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Agriculture AN EIGHTH DISTRICT PERSPECTIVE WINTER 1985 Increased Production and Lower Net Income Loom Ahead for Agriculture Large world supplies of all major commodities and con tinued moderate demand growth point to a small decrease in 1985 for the average price of all U.S. farm products. Although receipts from product marketings likely will rise because of increased sales volume, larger increases in pro duction expenses suggest a decline in U.S. net farm income. In this issue of Perspective, we review these projections and specific commodity forecasts for the coming year as presented recently at the U.S. Department of Agriculture’s 61st Annual Outlook Conference. Farm Income The index of prices received for all farm products is ex pected to decline 0 to 4 percent in 1985 as small increases in red meat prices are offset by larger average declines in crop prices. Based on expectations of slightly higher crop and livestock marketings and these price trends, cash receipts for all farm products should range between $142-47 billion, an increase of between 1 and 5 percent over 1984 values. Smaller government payments and higher produc tion expenses, however, are likely to put nominal net farm income between $19 and $24 billion, near 1982 levels. Moreover, as the data in chart 1 indicate, this income level translates to real farm income between $8 and $10 billion, about one-half of 1981 ’s real income. Red Meat In light of these factors, hog prices should range between $48-52 per cwt. in the first quarter of 1985 and increase to between $51-55 per cwt. in the third quarter before re turning to the $48-52 range in the fourth quarter. Fed steer prices are expected to peak near $70 per cwt. in the second quarter before declining seasonally in the second half of the year to $65-69 per cwt. These increases imply 2 to 4 percent increases in the retail prices of beef and pork, most of which will occur in the third and fourth quarter. Soybeans With planted acreage of 68.5 million acres and trend yields near 31 bushels per acre, the 1985 soybean crop would be near 2.1 billion bushes. Although past years have seen planted acreage affected by provisions of the com pro gram and crop shifting between corn and soybeans, the ex tent of this shifting is expected to be minor this year. In fact, recent years have shown the size of the soybean crop to be much more sensitive to yields than to planted acreage. At this time, however, without any good indication of weather patterns and yields, a crop slightly below 2.1 billion bushels is expected. A harvest of this size would put soy bean meal prices near a $155/ton (about $6.50/bu.) average for the 1984-85 season. Coarse Grains U.S. coarse grain (com, sorghum, barley and oats) pro duction is expected to be 789.3 million tons in the 1984-85 Cattle and hog producers are expected to benefit in 1985 crop year, about 100 million tons more than the 1983-84 from lower feed costs and higher meat prices resulting from level associated with PIK and the drought. Prices, how 1984’s herd liquidations and the smaller supplies they ever, will be affected by a variety of offset imply for this year. Both beef and pork pro ting factors. Increased livestock feeding and duction should average 3 percent less than export demand, on one hand, will contribute 1984. The effects of these declines on prices to nigher prices, but an expected 14 percent THE will be moderated, however, by the contin FEDERAL increase in world production and more uing downward trend in per capitated meat RESERA E substitution of less expensive wheat in RANK o f consumption; in 1985, consumption is ex livestock feeding will offset some of these ST. LOLLS pected to fall another five pounds (3.5 per price gains. In view of all conflicting sup cent) to an average of 138 pounds per capita. ply and demand shifts, com prices should WINTER 1985 FEDERAL RESERVE BANK OF ST. LOUIS Real N et Farm Income 197C 71 72 73 74 75 76 77 78 79 80 81 82 83 84 1985 NOTE: D a s he d line re p re s e n ts p ro je c t e d re a l net farm income. range between $2.65-2.95 per bushel, down from the $3.20 average price for the 1983-84 crop year. Wheat The expectation for another large (2.6 billion bushel) crop in 1985 and no significant increase in export demand points to wheat prices only slightly above the $3.30/bu. loan rate. Consistent with these supply-demand projections is a defi ciency payment at the $1.08 per bushel maximum provid ed by current law. ADDITION OF AGRICULTURAL FINANCE DATA This issue introduces a new set of Eighth District agricultural finance data to replace the annual crop produc tion data formerly on page 4. The change reflects the im portance of both debt usage by farmers and the volume of farm loans made by District lenders. The non-real estate farm debt and farm interest rate sec tions provide detail on the two most important sources of operating loans for farmers: commercial banks and Pro duction Credit Associations (PCAs) of the Farm Credit System. PCA interest rates are not adjusted for stock pur chase requirements which can cause the effective rates to be from .5 to 1.5 percentage points higher depending on the provisions of individual PCAs. Interest rate data are not available for the same date.The section on agricultural loan performance tracks the record of farm borrowers at commercial banks. The first of two performance indicators measures the proportion of farm loans that are overdue a minimum of 30 days. These are loans that have not yet been “ written o f f ’ by banks, but this information provides a rough indication of expected future losses. The remaining new section compares the actual “ write offs” of loans by agricultural banks over the last two years. —Michael T. Belongia and Kenneth C. Carraro Agriculture—An Eighth District Perspective is a quarterly summary of agricultural conditions in the area served by the Federal Reserve Bank of St. Louis. Single subscriptions are available 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 System. FEDERAL RESERVE BANK OF ST. LOUIS WINTER 1985 EIGHTH DISTRICT AGRICULTURAL DATA Percent Change Prices and Costs1 C O N S U M E R P R IC E IN D EX (% chan g e ) N onfood Food P R O D U C T IO N C O S T S FOR F A R M E R S (% ch a n g e ) A ll in p u ts F e rtilize r A g ric u ltu ra l ch e m ica ls F uels and e n e rg y S e p t. O c t. N ov. A v e ra g e 1984 1984 1984 fo r 1 9 8 3 0.4% -0 .3 -0 .6 0.0 0 .4 % 0.4 0 .2 % 0.1 0.0 0.0 0.0 0 .3 % 0.2 0.5 -0 .6 -4 .1 0.0 0.5 -0 .5 0.3 -0 .2 0.3 -0 .3 -2 .8 -1 .4 -5 .6 -0 .7 -1 .4 1.5 -0 .7 2.9 -5 .8 F EE D ER C A T T LE W h o le sa le p rice - K ansas C ity ($/cw t.) $63.98 $65.06 FE E D E R PIG S W h o le sa le p rice - So. M isso u ri ($/head) $34.95 $33.23 P R IC E S R E C E IV E D BY F A R M E R S (% chan g e ) A ll p ro d u cts L ive sto ck C rops 0.0 Y e a r -T o -D a te 19 8 4 2 3 .8 % 3.4 S a m e P e rio d Y ear Ago 4 .1 % 3.9 -1 .3 3.7 2.4 -0 .6 5.2 2.4 -0 .5 -1 .5 0.8 0.3 1.6 -2 .1 -4 .4 1.5 5.1 -3 .0 $ 65.42 $63.71 2.8 7.2 $ 35.72 $ 3 3 .9 6 29.2 45.6 0.0 B R O ILE R S W h o le sa le p rice - 12-city ($/lb.) 53.54$ 48.77$ 52.14$ 5 0.39$ -8 .7 -9 .5 TURKEYS W h o le sa le p rice - N ew Y ork, 8-16 lb. yo u n g hens (C/lb.) 76.18<P 82.61$ 91.59$ 6 0.48$ 21.8 37.9 CORN W h o le sa le p rice - No. 2, ye llo w - St. Louis ($/bu.) $ 3.09 $ 2.84 $ 2.77 $ 3.2 7 -1 9 .7 -2 1 .5 SOYBEANS W holesale price - No. 1, yellow - Central Illinois ($/bu.) $ 6.21 $ 6.27 $ 6.21 $ 7.06 - 2 0 .1 -2 4 .3 $ 3,89 $ 3.86 $ 3.85 $ 3.95 0.0 0.8 $18.25 $18.25 $18.25 $ 1 8 .4 0 -3 .9 -3 .8 -0 .3 -1 .5 W HEAT W h o le sa le p rice - No. 1, h ard w in te r K ansas C ity ($/bu.) LO N G -G R A IN RICE W h o le sa le p rice - A rka n sa s ($/cw t.) C O T TO N A ve ra g e p rice re ce ive d by U .S . F a rm e rs ($/lb.) 64.60$ 64.60$ 66.00$ 62.86$ Percent Change U.S. Exports C o rn (m il. bu.) S o yb e a n s (m il. bu.) W h e a t (m il. bu.) R ice (rough e q u iv a le n t, m il. cw t.) C o tto n (thou, bales) J u ly Aug. S e p t. A v e ra g e 1984 1984 1984 fo r 1 9 8 3 130.0 39.1 138.0 4.8 387.9 136.0 30.6 148.0 5.7 478.7 109.0 18.9 245.5 8.1 279.8 157.6 69.5 125.7 5.9 4 5 9 .7 -3 8 .1 -7 4 .6 86.7 60.5 -5 7 .8 -2 4 .5 -6 4 .9 90.8 -6 .7 -1 7 .5 $5,706 1,076 $5,801 875 $5,429 1,059 $5,851 1,277 -0 .2 1.6 -7 .4 -1 9 .5 5,588 889 5,766 877 5,499 870 5,771 934 -8 .3 -1 2 .8 -1 .2 -2 .0 Y e a r-T o -D a te 19842 S a m e P e rio d Y ear Ago Receipts3 C R O P S (m illio n s o f d o lla rs) U n ite d S tates D is tric t (seve n -sta te total) L IV E S T O C K (m illio n s of d o lla rs) U n ite d S ta te s D is tric t (seve n -sta te total) 3 Non Real Estate Farm Debt Outstanding (millions of dollars) 9/84 u .s . E ig h th D is tric t5 A rk a n s a s K e n tu c k y M isso u ri T e n n e sse e 41,625 3,212 628 740 1,545 398 Banks Percent Change From 9/83 9/82 6.4% 10.5 21.0 10.9 1.4 0.8 1 2 .4 % 18.1 23.4 12.6 9.3 4.5 PCAs4 Percent Change From 9/84 19,410 NA 463 403 447 368 9/83 9/82 -5 .1 % NA 7.7 -1 3 .3 -4 .3 -1 4 .0 -1 3 .7 % NA - 1 4 .1 -3 4 .6 -1 6 .1 -3 1 .5 Agricultural Production Loan Interest Rate6 Banks E ig h th D is tric t A verage PCAs 11/7/84 11/7/83 10/1/84 10/1/83 13.3% 1 2 .9 % 1 3 .0 % 1 1 .9 % Agricultural Bank Loan Performance7 Percent of Overdue Farm Loans at Agricultural Banks U .S. E ig h th D is tric t5 A rk a n s a s K e n tu c k y M isso u ri Tennessee Percent of Net Loan Charge-Offs at Agricultural Banks 9/84 9/83 9/84 9/83 2 .6 % 3.0 1.3 3.1 3.9 2.7 2 .3 % 2.4 2.2 2.3 2.7 3.3 .6 8 % .56 .33 .48 .91 .90 .4 6 % .39 .28 .56 .53 .76 1 The consumer price index and its components are seasonally adjusted. All other data are not seasonally adjusted. 2 Percent change from December 1983, based on the most recent month available. 3 Data for receipts are seasonally adjusted by this Bank. 4 Source: Farm Credit Banks of Louisville and St. Louis. 5 Includes all of AR and parts of IL, IN, KY, MO, MS and TN. 6 Interest rate data are for different dates. PCA rates are weighted averages for Arkansas and Missouri, not adjusted for stock purchase requirements. Source: Farm Credit Banks of St. Louis. 7 Agricultural banks are defined as those with more than 25 percent of total loans in agricultural loans.
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