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Agriculture
AN EIGHTH DISTRICT PERSPECTIVE
WINTER 1988

1988 Agricultural Outlook Is Positive
The recent agricultural outlook conference sponsored by
the U.S. Department of Agriculture provided a generally
optimistic forecast for U.S. farmers and focused on issues
of international agricultural trade. Sources of the optimistic
outlook include increased farm exports, continued high levels
of farm income, stabilizing farmland values, increasing crop
prices and falling crop surpluses.
A common theme expressed at the conference was the
positive influence of the 1985 Farm Bill. The bill led to
increased agricultural exports and fostered a new willingness
among other countries to discuss and negotiate agricultural
price support programs. The 1985 Farm Bill had its greatest
impact on price support loan rates which provide a price
floor for major crops. If a farmer cannot obtain this floor
price on the market, the government will pay the farmer
the equivalent of the loan rate price and store the crop. It
is considered a loan because if prices later go above the loan
rate, a farmer can repay the loan and sell the crop on the
market. Under previous farm bills, crop loan rates rose to
levels which allowed competing exporters to undersell the
U.S. and thus gain new markets at the expense of the U.S.

Exports Improve
The 1985 Farm Bill lowered rates sharply yet continued
to financially support farmers through direct payments. By
doing this, the U.S. shifted from providing a price support
to competing exporters to providing a subsidy to domestic
and foreign consumers. As a result, U.S. competitiveness
in farm export markets was enhanced. In 1987, the volume
of farm exports rose 18 percent and the value
of those exports rose by 7 percent. In 1988,
export volume is forecast to rise by 6 percent
and the value of exports to rise by 13 percent.
In addition to the positive influence of the
lower loan rates, farm exports have increased
due to the export enhancement program
which subsidizes export sales. As exports
increase, the U.S. share of world feed grain



exports will rise, going from only 44 percent in the 1985/86
crop year to an estimated 60 to 65 percent in the 1987/88
crop year.
The lower loan rates of the 1985 Farm Bill resulted in lower
global commodity prices. The lower prices have, in turn,
resulted in a series of predictable responses. The quantities
of agricultural products demanded have increased.
Agricultural production has fallen, consumption has
increased and surplus stocks have been drawn down. The
lower prices have placed increased attention on reducing
production costs which should benefit producers with
comparative advantages.
Another effect of the lower price levels has been to put
pressure on other exporting countries. The lower prices have
made it more costly for other countries to continue
subsidizing farm production and exports. As a result, major
producer countries have agreed to focus on agricultural
subsidy programs in the current Uruguay round of the
General Agreement on Tariffs and Trade (GATT)
negotiations.
In July of 1987, the U.S. proposed that virtually all
agricultural subsidies and import barriers be phased out over
a 10-year period. Since then, the European Community and
other country groups have submitted independent proposals
on agricultural trade policy. The GATT secretariat will now
attempt to tie together these and any other proposals to focus
the subsequent debate. While the duration of this round of
the GATT is not fixed, a mid-term review is scheduled for
the end of 1988. The effects of any agreements, however,
can be expected to be felt only over a period of many years.

Farm Finances
Thanks to the turnaround in farm exports,
the generous income support features of the
farm programs and the abundant harvests of
the past two years, the farm financial picture
is considerably brighter than it has been in
many years. Net farm income in 1987 rose
to a record high of $45 billion (current

WINTER 1988

FEDERAL RESERVE BANK OF ST. LOUIS

dollars) and is projected to fall only slightly to the $40 to
$45 billion range in 1988. Farm production expenses fell
by 4 percent in 1987 but are forecast to rise by as much as
2 percent in 1988 due to higher fuel and feed costs.
In response to the income strength, farmland values have
stabilized and are expected to increase in some cases. The
balance sheet of the farm sector will improve as farm asset
values stabilize and as farm debt is projected to fall in 1988
for the fourth consecutive year. During the four-year period
from 1985 to 1988, the farm sector is projected to have
reduced its total debt by $60 billion or more than 30 percent.
This reduction has occurred through the actions of
individuals as well as through debt restructuring and debt
write-offs on the part of farm lenders. The lower debt levels
and the resultant savings in interest expense have been critical
in the farm income gains.
An important part of the Farm Bill was the provision to
maintain high levels of direct income supports to farms while
the loan rates were reduced. This led to greatly increased
dependence on direct government payments. In 1987,
government payments of $18 billion accounted for 40 percent
of net farm income. This percentage is expected to increase
in 1988 because net farm income will be slightly lower and
payments are unchanged. While U.S. agriculture is becoming
more competitive in world trade, it remains extremely
dependent on government subsidization.

District Livestock Outlook
In 1987, livestock producers benefited from relatively high
prices and relatively low feed costs. In 1988, however, profits
from livestock production are expected to decline as U.S.
meat production attains record levels leading to lower meat
prices. The high level of meat production will be due to
increased pork and poultry production. Beef output is
expected to decline by 4 percent in 1988 following a 4 percent
decline last year. The lower beef production is expected to
help stabilize beef prices, but the large supplies of competing
meats will limit any price gains.
Pork production increased sharply in the fall of 1987 and
is expected to increase by 11 percent in 1988. As a result,
prices are expected to decrease sharply from the very
profitable levels of the past two years. While feed costs also
have risen, the USDA anticipates that pork producers will
be able to cover cash expenses. The outlook for poultry
production is much the same as that for pork. Production

increases of 5 percent in 1988 are forecast to lead to lower
broiler prices and a squeeze on producer returns.

District Crops
Soybeans are the most valuable District crop. Due to the
recent profitability of livestock, the use of soymeal as feed
is expected to remain strong. The strong domestic usage and
export demand will continue to reduce government-held
stocks. As a result, soybean prices should remain at their
recent high levels through the first quarter of 1988. U.S.
soybean prices will be most strongly influenced by the size
of the South American harvest which begins this spring.
World corn usage is expected to reach a new record in
1988 and exports should increase by 10 to 15 percent
following a 21 percent rise in 1987. Corn prices are expected
to range from $1.60 to $1.90 per bushel, only slightly higher
than in 1987. Within this range, the supply of generic
certificates will be the most significant influence. Generic
certificates are used as an alternative to paying farmers in
cash. The certificates represent rights to be given
government-owned surplus commodities. Large surpluses
will prevent corn prices from rising much above this range.
Wheat consumption will exceed production in 1988
bringing ending stocks to their lowest level since the 1981/82
crop year. Due to the lower loan rates and to the resulting
lower levels of foreign production, U.S. exports rose by 14
percent in 1987 and are forecast to increase by 30 percent
in 1988. Prices are expected to be as much as 10 percent
above the loan rate.
Global rice production in the 1987/88 crop year declined
by 5 percent due to drought in the Asian rice-growing
regions. While U.S. rice production also fell, the price of
rice and the U.S. market share of rice exports rose. As global
production recovers in the coming year, rice prices will
decline but the U.S. export share will remain steady.
U.S. cotton production in 1987 increased beyond
expectations due to record yields. Use of cotton, however,
also exceeded expectations and led to a reduction in carryover
stocks. U.S. cotton production and usage are forecast to be
nearly equal in the coming year. The U.S. export share
should be maintained due to the marketing loan program
which keeps U.S. cotton competitive on international
markets.
—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 1988

EIGHTH DISTRICT AGRICULTURAL DATA
Percent Change
Prices and Costs1
C O N S U M E R P R IC E IN D E X (% ch a n g e )
N o nfood
Food
P R O D U C T IO N C O S T S FO R F A R M E R S (% cha n g e )
A g ric u ltu ra l m a c h in e ry and e q u ip m e n t
M ixe d F e rtilize rs
O th e r A g ric u ltu ra l c h e m ic a ls
G a so lin e

S ep t.
1987

0 .7 %
0.6

0.0

O ct.
1 987

0 .3 %
0.3

N ov.
1987

0 .2 %

0.0

A v e ra g e
fo r 1 9 8 6

0 .1 %
0 .3

Y e a r-T o -D a te
19872

S a m e M o n th
Y ear Ago

4 .8 %
2.9

5 .0 %
3.0

2.2
1.8
-4 .8

0.2
2.4
1.7
-1 .6

0.1
-0 .2
-1 .7
1.0

0.1
-0 .3
0.4
-4 .3

0.4
9.5
3.1
2 8 .6

0.2
9.8
3.0
30.5

1.6
0.7
1.9

-1 .6
-3 .3
1.0

3.2
-2 .0
12.3

-0 .5
0.3
-1 .4

8.3
2.1
20 .2

5 .7
-0 .7
15.5

F E E D E R C A T T LE
W h o le sa le p rice - K a nsas C ity ($ /cw t.)

$ 81.50

$77.00

$79.50

$ 6 2 .7 9

22 .3

24 .9

FE E D E R PIG S
W h o le s a le p rice - So. M isso u ri ($/head)

$ 47.28

$41.53

$36.56

$45.61

-2 3 .3

-2 6 .9

P R IC E S R E C E IV E D B Y F A R M E R S (% ch a n g e )
A ll p ro d u c ts
L ive sto ck
C ro p s

B R O IL E R S
W h o le s a le p rice - 12-city ($/lb.)

47.33$

43.20$

N.A.

5 6 .9 0 $

-1 3 .5

-2 9 .9

TURKEYS
W h o le s a le p ric e - N ew Y ork,
8-16 lb. yo u n g hens ($/lb.)

56.10<P

54.70$

N.A.

7 1.92$

-1 9 .8

-3 4 .2

CORN
W h o le sa le p rice - No. 2, y e llo w - St. Louis ($/bu.)

$ 1.65

$ 1.78

N.A.

$ 2.08

5.3

21.9

SOYBEANS
W holesale price - No. 1, yellow - Central Illinois ($/bu.)

$ 5.27

$ 5.32

N.A.

$ 5 .2 3

7.3

8.8

$ 2.78

$ 2.90

$ 2.90

$ 2 .9 3

8.2

8.2

N.A.

N.A.

N.A.

N .A.

N.A.

N.A.

64.90$

64.10$

65.00$

5 4 .6 7 $

18.8

22 .9

W HEAT
W h o le s a le p rice - No. 1, hard w in te r K an sa s C ity ($/bu.)
LO N G -G R A IN RICE
W h o le s a le p rice - A rka n sa s ($/cw t.)
CO TTO N
A v e ra g e p rice re ce ive d by U .S. fa rm e rs ($/lb.)

Percent Change
U.S. Exports
C o m (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)




S e p t.
1987

O ct.
1987

Nov.
1987

A v e ra g e
fo r 1 9 8 6

136.0
5 6 .7
124.3
N.A.
319 .0

139.0
97.9
105.5
N.A.
N.A.

N.A.
N.A.
N.A.
N.A.
N.A.

8 9 .8
6 5 .3
82.1
N .A.
2 8 8 .6

Y e a r-T o -D a te
19872
2 5 .2 %
11.0
8 1 .6
N .A.
-4 4 .0

S a m e P erio d
Y ear Ago
1 1 .2 %
9.1
14.6
N .A.
-1 7 .6

3

Non-Real-Estate Farm Debt Outstanding
PCAs3

Banks
O u ts ta n d in g

P ercen t C hange

O u ts ta n d in g

P e rc e n t C hange

($ m illio n s)

9 /8 6 - 9 /8 7

9 /8 5 - 9 /8 7

($ m illions)

9 /8 6 - 9 /8 7

$ 3 0 ,6 8 5
2,3 7 9
5 27
425
1,040
295

-9 .1 %
-1 4 .4
-1 .9
-3 2 .5
-1 0 .9
-1 4 .2

-2 1 .6 %
-2 2 .6
-5 .5
-3 5 .0
-2 4 .7
-2 1 .8

$10 ,5 1 8
NA
185
181
119
212

-1 6 .0 %
NA
-2 3 .0
-2 2 .8
-4 9 .8
-1 1 .6

U n ite d S ta te s
E ig h th D is tric t1
4
3
2
A rk a n s a s
K e n tu c k y
M isso u ri
Tennessee

9 /8 5 - 9 /8 7
- 3 7 .3 %
NA
-4 7 .9
-4 4 .6
-6 5 .6
-3 2 .5

A g ric u ltu ra l B a n k L o a n P e rfo rm a n c e 5

9 /8 7
U n ite d S ta te s
E ig h th D is tric t4
A rk a n s a s
K e n tu c k y
M isso u ri
Tennessee

2 .2 %
2.5
1.1
4.1
2.3
1.7

P e rc e n t o f Farm Loans

P e rc e n t of N et

O verd u e at

Loan L osses at

A gric u ltu ra l Banks

A g ric u ltu ra l B anks

9/86

9/85
3 .1 %
3.5
1.9
3.9
4.3

3 .1 %
3.2
1.2
4.4
3.0
1.6

3.1

9/87

9/86

.8 5 %
.69
.38
.44
.85
.82

1 .4 9 %
.89
.59
.63
1.42
1.23

Agricultural Production Loan Interest Rate6
PCAs

Banks
11/87
E ig h th D is tric t A v e ra g e

10.6%

11/86
10.0%

9/87
11.1%

9/86
11.1%

1 The consumer price index components are seasonally adjusted. All other data are not seasonally adjusted.
2 Percent change from December of previous year, based on the most recent month available.
3 Source: Farm Credit Banks of Louisville and St. Louis, Farm Credit Administration.
4 Includes all of AR and parts of IL, IN, KY, MO, MS and TN.
5 Agricultural banks are defined as those with more than 25 percent of total loans in agricultural loans.
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.




9/85
1 .2 7 %
.96
.72
.52
1.82
.75


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102