions in London. Board of G o ve rn o rs of the Federal Reserve System Three-month money A v e ra g e s of the bid rate of interest paid on 9 0 -d a y United States d ollar denom inated time deposits b y b a n k in g in stitutions in London. B oard of G o ve rn o rs of the Federal Reserve System Discount rate The Federal Reserve Bulletin O n e -d a y money A v e ra g e of w eekly a v e ra ge s of d a ily closing rates. Bank of C a n a d a , Statistical Sum m ary Three-month money A v e ra g e of a v e ra g e yields of w eekly tenders on Thursdays. Bank of C a n a d a , Statistical Sum m ary Discount rate The Federal Reserve Bulletin O n e -d a y money A v e ra g e of the rates reported on the four return dates (7th, 15th, 23rd, an d last d a y of the month). Deutsche B undesbank, M onth ly Report Three-month money A v e ra g e of the rates paid on three-month deposits with b ig b a n k s in Zurich. Deutsche B undesbank, M onth ly Report O n e -d a y money A v e ra g e of lowest and highest rates quoted d u rin g the month on day-to-day money in Frankfurt am M a in . Deutsche B undesbank, M onth ly Report Three-month money A v e ra g e of lowest an d highest rates quoted on threemonth loans in Frankfurt am M a in . Deutsche B undesbank, M onth ly Report Discount rate The Federal Reserve Bulletin D iscount rate The Federal Reserve Bulletin O n e -d a y m oney A v e ra g e of rates in the com pensation market, w eighted with am ounts lent out. Deutsche Bundesbank, M onth ly Report Three-month money A v e ra g e of m arket yield on three-month Treasury bills. Deutsche B undesbank, M onth ly Report O n e -d a y m oney A v e ra g e of day-to-day m oney rates. Deutsche B undesbank, M onth ly Report Three-month money A v e ra g e of m arket yield on three-month Treasury bills. Deutsche B undesbank, M onth ly Report Discount rate The Federal Reserve Bulletin The Federal Reserve Bulletin Discount rate O n e -d a y money A v e ra g e of seven-day a v e ra ge s of Federal fu nd s rate for w eeks e n d in g W e d n e sd a y. The Federal Reserve Bulletin Three-month money A v e ra g e of m arket yield on three-month T reasury bills. The Federal Reserve Bulletin The Federal Reserve Bulletin Discount rate O n e -d a y money A v e ra g e of d a ily op e n in g rates of day-to-day m oney se cured b y private securities. Three-month money N o figures available. Deutsche Bundesbank, M onth ly Report The Federal Reserve Bulletin Discount rate O n e -d a y money A v e ra g e of the a v e ra ge of lowest and highest rates for day-to-day money. Deutsche Bundesbank, M onth ly Report Three-month money A v e ra g e of the tender rates on three-month Treasury bills at the w eekly (Friday) T reasury bill auctions in London. Deutsche Bundesbank, M onth ly Report JULY 1 9 6 7 FARM OPERATORS A N D B A N K DEBT Several characteristics of farm operators in the borrowers, and 7 percent of the debt out the Fourth District using bank credit em erge standing. The tenant group had the sm allest from the nationwide survey of agricultural average debt per borrower. Landlords repre loans by the Federal Reserve System as of sented the sm allest number of borrowers, but June 30, 1966. An earlier article discussed the were the third largest users of bank credit characteristics of agricultural loans in the and had the highest average debt per bor District.1 rower. The higher average bank debt for More than three-fourths of the farm oper landlord borrowers probably reflects frequent ators using bank credit were owner-operators. About 90 percent of that group owned all the use of loans secured by farm real estate to finance improvements on tenant-operated land that w as operated; the remainder owned farms. part and rented part of the land operated. Full and part owners accounted for 76 per TYPES OF FARM cent of the borrowers and 82 percent of the More than one-half of the farms were suffi bank credit outstanding to farmers, as shown ciently diversified to be classified as general in Table I. The average debt per borrower farms and accounted for the largest dollar for each group w as exceeded only by that volume of bank credit on the survey date (see of the landlords of tenant-operated farms. Table I). G eneral farm operators had an aver Tenant operators constituted the next largest age debt per borrower of $3,690, somewhat group using bank credit, with 13 percent of more than for tobacco farms, but less than for all other major types of farms. 1 See "Agriculiural Loans at Commercial Banks in the Cash grain farm operators ranked second Fourth District," Economic Review, Federal Reserve Bank in relative importance, both in number of of Cleveland, May, 1967. borrowers and dollar volume of bank credit 13 T AB LE I C haracte ristics of Farm B o rro w e rs at Fourth District B a n k s June 30, 1966 Outstanding Debt Num ber o f Borrowers Tenure Percent Distribution Total (thousands o f dollars) Percent Distribution A v e ra g e per Borrower Full o w n e r ................................................................... 7 4 ,6 6 6 6 7 .0 % $ 3 4 3 ,1 5 3 7 0 .9 % Part ow ner ............................................................... 1 0 ,4 2 8 9.4 5 3 ,1 0 9 11.0 T e n a n t ...................................................................... 1 4 ,9 6 7 13.4 3 4 ,1 5 6 7.1 2 ,2 8 2 l a n d l o r d .................................................................. 7 ,3 4 8 6.6 4 3 ,6 4 7 9.0 5 ,9 4 0 N o t r e p o rt e d ............................................................... 4 ,0 5 3 3.6 9 ,5 9 7 2.0 2 ,3 6 8 $ 2 0 9 ,8 6 0 4 3 .4 % 3 ,6 9 0 $ 4 ,5 9 6 5 ,0 9 3 Type o f Farm G e n e r a l ...................................................................... 5 6 ,8 7 2 5 1 .0 % C ash g r a i n ................................................................... 1 4 ,2 8 5 12.8 6 9 ,7 6 4 14.4 D a i r y ......................................................................... 12,881 11.6 6 5 ,5 7 6 13.6 5,091 T o b a c c o ...................................................................... 1 0 ,6 1 6 9.5 3 2 ,5 4 4 6.7 3 ,0 6 6 ............................................................ 8 ,6 3 8 7.8 5 8 ,4 9 4 12.1 6 ,7 7 2 V e g e t a b l e ................................................................... 1,12 9 1.0 8 ,4 1 4 1.7 7,451 P o u l t r y ...................................................................... 1,02 5 0.9 9 ,3 4 3 1.9 9 ,1 1 3 O ther maior p r o d u c t s ................................................. 801 0 .7 7 ,9 6 8 1.7 9,941 M e a t animals 4 ,8 8 4 F r u i t .......................................................................... 105 0.1 1,09 6 0.2 1 0 ,3 9 5 Not re p o rt e d ............................................................... 5 ,1 0 9 4.6 2 0 ,6 0 3 4.3 4 ,0 3 3 $ 1 1 8 ,3 9 1 2 4 .5 % Annual Farm Sa les Under $ 5 ,0 0 0 ............................................................ $ 2,69 3 4 3 ,9 5 9 3 9 .5 % ........................................................ 3 4 ,4 7 6 3 0 .9 1 4 0 ,7 9 2 29.1 4 ,0 8 4 $ 1 0 ,0 0 0 — $ 1 9 ,9 9 9 ..................................................... 1 7 ,4 7 3 15.7 1 1 9 ,3 7 0 2 4.7 6,8 3 2 $ 5 ,0 0 0 — $ 9 ,9 9 9 $ 2 0 ,0 0 0 — $ 3 9 ,9 9 9 ..................................................... 4 ,8 1 8 4.3 4 3 ,9 1 2 9.1 9 ,1 1 5 $ 4 0 ,0 0 0 and o v e r ..................................................... 1,56 4 1.4 2 5 ,7 9 3 5.3 16 ,4 8 9 Not re p o rt e d ............................................................... 9 ,1 7 2 8.2 3 5 ,4 0 3 7.3 3 ,8 6 0 ............................................................ 4 ,9 8 0 4 .5 % ........................................................ 7 ,6 7 4 6.9 Total Assets Under $ 5 ,0 0 0 $ 5 ,0 0 0 — $ 9 ,9 9 9 $ 2 ,7 7 2 10,2 9 8 0 .6 % $ 557 1,342 2.1 $ 1 0 ,0 0 0 — $ 2 4 ,9 9 9 ..................................................... 2 8 ,7 4 6 2 5.8 7 4 ,5 6 8 15.4 2 ,5 9 4 $ 2 5 ,0 0 0 — $ 4 9 ,9 9 9 ..................................................... 2 7 ,8 2 3 2 5.0 1 2 5 ,5 3 9 26.0 4 ,5 1 2 $ 5 0 ,0 0 0 — $ 9 9 ,9 9 9 .................................................... 1 8 ,9 9 0 17.0 1 2 0 ,4 9 2 24.9 6 .3 4 5 $ 1 0 0 , 0 0 0 — $ 1 9 9 ,9 9 9 ................................................. 5 ,9 7 2 5.3 7 1 ,9 3 4 14.9 1 2 ,0 4 6 $ 2 0 0 ,0 0 0 — $ 4 9 9 ,9 9 9 ................................................. 1,23 7 1.1 2 0 ,3 2 2 4.2 16,4 2 8 $ 5 0 0 , 0 0 0 and o v e r .................................................... 80 0.1 4 ,3 3 5 0.9 5 4 ,2 6 3 Not re p o rt e d ............................................................... 1 5 ,9 6 0 14.3 5 3 ,4 0 0 11.0 3 .3 4 6 1 0 ,5 1 0 9 .4 % $ 1 4 ,5 5 5 3 .0 % Net W orth Under $ 5 ,0 0 0 ............................................................ $ 1,38 5 ........................................................ 1 5 ,8 4 9 14.2 3 8 ,7 9 0 8.0 2,44 8 $ 1 0 ,0 0 0 — $ 2 4 ,9 9 9 ..................................................... 3 3 ,2 1 9 2 9.8 1 2 7 ,2 5 2 26.3 3,831 $ 5 ,0 0 0 — $ 9 ,9 9 9 $ 2 5 ,0 0 0 — $ 4 9 ,9 9 9 ..................................................... 2 3 ,8 2 4 2 1.4 1 2 3 ,1 5 5 25.5 5 ,1 6 9 $ 5 0 ,0 0 0 — $ 9 9 ,9 9 9 ..................................................... 1 2 ,3 6 4 11.1 9 3 ,0 9 5 19.3 7 ,5 3 0 $ 1 0 0 ,0 0 0 — $ 1 9 9 ,9 9 9 ................................................. 2 ,9 5 6 2.7 3 5 ,4 2 6 7.3 11,9 8 5 $ 2 0 0 , 0 0 0 and o v e r ..................................................... 778 0.7 1 2 ,7 8 4 2.6 16,4 2 3 Not r e p o rt e d ............................................................... 1 1 ,9 6 3 10.7 3 8 ,6 0 4 8.0 3 ,2 2 7 Line o f Credit Under $ 5 ,0 0 0 $ 5 ,0 0 0 — $ 9 ,9 9 9 ........................................................... 3 ,3 1 5 3 .0 % ........................................................ 3,001 2.7 $ 1 3 ,4 5 6 4,771 1 .0 % I 1,43 9 4 ,4 8 4 2.8 $ 1 0 ,0 0 0 — $ 2 4 ,9 9 9 ..................................................... 2 ,5 7 9 2.3 1 9 ,4 3 6 4.0 7 ,5 3 6 $ 2 5 ,0 0 0 — $ 4 9 ,9 9 9 ..................................................... 636 0.6 1 1 ,0 2 4 2.3 17,341 $ 5 0 ,0 0 0 — $ 9 9 ,9 9 9 ..................................................... 134 0.1 1,911 0.4 14,231 18 1 ,2 4 0 $ 1 0 0 , 0 0 0 and o v e r ..................................................... N o credit lin................................................................. 6 1 0 1 ,791 * 1,01 9 0.2 9 1.3 4 3 2 ,0 4 5 89.3 4,2 4 4 Distance from Bank Office $ 5 ,1 9 6 Under 5.0 m ile s........................................................... 25,2 91 2 2 .7 % $ 1 3 1 ,4 1 5 2 7 .2 % 5.0— 9.9 m i l e s ........................................................... 4 3 ,8 4 3 39.3 1 8 9 ,0 0 0 39.1 4,311 3 ,8 3 9 10.0— 19.9 m i l e s ........................................................ 3 5 ,3 2 4 3 1 .7 1 3 5 ,6 0 4 2 8.0 2 0 .0 — 2 9.9 m i l e s ........................................................ 4 ,9 1 8 4.4 1 5 ,1 9 2 3.1 3 ,0 8 9 30 .0 — 4 9 .9 m i l e s ........................................................ 959 0.9 7 ,3 9 5 1.5 7 ,7 1 3 5 0.0— 7 4 .9 m i l e s ........................................................ 234 0.2 195 832 * 7 5 .0 miles and o v e r ..................................................... 152 0.1 279 0.1 1 ,8 3 7 N o t r e p o rt e d ............................................................... 689 0.6 1,81 2 0.4 2,631 Not a p p li c a b le ............................................................ 53 T O T A L ............................................................... 1 1 1 ,4 6 2 0.1 2 ,7 6 9 0.6 1 0 0 .0 % $ 4 8 3 ,6 6 2 1 0 0 .0 % * Less than 0 .0 5 percent. Sources: Agricultural Loan Survey, June 30, 196 6 , Board o f G overnors o f the Federal Reserve System and Federal Reserve Bank of Cleveland 5 2 ,6 1 7 $ 4 ,3 3 9 JULY 1 9 6 7 outstanding. However, cash grain farm ers sales from $5,000 to $9,999 represented about ranked eighth in average debt per borrower 31 percent of the borrowers and accounted for ($4,884). 29 percent of total debt. Debt per borrower Dairy farm operators were the third most in this group was also below the av erage for important group, and accounted for 11.6 per all borrowers. In contrast, operators with an cent of borrowers and 13.6 percent of out nual sales from $10,000 to $19,999 constituted standing debt, as shown in Table I. The 16 percent of the borrowers, but accounted average bank debt of dairy farm operators for 25 percent of bank debt. A verage debt was $5,091. per borrower at $6,832 w as well above aver Tobacco farmers, ranking fourth among age of all borrowers. Sim ilarly, operators in bank credit users, accounted for a sm aller the sales groups $20,000 to $39,999 and proportion of the dollar volume than of the $40,000 and over accounted for a much larger number of borrowers. The av erage debt per proportion of the dollar volume of debt out borrower of $3,066 was the lowest for the standing than of the number of borrowers m ajor types of farms. using bank credit, which w as reflected in a Operators of m eat anim al producing farms, comprising about 8 percent of total borrowers, significantly larger av erage debt per borrow er in these two groups. ranked fifth, but accounted for 12 percent of As a general matter, the av erage debt per total bank debt. Average debt per borrower borrower increased as annual sales rose, but at $6,772 w as more than twice the average the increase w as not in direct proportion to debt for operators of tobacco farms, and one- the increase in annual sales. fourth larger than for dairy farms. Each of the remaining types of farm s rep resented 1 percent or less of the borrowers, TOTAL ASSETS A N D NET WORTH but accounted for a larger share of outstand total assets of $10,000 to $49,999, 17 percent O ver 50 percent of the farm operators had ing debt. A verage debt per borrower ranged from $50,000 to $99,999, and 7 percent had a s from $7,451 for vegetable farms to $10,395 sets exceeding $100,000. At the opposite end for fruit farms. Except for vegetable farms, of the range in asset holdings, slightly over the av erage debt per borrower for these 11 percent had total assets of less than $10,000. farms w as more than twice the average bank Net worth of farmers using bank credit debt for all borrowers. followed a distribution pattern similar to total A N N U A L FARM SALES assets, but the proportions in each group About 40 percent of the farm operators varied (see Table I). For example, 51 per using bank credit had annual sales of less cent had net worth ranging from $10,000 to than $5,000, and accounted for 25 percent of $49,999, 11 percent from $50,000 to $99,999, the total outstanding bank debt (see Table I). and less than 3.5 percent had net worth in Average debt per borrower in this group was excess of $100,000. Those with net worth of $2,693, or significantly less than the average less than $10,000 were nearly 24 percent of for all borrowers. Operators with annual the total. 15 E C O N O M IC R EV IEW Outstanding bank debt per borrower in of high value crops like tobacco, or tomatoes creased as total assets and net worth in for processing, where the producer h as a rel creased, but the increase did not parallel atively high cash expenditure during the the growth of total assets and net worth. The production period. ratio of debt to net worth and of debt to About 9 percent of District farmers using total assets tended to strengthen with each bank credit as of June 30, 1966, had estab group. lished lines of credit, compared with 11 per cent nationally. BA N K LOCATION IN RELATION TO BORROWERS SERVED As shown in Table I, lines of credit to farm ers ranged up to $100,000, although there N early two-thirds of the farm ers using bank are a few instances of borrowers with lines credit on June 30, 1966, lived within ten miles greater than that figure. The average line of of the bank from which credit w as obtained credit of farm borrowers at Fourth District (see Table I). More than 90 percent of the bor banks amounted to $9,630 (not shown in ta rowers lived within a 20-mile radius of the ble), which was $4,000 less than ihe average bank serving their credit needs. This close line in any other District. Borrowers with lines proximity of borrowers and lenders permits of credit tended to have larger av erage debt lenders to have first-hand knowledge of the per borrower. For exam ple, the av erage debt borrowers' farming operations; and, in turn, per borrower for all borrowers with a line en ables borrowers to seek the counsel of the of credit w as $5,337 (not shown in table), one- lender promptly when problems arise. Most fourth more than the $4,244 av erage bank lenders with substantial experience in agri debt of those with no line of credit. cultural credit place considerable em phasis Loans outstanding to borrowers with lines on periodic inspection by a representative of of credit as of June 30, 1966, amounted to 55 the bank of the farm operation being financed. percent of the total amount of lines estab With a high proportion of the loans within lished. a short distance from the bank, this proce dure can be effectively pursued. B A N K DEBT A N D A GE OF BORROWER The av erage bank debt of farm operators LINES OF CREDIT in the District rose with each ag e group to As capital requirements for various crop the group 35 to 44 years of ag e (see Table II). and livestock enterprises rise, loan officers of Thereafter, average debt per borrower de some banks find it practical to establish lines clined with average debt for the 65 years and of credit that permit farm operators to pro over group being lower than for any other ceed with development of an enterprise with reported group. assurance that credit will be available. This A sim ilar pattern of av erage debt per bor type of credit has been particularly appli rower prevailed in the nation, except that the cab le to enterprises such as feeding beef lowest av erage debt w as for the under 30 age cattle or feeder pigs, and in the production group. A verage debt for all individuals was Digitized for 16FRASER TABLE II Farm Borrowers at Fourth District Banks* By A ge and Amount of Debt June 30, 1966 Percent Distribution of Borrowers Borrower Fourth District United States Percent Distribution o f Outstanding D ebt A v e r a g e D ebt Per Borrower Fourth District United States Fourth District United States 4 .2 % 4 .8 % Under 3 0 y e a r s ......................... ................. 4 .2 % 5 .8 % $ 4 ,2 2 7 $ 4 ,4 0 0 3 0 - 3 4 y e a r s ............................ .................. 9.3 9.3 10.2 8.9 4 ,7 1 8 5 ,1 7 6 3 5 - 4 4 y e a r s ............................ ................. 26.4 2 3 .7 30.3 26.4 4 ,8 9 8 6 ,0 0 0 4 5 - 5 4 y e a r s ............................ .................. 32.0 29.3 3 2 .7 32.2 4 ,3 6 3 5 ,9 4 6 5 5 - 6 4 y e a r s ............................ .................. 17.7 18.2 14.5 17.5 3 ,4 9 0 5 ,2 0 7 6 5 ye a rs and o v e r .................. ................. 5.8 5.8 4.7 5.0 3 ,4 4 8 4 ,6 8 4 N ot reported .................. 4.6 7.9 3.4 5.2 ................. 1 0 0 .0 % 1 0 0 .0 % 1 0 0 .0 % 1 0 0 .0 % ......................... T o t a l ................................ 3 ,1 8 7 3 ,5 4 5 $4,321 $5,401 * Individuals only. Sources: Agricultural Loan Survey, June 30, 1 9 6 6 , Board of G overnors of the Federal Reserve System and Federal Reserve Bank o f Cleveland TABLE III Farm Borrowers at Fourth District Banks* By Status June 30, 1966 Status N um ber o f Borrowers (in thousands) Percent Distribution A v e ra g e Debt Per Borrower Fourth District United States Fourth District United States Fourth District United States $ 4 ,4 7 4 $ 6 ,2 8 2 F u l l - t i m e ............................ ..................... 61 1,268 5 5 .1 % 6 5 .1 % P a r t - t im e ............................ ..................... 44 483 39.4 24.8 4 ,1 6 8 3 ,8 6 4 N ot r e p o r t e d ..................... ..................... 6 198 5.5 10.1 3 ,4 1 2 3 ,5 0 9 Total ............................ .................. $4,321 $5,401 Ill 1,949 1 0 0 .0 % 1 0 0 .0 % * Individuals only. Sources: Agricultural Loan Survey, June 30, 1 9 6 6 , Board of G overnors of the Federal Reserve System and Federal Reserve Bank o f Cleveland E C O N O M IC R EV IEW about $1,000 more per borrower in the nation gross income from nonfarm sources (see than in the Fourth District. Table III). In contrast, 39 percent of District farm borrowers sim ilarly qualified as part- PART-TIME FAR M IN G time farmers. The higher proportion of parttime farm ers in the District than in the nation Increased capital requirements in agricul probably reflects both the sm aller average ture have had a significant influence on the size of District farm s compared with the n a proportion of farm ers engaged in part-time tion, and the relatively more abundant oppor farming. The number of farm borrowers at tunities for off-farm employment in the Dis com m ercial banks in the nation who engaged trict than prevails generally in the nation. in part-time farming increased 63 percent b e Sim ilarly, while av erage debt per borrower tween 1956 and 1966. As of June 30, 1966, w as larger for most groups in the nation than about 25 percent of the nation's farm ers using in the District, the average debt per borrower bank credit operated on a part-time basis; for part-time farm ers in the District w as larger that is, they received a third or more of their than in the nation. Digitized for 18FRASER Fourth Federal Reserve District
@FedFRASER