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A N EIGHTH DISTRICT PERSPECTIVE . ,_ _ . , , . # 7 Federal Reserve Bank of St. Louis CAROL TMAXIOM Fall 1983 Drought Raises Crop Prices No w. . . Meat Prices Later Until midsummer, many analysts were projecting a continuation of the large surpluses and low prices that have prevailed in grain markets for several years. Ex cellent growing conditions and strategic plantings by farmers were expected to raise yields and minimize the effects of the payment-in-kind (PIK) program on produc tion and grain stocks. Most trade talk centered not on whether PIK would be extended, but on what additional steps Congress would take to reduce the mounting im balance between the quantity of grain produced and quantity of grain demanded in the United States. The worst drought in 50 years has changed the tone of this talk dramatically. Centered on the prime corn and Eighth Federal Reserve District soybean areas of the Eighth District, the drought has lowered average corn and soybean yields to 85.1 and 24.9 bushels per acre; yield estimates for both crops declined by more than 15 percent in August alone. As the table below indicates, only wheat and rice escaped the drought’s damaging effects; cotton yields, down 15 percent from 1982, were damaged prior to August 1. Drought Effects on U.S. Crop Yields1 Crop Corn Soybeans Wheat Cotton Rice 1982 average Aug. 1,1983 Sept. 1,1983 114.8 32.2 35.6 590.0 47.4 99.9 29.7 39.8 503.0 46.4 85.1 24.9 39.5 501.0 46.3 1 Yields for corn, soybeans and wheat are measured in bushels per acre. C otton yields are pounds per acre. Rice yields are measured as hundreds of pounds per acre. SOURCE: U.S. Department of Agriculture. ST. LO U IS These sharp declines in yields have reduced corn and soybean production estimates substantially. The table on the following page compares 1982 corn and soybean production figures for Eighth District states to the USDA’s September 1 production estimates. The reduced acreage planted under PIK and the drought have com bined to reduce the national corn crop by nearly 50 per cent from a year ago. The attractiveness of PIK incentives to farmers in Illinois and Indiana, two of the nation’s leading corn states, contributed to reducing Eighth District produc tion by 12 percent more than the national decline. The concentration of the drought in Missouri, Illinois and Indiana also pushed the decline in Eighth District soy bean production to nearly 40 percent, about 7 percent more than the national figure. What do these sharp reductions in corn and soybean output imply for the future? First, a PIK program for FALL 1983 FEDERAL RESERVE BANK OF ST. LOUIS feed grains in 1984 is no longer a possibility. Had nor mal weather produced the 6 billion bushel corn crop that was expected earlier in the summer, reserve stocks would have declined only marginally and government storage and interest costs would have continued to grow. Now, however, the much smaller 4.4 billion bushel harvest is expected to reduce carryover stocks from the 3.4 billion bushels on hand this September 30 to less than one billion bushels next September 30; this will be the first time in seven years that corn reserves will have fallen below the one billion bushel level. Many analysts feel this is nearer to the reserve level desired by govern ment officials: adequate to meet short-term needs but not so large as to impose the substantial subsidy costs of recent years. The smaller soybean crop—combined with strengthening export demand—implies a reduction in domestic usage near 13 percent during 1984. Unless loan rate and target price provisions of current price support programs are altered substantially, only another drought in 1984 is likely to keep grain and soy bean prices high in the year ahead. The reduction in reserve stocks also is likely to be transitory unless surplus production capacity is removed from agricul ture or declining export demand is increased suddenly. So, barring major changes in price support legislation, export demand or normal weather patterns, the effects of PIK and the 1983 drought on crop prices and produc tion will be short-lived. This year’s events, however, will affect meat prices and production for several years. Currently, high grain prices are inducing many cattle and hog producers to September 1 Corn and Soybean Production Estimates for Eighth District States (millions of bushels) CORN 1983 2.625 Arkansas 608.400 Illinois 345.000 Indiana 48.500 Kentucky 4.480 Mississippi 82.500 Missouri Tennessee 28.800 EIGHTH DISTRICT 1,120.305 U.S. TOTAL 4,390.000 SOYBEANS Percent change from 1982 6.3% -6 0 .1 - 5 7 .7 - 6 9 .3 - 1 9 .7 - 5 9 .7 - 5 2 .9 - 5 9 .6 - 4 7 .7 1983 70.200 247.800 109.760 26.980 54.360 96.900 32.640 638.640 1,534.970 Percent change from 1982 -3 5 .7 % -3 2 .5 -4 0 .1 -4 9 .2 -4 1 .9 -4 7 .4 -4 8 .6 -3 9 .4 -3 2 .6 SOURCE: U.S. Department of Agriculture. slaughter more animals than usual. After this tem porary increase in meat supplies lowers red meat prices during fall and winter, fewer animals for slaughter in 1984 will tend to increase red meat prices, perhaps by 15 percent or more from current levels. Aside from higher feed costs, red meat producers also are earning less because the drought has prevented animals from gain ing or even maintaining weight; thus, producers are receivin g fewer dollars per pound on the sm aller animals marketed. Farm Exports Continue to Decline U.S. Export Inspections (billions of dollars) Product Soybeans Corn Wheat and flour Rice Cotton and linters Livestock and products All other products U.S. Total Fiscal year 1982 Fiscal year 1983 Percent change $ 6.5 6.0 7.6 1.1 2.2 3.2 12.5 $ 5.8 5.7 6.2 0.8 1.7 2.9 11.4 -1 0 .5 % -4 .4 - 1 8 .6 - 3 0 .4 - 2 1 .4 -8 .3 -8 .8 39.1 34.5 SOURCE: U.S. Department of Agriculture. During the 1970s, the dollar value of farm product ex ports grew at an annual rate of nearly 20 percent. It now represents nearly 20 percent of total U.S. exports. For the first time in over a decade, however, farm export value declined in 1982 and is expected to decline again this year. This fiscal year farm exports are expected to be valued at about $34.5 billion, down from $39.1 billion a year ago. From the 1981 peak export value of $43.8 bil lion dollars, the estimate for fiscal year 1983 represents a 21 percent decline in the value of farm exports in just two years. Further details on the exports of some Eighth District farm products are shown in the table at left. - 1 1 .8 —Michael T. Belongia Agriculture—An Eighth District Perspective is a quarterly summary of agricultural condi tions in the area served by the Federal Reserve Bank of St. Louis. Single subscriptions are avail able free of charge by writing: Research and Public Information Department, Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, Missouri 63166. Views expressed are not necessarily official positions of the Federal Reserve Bank of St. Louis or the Federal Reserve System. 2 FEDERAL RESERVE BANK OF ST. LOUIS FALL 1983 EIGHTH DISTRICT AGRICULTURAL DATA Percent Change August 1983 Average for 1982 0.5% 0.0 0.3% 0.2 Prices and Costs1 1983 July 1983 CONSUMER PRICE INDEX (% change) Nonfood Food 0.3% - 0 .6 0.5% -0 .1 0.0 0.0 0.0 1.0 0.0 0.0 0.0 0.5 0.3 0.0 0.0 0.5 0.4 - 0 .3 0.7 - 0 .2 2.8 - 0 .4 4.2 0.0 2.2 - 5 .3 4.2 - 1 .6 - 2 .4 - 1 .6 - 2 .4 -2 .0 -2 .8 -0 .8 5.0 1.3 9.2 0.0 0.4 - 0 .5 8.2 0.0 19.1 3.3 - 6 .2 16.4 FEEDER CATTLE Wholesale price - Kansas City ($/cwt.) $64.75 $60.41 $60.29 $64.82 - 3 .3 - 11.1 FEEDER PIGS Wholesale price - So. Missouri ($/cwt.) $26.09 $21.52 $24.55 $51.14 -4 8 .2 -5 9 .3 June PRODUCTION COSTS FOR FARMERS (% change) All inputs Fertilizer Agricultural chemicals Fuels and energy PRICES RECEIVED BY FARMERS (% change) All products Livestock Crops BROILERS Wholesale price -1 2-city ($/lb.) TURKEYS Wholesale price - New York, 8-16 lb. young hens ($/lb.) 49.07$ 60.91$ Year-To-Date2 Same Period 1983 Year Ago 2.6% 0.8 2.8% 0.6 53.30$ 54.24$ 46.67$ 21.7 17.8 58.49$ 57.59$ 60.75$ 6.3 - 10.2 CORN Wholesale price - St. Louis ($/bu.) $ 3.27 $ 3.39 $ 3.68 $ 2.57 47.8 52.1 SOYBEANS Wholesale price - N.C. Illinois ($/bu.) $ 6.02 $ 6.33 $ 8.31 $ 5.88 49.5 45.8 WHEAT Wholesale price - No. 1, hard winter Kansas City ($/bu.) $ 3.92 $ 3.71 $ 3.88 $ 4.00 - 2 .5 4.9 LONG-GRAIN RICE Wholesale price - Arkansas ($/cwt.) $18.50 $18.50 $18.50 $17.72 0.5 8.1 COTTON Wholesale price - all markets ($/lb.) 61,10<t 64.60$ 64.50$ 55.27$ 12.6 22.2 152.0 67.7 125.0 7.6 458.0 125.0 51.6 116.7 5.1 377.1 118.9 60.2 87.8 5.1 403.0 161.2 78.0 130.1 6.3 532.7 - 31.9% -3 3 .2 - 2.4 22.0 2.0 4.3% 4.7 -3 1 .9 -5 3 .4 11.9 U.S. Exports Corn (mil. bu.) Soybeans (mil. bu.) Wheat (mil. bu.) Rice (rough equivalent, mil. cwt.) Cotton (thou, bales) Percent Change Receipts3 CROPS (millions of dollars) United States District (seven-state total) LIVESTOCK (millions of dollars) United States District (seven-state total) April 1983 May 1983 June 1983 $6,568 931 $5,837 1,200 $6,092 1,370 $6,124 1,275 -1 9 .2 % -18 .1 6,129 896 5,505 862 6,062 914 5,815 928 14.7 12.9 Average for 1982 Year-To-Date2 Same Period Year Ago 1983 16.3% 9.9 -0 .1 - 3 .7 3 EIGHTH DISTRICT AGRICULTURAL DATA Marketing Year 1980/81 1981/82 1982/83 CORN (October 1 - September 30) Acres planted (mil. acres) Production (bil. bu.) Yield (bu. per acre) Ending stocks (bil. bu.) 84.0 6,644.8 91.0 2,774.2 84.2 8,201.6 109.8 3,904.1 81.9 8,397.3 114.8 5,079.8 SOYBEANS (September 1 - August 31) Acres planted (mil. acres) Production (bil. bu.) Yield (bu. per acre) Ending stocks (bil. bu.) 70.0 1,792.1 26.4 679.4 67.8 2,000.2 30.1 652.2 72.2 2,277.0 32.2 866.9 WHEAT (June 1 - May 31) Acres planted (mil. acres) Production (bil. bu.) Yield (bu. per acre) Ending stocks (bil. bu.) 80.6 2,374.3 33.4 988.8 88.9 2,798.7 34.5 1,163.9 87.3 2,808.7 35.6 1,541.4 RICE (August 1 - July 31) Acres planted (mil. acres) Production (mil. cwt.) Yield (cwt. per acre) Ending stocks (mil. cwt.) 3.4 146.2 44.1 16.5 3.8 182.7 48.2 48.9 3.3 154.2 47.4 68.2 14.5 11.1 0.8 2.7 14.3 15.6 1.1 6.6 11.3 12.0 1.2 8.7 Crop Production4 COTTON (August 1 - July 31) Acres planted (mil. acres) Production (mil. bales) Yield (net bales per acre) Ending stocks (mil. bales) 1The consumer price index and its components are seasonally adjusted. All other data are not seasonally adjusted. 2 Percent change from December 1982, based on the most recent month available. 3 Data for receipts are seasonally adjusted. 4 Annual data for crops are based on each crop’s marketing year. SOURCE: Crop Production, Statistical Reporting Service, Crop Reporting Board, USDA.
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