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November
1960
3
Financing of Federal Lending Agencies
page
The Wheat Surplus Problem
page 10
Current Statistics . . . .
page 16
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publication.
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7ovi,:n rn T has parti cipated in various programs of l(•ndin g to
private sectors of the economy for 44 years.
From relatively circumscribed beginnings in
1917, when lending was limited to long-term
agricultural loans of the Federal Land Banks,
the Government has extended its participation
by supplying short- and intermediate-term
credit as well as long-term credit and by channeling funds to business, private financial institutions, and housing as well as to agricultur .
Growth in the number and loan volume of
the Federal and federally sponsored agencies
admini tering the e programs has brought
about a variety of financing arrang m nts.
A majority of currently active agencies finance
their operations through the Treasury and are
administered directly by the Government.
Thus, their financing is an integral part of
Treasury taxation and debt management policies and the general economic impacts of this
financing cannot be analyzed independently of
th c policies. Within this group ar the
programs of the Small Business Aclmini tration, the Export-Import Bank, the Rural El ctrification Administration , and various units of
the Housing and Home Finance Agency,
among others.
Some agencies, however, have obtained
loanable funds from external sources other
than the Treasury, such as from commercial
banks and the capital market. Among this
latter group are the frd rally sponsored IPnd ing agen -ics, in ·luding the FedPral Home
Loan Banks ( FIILB's) , the Federal Land
Banks ( FLB's) , Federal Intermediate Credit
111-: FEDEHAL
Monthly Review •
ov mb r 1960
Banks (Fl ,B's), and the Banks for oop rativcs . In addition , th F deral National Mortgage Association (FNMA) was authorized in
November 1954 to issue nonguaranteed notes
and debentures.
Taken together, these five agencies engage
in borrowing operations on a scale which has
become increasingly important in terms of the
effect on the money and capital markets. In
1959, for example, the net demand on the
capital market by these agencies amounted to
a littl more than $2 billion. Thus, Federal
and federally sponsored agencies have joined
the Treasury, state and local governments, the
business and consumer sectors of the economy,
and the residential mortgage market as dominant sources of varying demands for credit.
Since they are a factor in shaping general
developments in financial markets, these
agencies also tend to influence the cost and
availability of funds to other credit users. For,
while these agencies-as well as those financed
through the Treasury-have provided credit
to some borrowers whose n ds might otherwise have b en unsatisfied, they also have
tended to absorb funds which would have
be n available to other borrowers. The resulting shift in the use of financial resources
is, of course, one of the several objectives of
the programs established to provide financial
assistance to certain sectors of the economy.
Gro
Outstanding mark table debt of th five
Federal and f derally sponsored lending
agencies authorized to issue nonguaranteed
3
ua ant
d
In millions of dollars
Mid-1954
Mid-1957
Mid-1958
Mid-1957
Mid-1 958
End of 1959
+410
+20
+235
t-95
282
+342
+2,495
+165
I 197
I 340
-I 1,318
475
to
+3,045
Total
Banks for Cooperatives
+59
I 199
FICB
I 544
FLB
+623
FHLB
+ 1,620
FNMA
to
to
SOURCES: Individual ag,rncy reports and the Treasury Bulletin.
securities increased $7 billion during the years
1946 through 1959. Nearly 85 per cent of this
increase occurred during the 1955-59 period.
While a substantial portion of the growth over
this 5-year period can be traced to F MA's
entry into the capital market in 1955 and to its
suhsequent sales of marketable securities, borrowings of the other four agencies accelerated
during this period and accounted for nearly
60 p r cent of the 5-year increase.
The postwar growth in outstanding marketabl securities of these agencies has respond d
to a long-term ris in financial requirements
that reflects the growth in lending activities.
Short-term fluctuations in financing needs
have been superimposed on this longer-run
growth trend with the result that agency demands in the money and capital markets have
declined during years of economic recession,
when fa1ling business and consumer demands
wer tending to reduce the level of interest
rates. In periods of expanding economic activity and increasing financial restraint, outstanding marketable debt of these agenci s
has risen.
This cyclical character of agency demands
for funds is readily evident in the expansion
of recent years, as shown in the accompanying table. Agcn y demands on the capital
market totaled $.1,045 million from rnicl-1954
to inid-1957 ancl $2,49,5 million from micl -H)58
through the end of 19,59- both periods of expanding economic activity. From mid-1957 to
4
mid-1958, when recession conditions prevailed,
these demands were notic ably lower. A postwar record retirement of nonguaranteed securities of nearly $500 million was registered in
calendar 1958, but in 1959 alone, agency
mark tab] indebtedn ss increased $2,195 million.
i
As suggested, a chi f factor aff cting the
volume of nonguarant ed security offerings
over the 1946-59 period was the growth and
fluctuation in outstanding loans. To a somewhat lesser extent, however, shifts between
alternative means of satisfying agency finan cial needs also have affected the volume of
their security sales. Due to the essentially differen t economic behavior of the various sectors, it is useful to distinguish between the
agencies that l ncl to agricultural borrowC'rs
and th two that provid finan ·ial assistance
to th housing industry.
I
...
Farm Credit Agencies.
Loans of the FLB's are comprised of longterm mortgage loans on farm properties to
Federal land bank associations ( formerly the
"national farm loan associations"), which in
turn extend credit to the farmer. The FICB's
complement lending activities of the FLB's by
providing short- and intermediate-term farm
credi t mainly through produ 'tion reclit associations. In addition, th FICB's 1 nd to
Banks for Coop rativ s and to certain other
financial institutions that ext ml credit to
farmers, such as agricultural and livestock
associations and state and national banks. The
Banks for Cooperatives lend exclusively to
eligible farmer cooperative associations.
Through their commodity loans, operating
capital loans, and fa ilities loans to these
associations, th y provide short-term and
long-term credit - usually of less than 10
years' maturity-to facilitate th marketing of
farm products.
'
'
Total loans of thes three agencies increas d
$2.9 billion over the 14-year period 1946
through 1959, and their outstanding marketable indebtedness rose $2.8 billion. Government investment in these institutions was
r due d over this p riod. Th liquidation of
o ernm nt ownership of tlw FLB's was completed in H) 17 and its ownership of stock in
the Fl Clfs and Banks for Cooperatives gradually is hei11g rcduc('d. While the FICB's and
the Banks for oop rati c may obtain Tn'asury financing, funds available from this source
have been used relatively sparingly. Investment in the stock of these agencies hy the
Out an
BILLIONS OF DOLLARS
1.0
.5
0
2.0
I. 5
BANKS FOR COOPERATIVES
LOANS..,._
--------~
FEDERAL INTERMEDIATE
CREDIT BANKS
1.0
.5
SECURITIES
0
2 .5
FEDERAL LAND
BANKS
2 .0
MORTGAGE
LOANS
1.5
1.0
affiliated associations is gov rned largely by
formulas relating equity owner hip to borro, vings, but the upward trend in ownership capital that has accompanied the growth of the
farm credit agencies has not affected material! the growth in marketable indebtedness.
From the accompanying chart it may be
noted that financial requirements of each of
tlH·sc three farm credit agc11C'ies hav' moved
upward, almost without interruption, with the
growth in out landing Joans. Loan demands
on the Banks for Coop rativcs and the FI B's
weakened during the 1949-50 and 1953-54 recession periods and expanded during periods
of generally rising economic activity. However, the $252 million increase in combined
loans of these institutions from mid-1957 to
mid-1958 forcefully demonstrates that agricultural conditions and loan demands on these
agencies do not nee ssarily parallel genera]
economic developments. Moreover, the 1949,50 decline i11 FICB loans resulted primarily
from repayments of borrowings hy the Banks
for Cooperatives when this agency mad its
first public offering of securities.
Of the two agencies whose loan growth has
heen interrupted by seasonal and other shortrun fluctuations, only the FICB's have responded by retiring outstanding nonguaranteed securities. Banks for Cooperatives have
met seasonal and other declines in loan demands by altering th volume of borrowings
from FICB's and comm rcial hanks. \Vith the
reduction 111 loans during the 1949-50 and
19.5.3-,54 periods, th e FICB's retired outstanding debentures, and contributed thereby to
the decline in nonguaranteed debt held hy
private investors in .3 of the 4 postwar years
in which the total was reduced.
0
FNMA and FHLB .
.5
0
1945
'50
'55
'60
NOTE: Data are for end of fiscal years through mid-195O; semi·
annual data ther eafter.
SOURCES: Reports of the farm cred it agencies and the Farm
Credit Admin istration .
In contrast with the farm credi t agencies,
demands 011 the capibll market h: the F ~J
and Fl ILB's have not always paralleled closely the lending activities of th 'SC institt:tions.
Neverthele s, FNMA purchases and sales of
5
federally guaranteed mortgages and advances
to members of the Federal Home Loan Bank
System have been major factors affecting the
volume of demands of these institutions on
th capital markc l. Credit cxtmclc cl hy lh<'sc
agcn ·i( s has been geared lo rcsidc11l ial housing a ·tivity and lo mortgage market developments, but the timing of their demands on th'
capital market relative to gen ral financial d(velopm nts has reflected to some degree the
essentially different character of their lending
programs.
Advances by the FHLB's are designed to aid
members-primarily savings and loan associations-in meeting heavy withdrawal demands
and seasonal needs for mortgage funds. The
mortgage market activities of the F MA, on
the other hand, have been administered under
three separate programs. One of these involves the management and liquidation of
mortgages acquired by the F MA prior to its
reorganization in late 1954 and of mortgages
formerly held by other Government agencies.
Secondly, at the time of the reorganization,
the "secondary market function" was established as a separate operation designed to
enhance the liquidity of guaranteed mortgages through buying and seJling operations.
A third function, the "special assistance function," operates under th direction of Congress
and the President and was established to
finance mortgages arising out of special Government housing programs and to buy home
mortgages generally, "as a means of retarding
or stopping a decline in mortgage lending and
home building activities which threatens materially the stability of a high level national
economy," as stat d in FNMA semiannual
reports.
This last program is financed through c0t1 gressional appropriation. Thus, the growth in
volume of special assistance mortgages held
by the FNMA over the period since its reorganization, and especially during 1959, has
widened the margin between total mortgage
6
holdings and the outstanding volume of
FNMA notes and debentures. Additionally,
mortgages held under the management and
liquidation function have h en partly Treasury financed and partly financ d by private
holders of 11011g11ara11 lccd notes. Shifts in the
proportion of Treasury and privately financed
mortgages under this phase of the F MA's
operations hav provid d a conveni nt tool
for debt management, but have led to changes
in outstanding FNMA debt not commensurate
with over-all movements in mortgage holdings. A sale of management and liquidation
notes in 1957, for example, aided the Treasury with its debt management problems when
debt was pressing against the Federal ceiling.
Also, thC' Treasury implemented its debt managcm nt policies in August 1960 by retiring
outstanding FNMA notes at maturity.
Sales of nonguaranteed debentures have
provided the principal sourc of loanabl
funds for secondary market operations and this
largely explains the parallel direction of
movement between total mortgage holdings
and securities outstanding shown in the accompanying chart. Interim financing of this
function by the Treasury attained a level in
excess of $350 million at the end of 1956
when mortgage acquisitions were increasing
sharply. More typi ally, however, not s payable to the Treasury hav rang d from $40
million to $100 million on semiannual statement dates. Private investment in secondary
market common stock, generated by the r quirement that those selling mortgages to
F MA under this function acquire an equity
interest, has risen gradually, reaching $51.5
million at the end of 1959. This investment
and a $.50 million incrc•ase in Governm ntownccl preferred stock in 1957 were the only
other sources of funds over the l 955-59 period
when the F MA was an active borrower in
the capital market.
The sharp rise in F MA demands on the
capital market witnessed during periods of
..
,
increasing financial restraint stems from
shifts in investor preferences in such periods.
FNMA debentures outstanding rose by $1.3
billion during 1956 and 1957, as rising intC'rcst rates on marketable securities, business
Joans, and conv 'nlional mortgages induced
mortgage hold ·rs to sell guarantc cl mortgages
to the FNMA and to seek more rewarding outlets for funds. In 1958, as mortgages b came
more attractive to investors, secondary market
debenture retirements totaled $215 miJlion.
Mortgage-market operations were quickly reversed in late 1958 and marketable debt rose
$540 million in 1959.
Unlike the publicly held FNMA securities,
Out tandin
Cr dit and Nonguarant
curiti
d
Bl LL IONS OF DOLLARS
6
FEDERAL NATIONAL MORTGAGE
ASSOCIATION
5
4
MORTGAGE HOLDINGS
~
3
J
2
0
3
* * *
FEDERAL HOME LOAN
BANKS
ADVANCES
2
SECURITIES
0
1946
..
'50
'55
*Negligible.
NOTE : End of calendar year data through 1949; semiannual
thereafter.
SOURCES: Federal Reserve Bulletin and Treasury Bulletin.
Monthly R~v1ew
November 1960
'60
data
which have tended to expand most sharply
when housing activity was being subjected to
increasing financial restraint due to the reduced availability of credit from private
sources, FHLB borrowings have surged in the
3 peak years of rcsid ntial constru tion activity. As m mber institutions turned to
FHLB's for funds to supply rising demands
for mortgage funds, outstanding debt of the
FHLB's rose by $355 million, $702 million,
and $1,060 million, respectively, in 1950, 1955,
and 1959.
The parallel between advances and outstanding nonguaranteed marketable securities
in these and other postwar years, however,
has been affected by changing availabilities
of funds from other sources-such as stor-k acquisitions and deposits of member institutions.
Fluctuations in the volume of funds supplied
from these sources have influenced the volume
of FHLB borrowings, so that when advances
increased only moderately, as from 1952
through mid-1954, or declined, as from the
end of 1955 through mid-1958, the ratio of
marketable debt outstanding to advances has
fallen.
A growing membership in the FHLB
System, coupled with the requirement that
paid-in subscriptions to FHLB stock must
equal at least 2 per cent of member mortgage
holdings or no less than $500, has brought
about a steady rise in equity capital. On the
other hand, member deposits, while moving
upward over most of the postwar period, have
declined in peak periods of housing activity
as mortgage loan demands outpaced new
share capital at savings and loan associations
and induced members to economize holdings
of liquid reserves.
Thus, when advances have risen sharply and
member deposits have declined, growth in
FHLB borrowings has surpassed the growth
in advances. But, when this growth has moderated or when advances have declined,
FHLB securities have been retired.
7
F, ari mg of Federal L ndrng Agen rec;
---
In conclusion, it is evident that the outstanding securities of the two agencies whose
borrowings arc connected with mortgage
market elev lopmcnts comprise th more volatilC' part of the nonguaranteed marketable debt
offerings by I• ccleral and frckra11y sponsored
agcn -ics. Demands on the capital market by
these two agencies have been primarily responsible for the cyclical behavior of nonguaranteed securities outstanding, particularly
over the 1955-59 period.
Clearly, the volume of agency demands on
the capital market comprises but a single dimension of the relationship between these
demands and general financial developments.
The cff 'cts of agency borrowing operations
can he more fully delineated by examining
the market for nonguaranteed securities.
The outstanding postwar developm nt in
this market is the reduction in the proportion
of outstanding nonguaranteed agency securities held by commercial banks and the rise
in the proportions held by nonfinancial corporations and especially by individuals, including nonprofit institutions. Over this period,
a cyclical response by these classes of investors
has developed with the more flexible interest
rates that have characterized most of the past
dccad and particularly the years since 19,54.
Specifically, it should be noted that individuals increased their ownership of these i sues
$1.6 billion over the 1955-57 period, but these
holdings declined $300 million in 1958, when
until midyear interest rates were lower than
were typical in the preceding period. In 1959,
holdings of this class of investor surged upward $1..5 billion. Commercial bank holdings ,
011 the other hand , in ·rcasccl $100 million in
1958, and judging by data on the sample of
commercial banks in the Treasury Survev of
Ownership, this increase came e~rly in 1958
when banks were well supplied with reserves.
During 1959, however, as reserve pressures
8
intensified and loan demands expanded, commercial banks included in this survey liquidat d more than $400 million of agency issues.
onfinancial corporations increased their
ownership of th s s curiti 'S by $700 million
in the 1955-57 period, but liquidated $200
million of their holdings in 1958. Corporate
investment in nonguaranteed issues during the
former period contrasts with their liquidations
of guaranteed Government securities and suggests that corporations may have responded to
the interest rate premium on the former securities and substituted holdings of these for
ownership of Treasury issues.
Data currently available do not permit
quantification of the change in agency security
holdings of nonfinancial corporations during
1959. A rise in the ownership of agency issues
by a miscellaneous group of investors-a group
which excludes Government trust accounts
and commercial banks, insurance compani s,
mutual savings banks, and savings and loan
associations included in the Treasury's sample
survey-amounted to $2.4 billion in 1959. The
increase in holdings of individuals and nonprofit institutions accounted for all but $900
million of this advance, but there is reason to
believe that a substantial part of this balance
represents corporate acquisitions.
The interest that consumers and nonprofit
institutions have displayed in these securities
when yields on marketable instruments have
advanced sharply, as in the 1955-57 period
and in 1959, parallels their growing interest in
marketable securities generally during such
periods, when yields on these investments
have advanced relative to those on time deposit· , savings bo11d , and savings and loan
association shar s. This market has dwindled,
howc'vcr, as yields on sC'curitics have ck ·lined.
That corporatiollS might fincl agency sc>curities attractive when their volume of business
and liquid asset holdings have risen, as in
1959, is not surprising in view of the shortterm maturities of the majority of the out-
..
standing nonguaranteed issues. Except for
four issues carrying maturities of 1 to .3 years
sold prior to 1955, the Banks for Cooperatives
have restricted th ir offerings to maturities of
1 year or less during the postwar period.
FHLB iss11es have carried maturities of I year
or less with the single exception of a .5-year
bond markclC'd in April 1958, and delwutures
of FICB's have." b en issued for periods of 1
to 9 months.
While the maturities of FNMA security offerings have ranged from a few months to
10 years, the attractiveness of these securities
to nonfinancial corporations has been enhanced by offerings of short-term maturities
when corporate demands were rising. The
appeal of FLB securities to nonfinancial corporations undoubtedly has been more limited
with maturities running from a f w months to
16 years and with average maturities ranging
from 72 months on Jun 30, 1946, to a low of
about 25 months on June 30, 1954. The FLB's
have attempted to attract primarily long-term
investors and have not altered their maturities
particularly in response to changing market
conditions. The average maturity of FLB
bonds rose from the mid-1954 low to about 42
months at mid-19,57. L ngthcning continued
over the fiscal year 'Ile.ling at mid-19,58 and the
avcrag ' maturity of oulstandings declined only
rnoderalcly in the subsequent fiscal y ar.
everthel ss, the available supply of shortterm nonguaranteed securities has risen during periods of increasing financial restraints.
In terms of the maturity structure of yields on
marketable securities, the rising volume of
agency issues that has been observed in past
periods of increasing financial restraints has
had its initial impact on short-term rates. As
financial conditions have eased, reduced
agency demands on the capital market have
reinforc d other market influences in r ducing rates generally, but, to the xtent that
agencies have extended the maturities of offerings at such times, downward pressures on
long-term rates have been restrained.
-.
9
h
h
t
ur
HEAT PHODUCTION in the Nation has generally exceeded the amount needed for
domestic uses and exports since the end of
World War II. Total supplies reached a new
high of 2,682 million bushels on July 1, 1960,
according to a recent estimate by the U. S.
Department of Agriculture. Supplies have
risen in 8 of the past 10 years, and they now
stand 84 per cent above the 1950 level and
144 per cent above the 1940 level. Currently,
stocks are more than double the estimated
total requirements for the coming year, and
they arc more than four times the predicted
total domestic use for 1960-61.
The estimated carryover of 1,313 million
bushels on July 1 also was a new high. It was
only slightly greater than for a year earlier,
but it is significantly smaller than the 1,548
million bushels predicted for next July 1. The
carryover has tripled in size since 1950. Compared with domestic food consumption, carryovers averaged a 6-rnonth supply in the 1930's,
an 8-rnonth supply during the 1940's, and a
19-rnonth supply during the 1950's. The carryover on July 1, 1960, was equivalent to a 33month supply. The bulk of the carryover
stocks has been held by the Commodity Credit
Corporation in recent years.
The increases in carryover have been almost entirely in harcl red winter wheat. More
than three fourths of the carryover at the beginning of this marketing year and all of the
predicted increase for the next year is expected to be in that class of wheat. This has
special significance for the Tenth Federal Re-
10
Pr
I
serve District because most of the wheat
grown in the District is of the hard red winter
type. Furthermore, wheat is a leading source
of crop income in each of the District states.
Wheat ranked first as a source of cash income
from crops for Colorado, Kansas, Nebraska,
Oklahoma, and Wyoming in 1958, and again
in 1959 for all of these states except Nebraska,
where it was slightly exceeded by corn.
The wheat surplus problem is difficult because stocks have continued to grow despite
efforts to reduce production through acreage
controls; to encourage domestic consumption
through sales promotion and research to find
new uses for wheat; and to stimulate exports
through the use of subsidies, sales for "soft"
local currencies, sales on credit, and foreign
relief programs. It is apparent that these efforts have not resulted in a completely satisfactory solution to the wheat problem. The
purpose of this article is to explore the major
factors contributing to the imbalance of wheat
supplies and to examine some of the potential
means for balancing utilization and production.
in the Wheat Sur lu
Utilization. Wheat use has been relatively
more stable than production and stocks. The
chart on wheat supply and distribution shows
that clomcsti · food consumption of wheat has
been remarkably stable for several decades.
On the other hand, the use of wheat for seed
has declined slightly and industrial use never
reached significant proportions except during
Whe
u
tribution
United States
BILLIONS
YEAR BEGINNING JULY 1
OF BUSHELS
BILL IONS
OF BUSHELS
3.0
3 .0
Proiected
Prel1m1nory
[}) Carryover at end of year
2 .5
Total
Supply
at ,tort
of year
Exports (includlno military relief)
m
\
I
.!.
i
-
2 .5
Domestic seed, ln du1triol, and feed uae,
Oomeat lc food
u1111
2.0
2 .0
- 1.5
I-
1.0
.5
0 L.JJ.-.i,.-...'---'--LI.alLLll~-....-..i.a.L..Lal..l.lpR.Ua.LJ-.....-...L.-.1.1p1u..11..Ua.J.-.i..-.~u..1.J.1a..ua...&.._J.,.il~LI.aLURJ..--.. _ J 0
'60-61
'55-56
'45 - 46
'50-51
1930-31
'35-36
'40 - 41
SOURCE: U. S. Department of Agriculture.
World War II when wheat used for the production of industrial alcohol was heavily subsidized. The use of wheat for livestock feed
has shown a general downward trend since
1930 except for the war years. Wheat can be
produced competitively with feed grains in
som areas. How ver, support pric s generally
prcclud the us of wh at for f d un] ss it
is of relatively poor quality.
Prospects for incr asing domestic consumption of wheat do not appear bright at th presnt time. Per capita consumption of wheat
has be n declining at about the same rate as
population has been increasing. In the past,
the use of cereals in Am rican di ts has declin d as incomes have incr a ed. Wh ther
this trend will continue is a moot ciucstion.
Barring a revolution in dietary habits and
pref r nc s, however, it is doubtful that it
will be reversed. Various industrial uses for
wheat have been developed. However, a significant expansion in industrial use is not
Mont ly R view •
ov mb
1960
likely to occur unless prices are substantially
lower. Many products that can be made
from wheat, such as industrial alcohol, can
be made from other materials more cheaply.
Feed uses might be expanded more easily except for the plentiful supply of feed grains.
Also, in many areas, feed grains can be produced mor cheaply than wh at in terms of
cost per unit of digestibl nutri nts.
Wheat exports have been increased several
fold since World War II. Following the war,
large quantities were shipped abroad under
the Marshall Plan and various relief programs
to feed peoples whose food-producing capacities had been disrupted during the conflict. A
second upsurge in exports accompanied the
Korean War. More recently, exports hav been
stimulated by th ' Agri ultural Trad D velopment and Assistance ct of 1954, known
as Public Law 480. These programs have
helped maintain wheat exports at high levels
despite the fact that domestic prices have
11
been supported higher than world prices.
Prospects for wheat exports in the next few
years are difficult to evaluate because they
rest so heavily upon Government agricultural
and for('ign policies. Exports probably wou]cl
clcclin<' to ncgligihlc- proportions if wheat
shipnwnts under foreign rcli<'f ancl export s11 hsidy programs ( such as Public Law 480 and
the International Wheat Agreement) were
suspended while domestic prices were supported above world prices.
Many efforts to increase exports through
greater subsidies, loans, gifts, or other means
which may tend to displace regular commercial sales have been, and probably will continue to be, opposed by other exporting countries. Several other countries, such as Canada,
Australia, and Argentina, depend heavily upon
commercial exports of wheat for foreign exchange. Canada, for example, has a wheat
carryover which-relative to its annual production, national income, and total exportsis proportionately larger than the U. S. carryover. Other wheat-exporting countries tend to
be seriously concerned about subsidized U. S.
exports, since they feel such sales may displace some of their commercial sales. ConseWh at Prod c ·on, 1
MILLIONS
0
0
OF BUSHELS
1600
1200
800
400
0
1920
'30
'40
'50
'60
*Missouri was omitted because only a small portion of that state
is in the Tenth Distri ct.
SOURCE : U. S. Department of Agriculture .
12
quently, it has been the announced policy of
the United States to avoid such interference
as much as possible in its efforts to increase
the foreign disposal of wheat. Wheat is being
disposed of on an experimental basis in tlw
economic development programs of some
1111dcrdcveloped countries. This method of dis posal seems to off er a means for using surpluses constructively without interfering with
normal commercial trade. However, it is not
known how much can be absorbed in this way
or what returns ultimately may be received
from such uses.
Production. Wheat production in the
United States has shown a strong upward
trend, particularly since 1934. Compared by
decades, with the 1920's as the base, production declined 16 per cent for the 1930's, but
was up 29 per cent for the 1940's, and 33 per
cent for the 1950's. The greatest surge in production followed the removal of acreage controls in 1942. Since 1947, production has fluctuated widely.
The changes in total wheat production have
been caused largely by changes in hard red
winter wheat output. Changes in the production of the other classes have been largely offsetting. Since the 1920's, production of soft
red winter wheat has declined, while that of
white wheat has increased about the same
amount. Hard spring wheat production has
remained about the same. The increase in
hard red winter wheat production from the
1920's to the 1950's accounted for 76 per cent
of the increase in total wheat production for
that period.
The changes in hard red winter wheat production , in turn, may be accounted for largely
by changes in wheat production in Tenth District state's. All of the hard reel winter wheat
states, except Texas, arc located wholly or
partly in the District. Also, all of the District
states, except Missouri, produce largely hard
red winter wheat. Disregarding state boundaries, the Tenth District encompasses all of the
...
d
United States
MILLION
ACRES
100
PLANTED
/
80
60
40
0
1920
'30
'40
'50
'60
SOURCE : U. S. Department of Agriculture .
hard reel winter wheat belt, except northwest
Texas, southccntral South Dakota, and part of
Montana. District production was expanded
greatly during the 1940's, hut it averaged th e
same for the 1950's as it did for the 1940's.
Wheat Planted and Harvested. Wheat acreages generally have shown an upward trend
except during periods of acreage controls.
Both planted and harvested acreages have
fluctuated widely. However, as would be expected, harvested acreage has varied more
with changing weather conditions than has
planted acreage.
Wheat plantings increased during World
War I, in the mid-1920's, in the mi<l-19,30's,
and <luring and immediately following Wor1cl
War II. Each of these periods was characterized by relatively favorable wheat prices.
Large areas of grass land in the western Great
Plains ,verc plowed up and planted to wheat
clming these periods. In the central Great
Plains ( Colorado, Kansas, Nebraska, and
Wyoming), land planted to wheal increased
6.4 million acres or 34 per cent from 19-14 to
1949. Wheat plantings in the northern Great
Plains increased 3.6 million acres from 1944 to
1949, while plantings in the southern Great
Plains declined 500,000 acres in that period.
However, both the northern and southern
areas had shown increases in the preceding 5
years-19.'39 to 1944- while the central area
showed a decline. For the 20-ycar period ] 929
lo HHD, acres planted incrrnsccl 2.2 million in
the northern area , .5.7 million in the central
area, and 1.8 million in the southern area- a
total of 9.7 million acres for the entire Great
Plains.
Acreage allotments were in effect for 1938
through 1942, for 1950, and for 1954 through
1960. Both of the prolonged periods of controls resulted in very significant reductions in
acreages . Acres planted dropped below 50
million in 1957 for the first time since before
1919. The last time that planted acreage declined significantly in the absence of controls
was during the early 1920's.
Planted and harvested acreages generaJly
move together. The difference between the
tv,'o-thc abandoned acreage-is smaller during periods of favorable weather conditions
and larger during periods of unfavorable conditions.
Yields. Wheat yields have shown a general
upward trend since the dry early 1930's. The
big surges in yields have occurred during the
period of acreage controls. Conversely, yields
have increased very little during periods of
acreage expansion.
As would be expected, yields ancl abandoned wheat acreage have usually moved in
opposite directions. Both are influenced
strongly by natural factors such as precipitation , insects, and diseases. Lack of moisture
reduced yields and increased acreage abandonment in the Great Plains during the early
J9,30's ancl in parts of the hard reel winter
wheat area during some years in the late
1940's and early 19,50's. Hust and insect infestations have hccn factors causing reduced
yields at times.
The general upward trend in yields reflects
to a large exten t the use of improved wheat
13
Tlie Wheat Surplu Pro lem
varieties and cultural practices. Rust resistant
varieties have been particularly helpful in increasing yields in the northern Great Plains.
The widespread use of comhinrs has resulted
in small<'r harvest season losses because the
harv<'sl p<'riod has h<'cn red11ced. Crcater
nwchanizatio11 has lwlp<'d also in secdlH'd
preparation and drilling. Th 'SC faster operations enable produ rs to avoid periods of bad
weather more easily. The use of fertilizer,
irrigation, fallowing, and deep plowing are
other important factors contributing to improved yields.
Several reasons can be cited to explain why
yields have increased during periods of acreage control. For one thing, farmers tend to
retire their poorest producing land and keep
the best in production. Guaranteed support
prices, which arc announced well before
planting dates, tend to encourage better cultural practices. Also, when farmers arc restricted in the acreage they can plant, they
tend to apply more resources such as fertilizer.
Yields have decreased during periods of
acreage expansion primarily because poorer
land has been brought into production. This
includes both marginal crop and grass land
Planted Wh at Abandoned
And Yi Id
e, 1920-60
United States
MILLION
BUSHELS
ACRES
30
30
PLANTED WHEAT ABANDONED
25
✓
25
YIELD PER PLANTED ACRE
20
20
15
15
10
0
0
1920
'30
'40
SOURCE: U. S. Department of Agriculture .
14
'50
'60
in wheat-producing areas and the expansion
of wheat production into grazing areas that
are not so well adapted to wheat produ tion .
In addition, the opposite of the previously descrih<'d sil11ation O('C'ms with r<'spc-d lo c11l l11ral practices. Farmers lend lo spread tlwir
time and <.:l pita I over more' acres and th<' re-
◄
•
sult, other things being equal, is low<'r yields
even though total produ tion may increase.
Pot ntial Ad"ustm
in Whea
P
duction
Since the mid-1920's, numerous efforts have
been made to improve farm incomes through
Government programs. Wheat producers have
been involved in or affected by most of these
programs. One of the most direct efforts to
improve farm incomes has he n through price
supports. As one of the so-caJlccl hasi ' commodities, wh at has he n supported continu ously sine 1938. Pric supports have h n ffccted chiefly through nonrecourse commodity
loans and purchase agreements. The Commodity Credit Corporation has accumulated
large stocks of wheat, amounting to about 1.2
billion bushels on July 1, 1960. As a result of
these mounting stocks, the Government has
attempted to balance production and utilization through programs which would not advcrsdy affect the incomes of wheat producers. Among these programs have h en scv ral
direct cl toward reducing wheat productionth adjustm nt of production to the level of
utilization. At the national level, wheat supply
adjustment involves balancing production and
utilization, while at the farm level, it entails
the shifting of resources from wheat to the
best alternatives so that farm income can he
maintained. Thus, thC:' adjustm nt problem is
divid<'cl into two separate hut related parts
contro1ling procl11ction , and shifting the resources fr eel thereby into the best alterna tive uses.
Production controls. A number of efforts
have been made to control wheat production
through both voluntary and mandatory pro-
.. .
< •
'
....
•
grams. The Federal Farm Board was established in 1929 to help farmers by stabilizing
prices through Government purchases of surplusc . Efforts w re made to encourage voluntary reduction of production through marketing associations. However, the I•""'arm Board
had 110 authority to regulate• procl11 ·tio11 and
it conc1udcd that it was not fcasihlc to support the price of wheat above world prices
over a period of time unless production could
be controlled. The Agricultural Adjustment
Act of 1933 provided for voluntary restriction
of production through a system of benefit
payments to producers. The Act ended in 1936
after a part of it was ruled unconstitutional by
the Supreme Court. Wheat stocks declined
and pric s increased while the legislation was
in effect. However, a ombination of factors
were involved, including a major drought.
Wheat acreag allotments and marketing
quotas w re provided for by th Agricultural
Adjustment Act of 1938 and, as indicated
earlier, have been in effect intermittently
since that time. These controls have not been
successful in reducing production in either of
the periods in which they were in effect more
than 1 year. Acres planted declined 34 per
cent from 1937 to 1942 in response to acreage
controls. Meanwhile, yields per planted acre
incr as d 69 per cent. The result was an increas of 11 p r cent in production. In the
more recent period of controls, acres planted
were reduced 28 per cent from 1953 to 1960,
yields were up 62 per cent, and production
rose by nearly 17 per cent.
Production controls could be effective if
applied strictly enough. In recent years, the
legal minimum to which acreage could he restricted has hcen 55 million. Thi acreage has
heen allotted among producers in the commercial wheat slates. Mark ting qnotas have
been calculated by applying normal or actual
yields, whichever was larger, to the acreage
allotment. They have been used primarily as
a means for enforcing the acreage restrictions.
Monthly Review • Nov moer 1960
Such controls constitute a relatively unreliable
means of production control. Given sufficient
incentive by way of price supports, farmers
can and do increase yields by applying mor
capital and effort per given unit of land . Experience' with th' various crops has incli atccl
that farmers tend to overproduce in response
to favorable support prices unl •ss r latively
high penalti s are imposed.
Alternatives to wheat production. The most
profitable alternatives to wheat production
differ by location. Over most of the soft winter wheat states there are many alternative
crop possibilities. While the alternatives may
lack the multipurpose aspects of wheat ( the
same planting of wheat may serve as a winter
cover crop, winter pasture, and a grain crop)
many of th m can be produced advantageously. In the hard winter and spring wheat
states-roughly the same area as the Great
Plains- there are fewer alternativ s to wheat
production. Studi s made of th uses of land
diverted from wheat show considerable variations in the Great Plains area. In western Kansas in 1955, nearly two thirds of the diverted
acres went into grain sorghum and corn and
one fourth was fallow or idle. In an area in
North Dakota, two fifths went to barley and
other grains, while one third went to flax.
And, in northern Montana, nearly scv n
eighths of th acres divert d from wheat went
into barley and small grains.
Alternatives in Tenth District states vary
widely. In eastern Kansas and Nebraska, corn
and other small grains offer alternative possibilities to wheat production. Further west,
grain sorghums are better adapted to the drier
climate. At the extreme western edge of the
Wheat Belt, a grass-livestock program may
offer th best alt rnativc to wheat. Probably
none of these alternatives arc as profitable as
wheat at present price-cost relationships. On
typical wheat farms in western Kansas in
1955, the net returns per acre from grain
sorghums were 68 per cent of the net returns
15
from wheat, while barley returned 36 per cent.
Comparable figures are not available for the
grass-livestock alternative, but farm budgets
for selected farms indicate that it may compare very favorably with wheat once it is well
estahHshccl. The comparison depends, of
course, upon the area, individual farm, farm
operator, and pri ·c relationships. Th' grasslivestock alternative suffers two disadvantages
- the long period of time requir cl to establish a good stand of grass, and the high capital requirements for livestock.
Wheat supplies have continued to grow despite various Government programs to increase utilization and decrease production.
The carryover on July 1, 1960, was sufficient
to supply estimated domestic food uses for 33
months with no further production. The carry-
over in 1961 is expected to be even larger.
Exports have been increased considerably
under various foreign assistance and exportsubsidy programs.
Wheat production has increased despite
acrcag controls and marketing quotas. Yields
have been incr as ,cl through improved varieties, mor' fcrtiliz 'r, irrigation, and bett r ultural practices. U n<l r pr se1 t pri c support
conditions, the price-cost relationships between wheat and various alternatives are such
that many farmers find wheat production their
most profitable alternative. Furthermore,
prospects for increased utilization, either domestic or foreign, do not appear bright at
present price levels. Therefore, if price supports are maintained at present levels, stricter
controls appear to be the most likely alternative for bringing wheat production into balance with utilization.
PRICE INDEXES, UNITED STATES
BANKING IN THE TENTH DISTRICT
Deposits
Loans
Reserve
District
Reserve
City
Country
City
Country
Member
Member
Member
Member
Banks
and
Banks
Banks
Banks
September 1960 Percentage Change From
States
Sept.
1960
Index
Aug.
1960
Sept.
125.2
1959
Consumer Price Index
(1947-49=100)
126.8
126.6
Wholesale Price Index
(1947-49=100)
119.2
119.2
119.7
Prices Rec'd by Farmers
(1910-14=100}
237
234
240 r
Prices Paid by Farmers
(1910-14=100)
298
298
296 r
r Revised .
TENTH DISTRICT BUSINESS INDICATORS
Aug. Sept. Aug. Sept. Aug . Sept. Aug. Sept.
1960 1959 1960 1959 1960 1959 1960 1959
Tenth F. R. Dist.
+3
+12
+1
+2
Colorado
+1
+8
+14
+1
+1
+1
+3
Kansas
- 6
- 2
- 1 +1a
-3
- 2
- 1
+5
Missouri *
+2
- 5
Nebraska
New Mexico*
Oklahoma*
Wyoming
)~ ii,
,!f:J!t
- 1
+3
;!(~
'!':*
*Tenth District portion only .
t Less than 0.5 per cent.
16
+7
+ 6
+2
- 3
+2
+7
+13
+9
+1
- 2
+10
~
:~,
+4
**
District
and Principal
Metropolitan
>!<>!<
+3
t
- 1
+1
;~~
- 1
+1
Value of
Department
Store Sales
Value of
Check
Payments
Percentage change-1960 from 1959
Areas
Sept.
Year
to date
Sept.
Year
to date
+s
+3
+3
0
Denver
+9
+a
+2
+2
Wichita
+1
- 4
-15
- 14
Tenth F. R. District
Kansas City
+9
+3
+1
+2
Omaha
+s
+2
+1a
+5
+2
Oklahoma City
- 3
+2
+1
0
+2
Tulsa
+2
0
0
- 3
-- 1
**No reserve cities in this state .
..
@FedFRASER