Full text of Review (Federal Reserve Bank of St. Louis) : February 1976

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FEDERAL RESERVE BANK
O F ST. L O U IS
FEBRUARY 1976

Vol. 58, No. 2

Operations of the Federal Reserve
Bank of St. Louis —1975
JEAN M. LOVATI

T-I- HE operations of the Federal Reserve System are
conducted through the Board of Governors and a net
work of 12 Federal Reserve Banks located in districts
across the country. The Federal Reserve System pro
vides a variety of services for member commercial
banks, the United States Government, and the public.
Federal Reserve Banks clear and collect checks, trans
fer funds, distribute coin and currency, and extend
credit to member banks. They supervise and regulate
member banks and bank holding companies. As
bankers for the Federal Government, Federal Re
serve Banks carry the principal checking accounts of
the United States Treasury and market Treasury
securities.
The Federal Reserve Bank of St. Louis serves the
Eighth Federal Reserve Distriot, which includes all
of Arkansas and parts of Illinois, Indiana, Kentucky,
Mississippi, Missouri, and Tennessee. Branch offices
of the St. Louis Federal Reserve Bank are located in
Little Rock, Louisville, and Memphis. This article re
views the functions and operations of the St. Louis
Federal Reserve Bank and its branches during 1975.

Bank Supervision and Regulation
The Federal Reserve Bank of St. Louis, along with
the state banking authorities, has responsibility for
the supervision of the 84 state chartered banks in the
Eighth Federal Reserve District which have elected
to become members of the Federal Reserve System.
Bank supervision is concerned essentially with the
safety and soundness of individual banks. To ensure
solvent and effective banking institutions and ad
herence to bank laws and regulations, each Federal
Reserve Bank conducts field examinations of member
banks within its district. These examinations involve
an evaluation of the banks’ assets and liabilities as
well as their capital and liquidity positions and an
appraisal of the capabilities of their managements.

Page 2

Although they have authority to examine all mem
ber banks, Federal Reserve Banks generally do not
examine national banks, which are required to be
members of the Federal Reserve System. Primary re
sponsibility for examination and supervision of na
tional banks, which number 344 in the Eighth District,
lies with the office of the Comptroller of the Cur
rency. The Federal Deposit Insurance Corporation
(F D IC ), along with respective state banking authori
ties, examines state nonmember banks that are in
sured by the FDIC. Noninsured banks are examined
only by state authorities.
Federal Reserve Banks also supervise bank holding
companies. At the end of 1975, the Federal Reserve
Bank of St. Louis had jurisdiction over 19 multibank
and 71 one-bank holding companies. Prior approval
must be obtained from the Federal Reserve System
for bank holding company formations and for acquisi
tions of additional banks and permissible nonbank
subsidiaries. Applications for holding company forma
tions and for acquisitions of additional subsidiaries are
analyzed by the Bank Supervision and Regulation
Department along with the Legal and Research D e
partments. In the analyses, these departments con
sider the history, financial condition, and prospects of
the institutions, and evaluate the quality of manage
ment. They also assess the legal aspects of the pro
posal and its likely effects on banking and nonbank
ing competition. During 1975, the Federal Reserve
Bank of St. Louis processed 19 applications to form
one-bank or multibank holding companies and 20
applications by holding companies to acquire addi
tional subsidiaries, engage de novo in nonbank activi
ties, or establish new locations.
Upon formation, bank holding companies are re
quired to register and thereafter to file annual reports
with Federal Reserve Banks. These annual reports are
analyzed by the staff of the Bank Supervision and

F E D E R A L R E S E R V E B A N K O F ST. L O U IS

FEBRUARY

1976

T a b le I

VOLUME O F OPERATIONS1
N um ber
(th o u s a n d s )
1975
C h ecks h a n d le d 2

.....................................................................

T ra n sfe rs of f u n d s .....................................................................

D o lla r A m ount
(m illio n s )

1974

Change

1975

1974

6 2 8 ,0 7 9

6 1 4 ,1 0 4

$ 2 2 5 ,0 6 1 .2

$ 2 1 0 ,4 1 3 .3

816

614

3 2 .9

7 4 8 ,3 9 5 .6

6 9 1 ,2 0 2 .7

8 .3
— 4.1

2 .3 %

Co in received an d c o u n t e d ...........................................

1 ,1 6 0 ,4 8 5

1 ,2 9 2 ,6 6 9

- 1 0 .2

1 2 2 .5

1 2 7 .8

C u rren cy counted o r w e ig h e d 3

7 .0 %

3 0 9 ,6 1 0

2 9 1 ,8 4 1

6.1

2 ,6 4 8 .1

2 ,4 3 4 .1

8 .8

U .S . S a v in g s Bonds a n d S a v in g s N otes4

1 1 ,6 5 9

1 1 ,4 2 2

2.1

6 7 4 .2

6 6 8 .2

0 .9

O th e r

4 2 .4

G o ve rn m e n t

..................................

Change

S e c u ritie s 4 ..................................

576

674

- 1 4 .5

4 0 ,3 3 7 .7

2 8 ,3 2 6 .2

U .S . G o ve rn m e n t co upo ns p a i d ...................................

681

646

5 .4

2 6 7 .7

2 5 7 .9

3 .8

Food S tam p s rece ive d an d counted .

1 6 3 ,7 3 3

1 8 0 ,3 6 5

5 6 7 .4

4 2 7 .7

3 2 .7

- 9 .2

1Total fo r the St. Louis, Little R ock, Louisville, and Memphis offices.
2Excludes U.S. Governm ent checks and postal m oney orders.
3B eginn in g in 1974, som e currency has been verified by w eighing w ithout counting.
4Issued, serviced, or redeemed.

Regulation Department to verify accuracy and com
pleteness, to ascertain the financial condition of the
holding company and its subsidiaries, and to deter
mine compliance with applicable laws and regula
tions. Examination reports submitted to the primary
Federal supervisory agency of the respective bank
subsidiaries are also analyzed by the Federal Reserve
Bank to determine the overall condition of such sub
sidiaries. In addition, the Bank conducts discretionary
on-site inspections of bank holding companies and
their nonbank subsidiaries. The purpose of these in
spections is similar to that of examinations of member
banks.

Check Collection
Checks drawn on commercial banks can be cleared
through facilities maintained by the Federal Reserve
System. Settlement for the checks collected is made
by entries to member banks’ reserve accounts at Fed
eral Reserve Banks. To increase the speed of the pay
ments process, the Federal Reserve System has in
stituted a network of Regional Check Processing
Centers (R C PC s). Through this network checks are
processed overnight, thereby achieving prompt
credit and payment for the items. Each of the four
Eighth District Federal Reserve offices serves an
RCPC area.

member banks. Similarly, payment for checks drawn
on nonmember banks is effected on the same day the
checks are presented for payment by an authorized
reduction in the reserve accounts of correspondent
member banks. Most of the dollar volume of checks
cleared in the Eighth District is accomplished through
this overnight system.
The number and dollar amount of checks handled
by the Eighth District Federal Reserve offices in
creased slightly in 1975 (Table I). During the year,
628 million checks with a value of $225 billion were
cleared through the four offices, an increase of 2.3
and 7 percent, respectively, over the volumes han
dled in 1974. The dollar amount of checks cleared has
increased steadily since 1970 at an annual rate of 10.2
percent. The quantity of checks, on the other hand,

Banks deposit checks at RCPCs according to speci
fic time schedules. Personnel at the RCPCs process
the checks overnight, deliver them to the paying
banks, and obtain payment by an automatic charge
to the reserve accounts of Federal Reserve member
banks. Checks drawn on member banks are paid on
the day of presentment by charges to their reserve
accounts or to the reserve accounts of correspondent

Page 3

F E D E R A L R E S E R V E B A N K O F ST. L O U IS

increased at a 6.9 percent annual rate between 1971
and 1975. This represents a deceleration in the growth
of the quantity of checks cleared from an 11.2 per
cent rate in the previous eight years.

Electronic Transfer of Funds
The Federal Reserve Banks make available to
member banks a computer-based communication sys
tem which can be used to transfer funds from one
part of the country to another. Through the Federal
Reserve Communications System, member banks may
transfer funds to other member banks for their own
accounts or for their customers. These electronic trans
fers of funds are made through debits or credits to
member banks’ reserve accounts. No charge is made
for transfers of $1,000 or more. The System’s com
munication facilities are often used by member banks
to transfer marketable Government securities or to
lend their excess reserves to other banks for temporary
reserve adjustments.1 Nonmember banks have ac
cess to funds transfer services through correspondent
banks which are members of the Federal Reserve
System.
The size of the communication network in the
Eighth District has continued to increase. At the be
ginning of 1975, three commercial banks in St. Louis
and two in Memphis, plus the Louisville, Memphis
and St. Louis Federal Reserve offices were already
equipped with on-line terminals. During the year, on
line terminals were installed at the Little Rock branch
plus an additional 14 commercial banks in the Eighth
District. Of these commercial banks, five are located
in the Little Rock zone, four in the Louisville zone,
four in the St. Louis zone, and one in the Memphis
zone. Thus, all four Federal Reserve offices and a
total of 19 commercial banks in the Eighth District
are currently on-line.
The terminals are linked directly to the computer
at the St. Louis Federal Reserve Bank which serves
as the communication and switching center for the
entire Eighth District. Through the terminals, the
on-line commercial banks are able to initiate funds
transfers directly from their offices instead of tele
phoning or teletyping the information to the St. Louis
Reserve Bank for transmission. The transfers are then
switched automatically by computer from the Fed
eral Reserve Bank of St. Louis through a central
switching unit to the Federal Reserve office of the
]The market which brings banks together for the borrowing
and lending o f excess reserves is called the Federal funds
market.

Page 4

FEBRUARY

1976

receiving commercial banks with no direct involve
ment by Federal Reserve personnel. If the receiving
bank is also on-line, the transfer is again automatically
switched by computer to that bank through its Fed
eral Reserve office without being handled by the
personnel at that office.
In processing a transfer of funds, the computer re
cords the accounting data and other information
needed to complete the transaction. This information
is then used to update member banks’ reserve ac
counts. Banks with on-line terminals receive an imme
diate record of each transaction.
Since the installation of on-line terminals at the 19
district commercial banks, an average of 2,857 trans
actions per day sent and received are no longer han
dled by Eighth District Federal Reserve personnel,
reducing the number of transfers handled by District
personnel by 78 percent. Automated switching
through these terminals has reduced the time for
completion of a typical funds transaction from nearly
an hour to only a few minutes.
The number and value of transfers facilitated by
the four Eighth District offices continues to increase
swiftly. This year, 816,000 transfers of funds, with a
value of $748 billion, were made by the St. Louis
Federal Reserve Bank and its branches. This is a 33
percent increase in the number and an 8 percent
increase in the value of 1974 transfers. Since 1973,
the number of transfers has increased at an annual
rate of 28.5 percent and the dollar value has risen
at a 23.4 percent rate. While the quantity of transfers
handled by the four Eighth District offices is still far
below the quantity of checks cleared, the dollar value

F E D E R A L R E S E R V E B A N K O F ST. LO U IS

FEBRUARY

of funds transferred has surpassed the value of checks
handled. Since 1968, the dollar volume of funds trans
ferred has grown at a 23.7 percent annual rate.
In August 1975, the Federal Reserve Bank of St.
Louis implemented the payment of Air Force payroll
by electronic means. Payment data on magnetic tape
are received twice a month and sorted at the Reserve
Bank, which then forwards the data to receiving
banks by magnetic tape or paper listings. Settlement
is made through credits to the reserve accounts of
member banks. Payments made in December, 1975,
for example, totalled 21,458 and were transferred to
987 banks. Three of these banks, whose 9,098 items
represented 42.4 percent of total payments in Decem
ber, receive their Air Force payment data on mag
netic tape.

1976

Number of Coins Received and Counted
Ratio Scale
M illions

Ratio Scalo
M illi«as

1,300
1,200
1,100
1,000

900

800

700

600

500

400

300

200
19 63

i
1965

1967

i
1969

l
1971

i
1973

200
19 75

Coin and Currency
Virtually all coin and paper currency move into
and out of circulation through Federal Reserve Banks.
Coin and paper currency play an important role in
settling relatively small financial transactions, and cur
rently account for approximately 25 percent of the
nation’s money stock.
There are seasonal fluctuations in circulating cur
rency which reflect, in part, changes in retail trade,
travel, and variations in agricultural production. Cur
rency demand rises, for example, during the intensi
fied shopping period before Christmas and just before
certain holidays such as Easter and the Fourth of
July. To meet the public’s demand for cash, member
banks hold stocks of coin and currency which are
Pieces of Currency Counted or W eighed*
R atio Scale
M illio n s

R a tio Seal*
M illio a s

310

300

290

280

270

260

250

240

230

220

210

200

190

190
1

1963

1965

1967

1969

1971

1973

1975

'B e g in n in g in 1 9 7 4 , so m e c u r r e n c y h a s b e e n v e r ifie d b y w e ig h in g w ith o u t c o u n tin g .

maintained through orders from Federal Reserve
Banks. These orders are charged by the Federal Re
serve Banks to the member banks’ reserve accounts.
When the stocks of currency on hand exceed desired
levels, member banks forward the excess to their
Federal Reserve Banks for credit to their reserve
accounts. Member banks generally service the de
mand for currency of nonmember banks.
During 1975, about 310 million pieces of currency
with a value of $2.6 billion were received and counted
or weighed by the four Eighth District offices. This
represents increases of 6.1 percent in number and
8.8 percent in dollar volume from 1974. Both the
number and value of coins received and counted are
down from the 1974 levels. Pieces of coin received
and counted totalled 1.2 b illio n in 1975, amounting to
$122.5 million, decreases of 10.2 and 4.1 percent, re
spectively, from 1974. Despite these declines, com
bined sorting, counting, and wrapping of coin and
currency at all four offices averaged over 6.7 million
pieces per working day in 1975.
Paper currency is sorted at the Reserve Banks and
that which is no longer usable is removed from circu
lation and destroyed. During 1975, the Federal Re
serve Bank of St. Louis and its branches verified and
destroyed currency totalling $865 million.

Lending
The Federal Reserve Bank provides three types of
credit to member banks: short-term adjustment, sea
sonal, and emergency credit. Short-term adjustment
credit is extended as banks seek funds to make tem
porary adjustments in their reserve positions due to
Page 5

As of February 1, 1976

DIRECTORS
St. Louis
Chairman of the Board and Federal Reserve Agent
J. S c h n u c k , Chairman of the Board,
Schnuck Markets, Inc.. Bridgeton. Missouri

Edw ard

R a y m o n d C. B u r r o u g h s , President, The City National
C. B a i n , Senior Vice President and General Man
Bank of Murphysboro, Murphysboro, Illinois
ager, Arkla Industries Inc., Evansville, Indiana
T o m K. S m i t h , J r ., Group Vice President, Monsanto
D o n a l d N. B r a n d i n , Chairman of the Board and Pres
Company, St. Louis, Missouri
ident, The Boatmen’s National Bank of St. Louis,
St. Louis, Missouri
W m . E. W e i g e l , Executive Vice President and Chief
F r e d I. B r o w n , J r ., President, Arkansas Foundry Com
Executive Officer, First National Bank and Trust
Company, Centralia, Illinois
pany, Little Rock, Arkansas
H a r r y M. Y o u n g , J r ., Farmer,
Herndon, Kentucky

R alph

Little Rock Branch
Chairman of the Board
R onald

Executive Vice President and General Manager,
Producers Rice Mill, Inc., Stuttgart, Arkansas
Ba il e y ,

E. H a y s , J r ., President and Chief Executive
Officer, The First National Bank of Hope, Hope,
Arkansas
G. L a r r y K e l l e y , President, Pickens-Bond Construction
Co., Little Rock, Arkansas
H e r b e r t H . M c A d a m s , II, Chairman of the Board, Pres
ident and Chief Executive Officer, Union National
Bank of Little Rock, Little Rock. Arkansas

T hom as

R. R e m m e l , Chairman of the Board, Southland
Building Products Co., Little Rock, Arkansas

R oland

T. G. V i n s o n , Executive Vice President, The Citizens
Bank, Batesville. Arkansas
W a s s o n , President, First National Bank, Siloam
Springs, Arkansas

F ie l d

Louisville Branch
Chairman of the Board
H. S t r o u b e , Associate Dean, College of Science and Technology,
Western Kentucky University, Bowling Green, Kentucky
H a r o l d E. J a c k s o n , President, The Scott County State
J a m e s H. D a v i s , Chairman and Chief Executive Officer.
Porter Paint Co., Louisville, Kentucky
Bank, Scottsburg, Indiana
J. D a v i d G r i s s o m , President and Chief Operating Officer,
F r e d B. O n e y , President, The First National Bank of
Citizens Fidelity Corporation, Louisville, Kentucky
Carrollton, Carrollton, Kentucky
W il l ia m

C. H e n d e r s h o t , President, Reliance Universal,
Inc., Louisville. Kentucky

Ja m e s

T om

G. V o s s , President, The Seymour National Bank,
Seymour, Indiana

Memphis Branch
Chairman of the Board
R o b e r t E. H e a l y , Partner-In-Charge,
Price Waterhouse & Co., Memphis, Tennessee

M. C a m p b e l l , Chairman of the Board and Chief
Executive Officer, First National Bank of Eastern
Arkansas, Forrest City, Arkansas
L. H o l l e y , Associate Professor of Business
Education and Office Administration, University of
Mississippi, University, Mississippi

Jeanne

A. J o n e s , J r ., President, Cook Industries, Inc.,
Memphis, Tennessee

Fr a n k

Page 6

L i p f o r d , President, First-Citizens National
Bank of Dyersburg, Dyersburg, Tennessee

S t a l l in g s

W o o t e n M i t c h e l l , Chairman, The First Na
tional Bank of Memphis, Memphis, Tennessee

W il l ia m

President and Chief Executive
Officer, First Columbus National Bank, Columbus,
Mississippi

C h a r le s S. Y o u n g b lo o d ,

Member, Federal Advisory Council
S. J o n e s , Chairman of the Board,
First National Bank in St. Louis
St. Louis, Missouri

E d w in

OFFICERS
St. Louis
D arryl

Eugene

F r a n c is ,

L eonard.

First Vice President

Senior Vice President
T c ■ T,.
„
.
D o n a l d Vv . M o r i a r t y , J r .. Senior Vice President
& Controller

A natol

Senior Vice President,
General Counsel, and Secretary of the Board

B. Ba lb a c h ,

President

F . G a r l a n d R u s s e l l , J r .,

H arold
L e o n a ll C. A ndersen ,

E. U t h o f f ,

Vice President

E d g a r H . C r is t ,

Vice President

W o o d r o w W . G il m o r e ,

J o h n F . O t t in g ,

Vice President

B e r n h a r d t J. S a r t o r iu s ,

D e l m e r D.

W e is z ,

Assistant Vice President

W . M ik e L in d h o r s t ,

Assistant Vice President

C l if t o n B . L u t t r e l l ,

Assistant Vice President

A rth ur

K e it h

Carol

Burger,

Carlso n ,

Claypool,

Assistant Vice President

A lexander

Jo h n W . D r u e l in g e r ,

J. M . G e i g e r ,

Assistant Vice President

Orr,

Assistant Vice President
S c h m e d in g ,

K a r l E . V iv ia n ,

Assistant Vice President
C harles

Assistant Vice President

Assistant Vice President
Assistant Vice President

Assistant Vice President

A lan C. W h e e le r ,

D. Z ettler,

Assistant Vice President

R obert W . T hom as,

Assistant Vice President

Assistant General Auditor

Assistant Vice President

Edw ard R. S c h o t t ,

Assistant Vice President

D e n is S . K a r n o s k y ,

Orf,

g ALZ

Leslie F'

Assistant Vice President

R ic h a r d 0 . K a l e y ,

pA(JL

O ertel,

E ugene

C r o n i n Assistant Counsel & Assistant Secretary
of the Board

R . Q u in n F o x ,

Assistant Vice President

Joan P

General Auditor

Vice President

E d w a r d J. B u r d a ,
A lbert

Vice President

Ja m e s R . K e n n e d y ,

Vice President

N orm an N. Bow sh er,

Senior Vice President

Economic Adviser

R u th A . Bryan t,

J o s e p h P . G a r b a r in i.

C h a r l e s E . S il v a ,

Assistant Vice President

Little Rock Branch
Joh n F. Breen,
M ic h a e l T . M o r ia r t y ,
T hom as R. Callaw ay,

Vice President and Manager

Assistant Vice President and Assistant Manager

Assistant Vice President

D a v id T . R e n n ie ,

Assistant Vice President

Louisville Branch
D onald L. H en ry,
Ja m e s
R obert

H arlow ,

C onrad,

Senior Vice President and Manager

Assistant Vice President and Assistant Manager

Assistant Vice President

G eorge

R e i t e r , J r .,

Assistant Vice President

Memphis Branch
L. T e r r y B r i t t , Vice President and Manager
Paul

B la c k ,

Jr ., Assistant Vice President and Assistant Manager

A. C . C r e m e r i u s , Jr ., Assistant Vice President

C h a r lie

L. E p p e r s o n , Jr ., Assistant Vice President
Page 7

F E D E R A L R E S E R V E B A N K O F ST. L O U IS

FEBRUARY

unexpected or unusual increases in loan demand,
deposit losses, or other portfolio changes encountered
by the individual banks. Seasonal credit is extended
to those eligible member banks, usually small in size,
which have highly seasonal loan demands. Such de
mands arise from a recurring pattern of movement
in deposits and loans. Banks must arrange for this
type of credit in advance. During 1975, five banks in
the Eighth District made use of this seasonal borrow
ing privilege. Federal Reserve credit is also available
for longer periods to aid member banks in meeting
emergency situations which may result from unusual
local, regional, or national financial developments, or
from adverse circumstances involving particular mem
ber banks. No emergency loans were made in 1975.
The interest rate at which member banks borrow
from the Federal Reserve Banks is called the discount
rate. The volume of credit extended by the Federal
Reserve Banks is influenced by the level of the dis
count rate in relation to other short-term market in
terest rates. When the discount rate is higher than
alternative market interest rates, member banks are
reluctant to borrow from the Federal Reserve to make
temporary reserve adjustments. They may choose, in
stead, to obtain funds from the Federal funds market
or through markets for other short-term instruments.
Influence of Relative Interest Rates
on Member Bank Borrowings 11

JA N .
F E B . M A R . A PR .
M A Y JU N E JU LY A U G .
S EP . O C T .
IL D is c o u n t ra te a n d lo a n d a ta fo r F e d e r a l R e s e rv e B a n k o f S t. L o u is .
[2 M o nthly a v e r a g e s o f d a ily fig u re s .

Page 8

NOV.

DEC.

1976

On the other hand, when the discount rate is low
relative to market rates, Federal Reserve lending is
likely to increase as member banks take advantage of
the cheaper rates. Member banks which borrow from
the Federal Reserve under emergency situations are
charged a special interest rate which is higher than
the discount rate just described.
The discount rate at the start of 1975 was 7.75
percent; it was lowered four times and stood at 6 per
cent at year-end. The discount rate remained above
short-term market interest rates throughout most of
the year. Accordingly, member bank borrowings were
low, with the daily average of loans outstanding
at $5.3 million. This is a substantial decrease from
1974, when the discount rate remained below other
market rates and outstanding loans averaged about
$55 million. During 1975, the St. Louis Federal Re
serve Bank made 280 advances, amounting to $1.1
billion, to 44 Eighth District member banks. This
compares with the 2,164 advances totalling $11.1 bil
lion to 111 member banks in 1974.

Fiscal Agency
The Federal Reserve Banks perform a variety of
services for the Federal Government in acting as its
fiscal agent. As bankers for the Government, Federal
Reserve Banks carry the principal checking accounts
of the U.S. Treasury, through which the Treasury
makes payments for all major types of Government
spending. The Treasury receives funds directly into
its accounts at Federal Reserve Banks or through de
posit accounts, called tax and loan accounts, at ap
proved commercial banks. Such funds are received
mainly from the payment of taxes and the sale of
Government securities to the public. Funds initially
deposited in tax and loan accounts are transferred
periodically to the Treasury’s accounts at Federal
Reserve Banks in order to maintain a balance large
enough to meet all of the Treasury’s near-term
payments.
The Federal Reserve Banks also act on behalf of the
Government in marketing Government securities.
When the Treasury offers new securities, the Reserve
Banks receive subscriptions from those who wish to
buy. Reserve Banks then allot the securities among
the subscribers according to instructions from the
Treasury, collect payment, and deliver them to the
purchasers. With funds from the Treasury’s accounts,
the Federal Reserve Banks pay interest on securities
and redeem them at maturity. Reserve Banks also pay
interest on and redeem the securities of most Govern
ment sponsored corporations.

F E D E R A L R E S E R V E B A N K O F ST. LO U IS

As fiscal agent, Federal Reserve Banks hold in safe
keeping the securities pledged by commercial banks
to secure Government deposits in tax and loan ac
counts. In addition, Reserve Banks will also hold
other securities in safekeeping as a service to member
banks. U.S. Treasury and most Government Agency
securities are held in the form of book-entries in the
records of the Reserve Banks. Other securities, such
as municipal bonds, are held in physical form in the
vaults of the Federal Reserve Banks.
Federal Reserve Banks issue, service, and redeem
U.S. savings bonds. During 1975, 11.7 million savings
bonds with a dollar value of $674 million were issued,
serviced, or redeemed by the St. Louis Federal Re
serve Bank and its branches. Also, 576,000 other Gov
ernment securities totalling $40 billion were issued,
serviced, or redeemed, and 681,000 Government bond
coupons totalling $268 million were paid by these
offices.
As fiscal agents, Federal Reserve Banks also redeem
U.S. Government food stamps. A total of 164 million
food stamps totalling $567 million were received and
counted by the four Eighth District Federal Reserve
offices in 1975.

Research
Through its collection of business, monetary, and
financial data, the Research Department of the Fed
eral Reserve Bank of St. Louis analyzes economic
conditions on a regional, national, and international
level. These analyses are used by the President of the
Bank in making monetary policy recommendations at
meetings of the Federal Open Market Committee
and in providing information to the public.Economic data and analyses on recent develop
ments are available to the public through the Re
search Department’s 10 weekly, monthly, and quar
terly publications. The Review, with a monthly
circulation of 42,000, incorporates much of the analy
tical research undertaken by the Research staff.
In addition to these functions, the Research D e
partment engages in studies of bank market structure.
These studies include review and analysis of proposed
bank holding company acquisitions and bank mergers.
The particular emphasis of the Research Depart-The Federal Open Market Committee consists of the seven
members of the Board of Governors of the Federal Reserve
System and five of the twelve Reserve Bank Presidents, four
of which serve on a rotating basis. It directs the purchase and
sale of Treasury and Government agency securities on the
open market by the Federal Reserve System.

FEBRUARY

1976

ment’s analysis is the expected effects of the proposed
acquisitions and mergers on competition and on
meeting the convenience and needs of the area to be
served.

Bank Relations and Public Information
The Federal Reserve Bank of St. Louis strives to
maintain personal contact with member banks through
its visitation program. Through this program, the St.
Louis Bank keeps member banks informed of changes
in Federal Reserve regulations and procedures and

T a b le II

COMPARATIVE STATEMENT O F CON DITION
(D o lla r A m ou n ts in T h o u sa n d s)

ASSETS

U .S . G o ve rn m e n t S e c u ritie s :
B i l l s .............................................................................
C e r t i f i c a t e s ............................................................

T O T A L U .S . G O V E R N M E N T
S E C U R I T I E S ...........................................
D iscounts an d A d v a n c e s ..................................
A c c e p t a n c e s ............................................................
F ed e ra l A g e n cy O b lig a tio n s .
T O T A L LO A N S A N D S E C U R IT IE S

G o ld C e rtifica te A c c o u n t ..................................
S p e cia l D ra w in g Rights C e rtific a te
A c c o u n t .....................................................................
F e d e ra l Reserve N otes o f O th e r B a n k s .
O th e r C a s h .....................................................................
C a sh Item s in Process o f C o llectio n .
B a n k Prem ises ( N e t ) ...........................................
In te rd istric t S e ttle m e n t A cco un t .
O th e r A s s e t s ............................................................
T O T A L A S S E T S ...........................................

Decem ber
3 1 , 1975

D ecem ber
3 1 , 1974

$ 1 ,4 1 7 ,4 6 0
—

$ 1 ,4 3 7 ,1 6 7

2 1 0 ,3 5 8

1 ,5 6 4 ,0 0 2
1 2 8 ,3 5 1

$ 3 ,3 0 3 ,6 4 8

$ 3 ,1 2 9 ,5 2 0

650
—
2 3 1 ,3 2 9

2 ,1 0 0
—
1 8 3 ,8 1 2

$ 3 ,5 3 5 ,6 2 7

$ 3 ,3 1 5 ,4 3 2

4 4 9 ,3 7 1

5 1 7 ,9 7 9

2 0 ,0 0 0
5 9 ,2 4 2
2 5 ,4 1 9
4 7 3 ,7 4 4
1 3 ,1 5 1
4 0 3 ,8 9 6
5 1 ,3 0 1

1 5 ,0 0 0
4 7 ,9 9 3
2 1 ,1 9 7
4 2 0 ,9 9 8
1 3 ,5 6 0
—
3 6 ,9 6 1

$ 5 ,0 3 1 ,7 5 1

$ 4 ,3 8 9 ,1 2 0

LIA BILITIES AND CAPITAL ACCOUNTS
LIA BILITIES
D e p o sits:
M em ber B a n k — Reserve A cco un ts .
U .S . T re a su re r — G e n e ra l Account .

O th e r D e p o s it s ....................................................

7 4 0 ,6 6 3
5 2 1 ,8 6 6
8 ,9 2 8
9 ,4 2 0

8 2 8 ,8 0 4
1 5 4 ,6 9 6
9 ,8 6 0
1 8 ,7 3 7

T O T A L D E P O S I T S ...................................

$ 1 ,2 8 0 ,8 7 7

$ 1 ,0 1 2 ,0 9 7

F ed e ra l Reserve N otes (N e t)
D eferred A v a ila b ilit y C a sh Item s
O th e r L ia b ilitie s a n d A ccru ed D ivid en d s

$ 3 ,3 2 1 ,4 1 6
3 2 8 ,7 3 3
3 8 ,2 5 1

$ 2 ,9 6 9 ,6 1 0
3 0 5 ,9 6 5
4 1 ,3 8 4

T O T A L L I A B I L I T I E S ...................................

$ 4 ,9 6 9 ,2 7 7

$ 4 ,3 2 9 ,0 5 6

CAPITAL ACCOUNTS
C a p ita l P aid I n ............................................................

3 1 ,2 3 7
3 1 ,2 3 7
—

3 0 ,0 3 2
3 0 ,0 3 2
—

6 2 ,4 7 4

6 0 ,0 6 4

O th e r C a p ita l A c c o u n t s ...................................
TO T A L C A P IT A L A C C O U N T S

T O T A L L IA B IL IT IE S A N D
C A P IT A L A C C O U N T S

$ 5 ,0 3 1 ,7 5 1

$ 4 ,3 8 9 ,1 2 0

M E M O R A N D A : C ontingent liabilities on acceptances purchased for
foreign correspondents decreased from $33,415,000 on December 31,
1974 to zero on December 31, 1975.

Page 9

FEBRUARY

F E D E R A L R E S E R V E B A N K O F ST. LO U IS

T a b le

III

COMPARATIVE PROFIT AND LOSS STATEMENT

1976

5,352 visitors toured the four Federal Reserve offices
in the Eighth District.

(D o lla r A m oun ts in T h o u sa n d s)

T o ta l e a r n in g s ...........................................
N et e x p e n s e s ...........................................
C u rren t net e a rn in g s
N et a d d itio n s ( + ) or
d ed uctio n s ( — )

1974

$ 2 3 1 ,7 9 6
3 4 ,0 8 3

$ 2 2 9 ,8 9 0
3 2 ,7 3 2

1 9 7 ,7 1 3

1 9 7 ,1 5 8

0 .3 %

— 6 ,7 1 4

— 2 ,4 1 4

___

$ 1 9 0 ,9 9 9

$ 1 9 4 ,7 4 4

N e t e a rn in g s b efo re p a y
ments to U .S . T re a s u ry .
D istrib u tio n of N et E a rn in g s :
D i v i d e n d s ...........................................
In tere st on F e d e ra l R eserve
N o t e s ....................................................
T ra n sfe rre d to S u rp lu s .
T O T A L ...........................................

Percent
Change

1975

1 ,8 4 5

1 ,7 6 4

1 8 7 ,9 4 8
1 ,2 0 6

1 9 1 ,4 3 3
1 ,5 4 7

$ 1 9 0 ,9 9 9

$ 1 9 4 ,7 4 4

0 .8 %
4.1

- 1 .9 %
4 .6 %
- 1 .8
- 2 2 .0
— 1 .9 %

provides assistance if questions arise. The Bank Rela
tions and Public Information Department makes
available to all member banks in the Eighth District
the Federal Reserve Functional Cost Analysis Pro
gram. This program enables a participating bank to
measure its profitability by comparing its cost and
revenue figures with System-wide average figures of
participating banks. The Functional Cost Analysis
program makes possible comparisons by size of banks
and particular functions. Last year, 50 banks in the
Eighth District participated in this program.
It is also through this department that the Bank
maintains contact with the public. During 1975, the
officers and staff members of the St. Louis Federal
Reserve Bank and its branches delivered 302 ad
dresses before groups of bankers, businessmen, and
educators. The Bank was represented at 469 banker,
500 professional, and 308 miscellaneous meetings.
Under the bank visitation program, 1,121 banks were
visited. During 1975, 228 groups requested films, and

Page 10

Financial Statements
At the end of 1975, assets of the St. Louis Federal
Reserve Bank and its branches totalled $5 billion, an
increase of 14.6 percent from the previous year (Table
II). Increases in Federal agency obligations and in
U.S. Government notes and bonds were largely re
sponsible for the increase in total assets. Approxi
mately 66 percent, or $3.3 billion, of the Bank’s total
assets were held in U.S. Government securities. The
remaining assets, which include the gold certificate
account, the special drawing rights certificate account,
Federal Reserve notes of other banks, and interdis
trict settlement account, amounted to $1.7 billion.
Total liabilities of the four offices of the St. Louis
Federal Reserve Bank increased to $5 billion in 1975,
14.8 percent higher than the year-earlier figure. A
major source of this change was the increase of $367
million in U.S. Treasury deposits held at the Bank.
Total deposits rose 26.6 percent in 1975, to $1.3 billion.
Federal Reserve notes, the principal type of circulat
ing currency, amounted to $3.3 billion, 66.8 percent of
the Bank’s total liabilities.
Federal Reserve Banks’ earnings result mainly from
interest on Government securities, loans to mem
ber banks, and other investments. The portion of the
Federal Reserve System’s earnings allocated to the
St. Louis Bank and its branches increased 0.8 percent
in 1975, to $232 million (Table III). After statutory
dividends of $1.8 million were paid to member banks
and operating expenses of $34 million were covered,
$1.2 million was transferred to surplus and $188 mil
lion, or 81.1 percent of total earnings, was paid to the
Treasury as interest on Federal Reserve notes.

Outlook for Agriculture
With Special Reference to Eighth District Farm Products
CLIFTON B. LUTTRELL

HANGES in agricultural conditions in the Eighth
Federal Reserve District generally follow the national
pattern. Hence, the projections of the national pat
tern presented by the United States Department of
Agriculture (U SD A ) at the National Agricultural Out
look Conference in Washington, D.C. last November,
and in more recent reports, may be applied to the
District. These projections are generally limited to
the current crop marketing year which begins at
different dates for the various crops.1
The mid-November forecast of realized net farm
income in the nation for the current marketing year
(1975-76) is well above that of 1974-75, and the fore
cast of total net is larger than realized net since in
ventories will be increasing. Cash receipts from farm
product sales are projected at $101 billion, $10 billion
above the 1974-75 level. Since the forecasts were
made, however, prices of some major commodities
have declined somewhat and may, therefore, reduce
returns from the forecasted levels. Although produc
tion expenses are likely to continue up, their rate of
increase is expected to be less than in recent years.

NATIONAL OUTLOOK
Farm Commodity Sales
The projected increase in farm product sales this
year is based on increased returns from both crops
and livestock. There was an 11 percent increase in
the volume of crops harvested last fall, and slightly
lower average crop prices are anticipated. The vol
ume of livestock production for the 1975-76 marketing
year is expected to be about the same as in 1974-75,
but a sizable increase in average prices of livestock
1Year beginning July 1 for oats, barley, and tobacco; August 1
for rice and cotton; October 1 for soybeans, corn, and sorghum.

products is anticipated. Most of the projected yearto-year gain in livestock product prices has already
occurred, as prices rose sharply with the declining
livestock output during 1975. Livestock output is ex
pected to rise this year from the low rate of produc
tion experienced in late 1975, and rising output will
tend to offset the upward price pressure of further
increases in demand.
Despite the sharp increase in production since last
fall, crop prices during the 1975-76 marketing year
are forecasted to average only 5 percent less than a
year earlier as a result of rising foreign and domestic
demand. Last summer’s higher prices for livestock
products provided incentive for increased livestock
production and enhanced domestic demand for all
types of crop feed.

Export Demand Up Sharply
Export demand for U.S. grain crops has increased
sharply this year (1975-76) as a result of crop failures
in some major grain producing areas. The value of
farm commodity exports during the 1975-76 market
ing year is expected to total $22.7 billion, well above
the 1974-75 total of $21.6 billion. The price of such
exports is expected to average somewhat less than
last year, but the volume is projected to be 15 percent
larger. This is the sixth consecutive marketing year of
rising dollar value of farm commodity exports. From
about $5 billion per year in the late 1960s, the total
value of such exports rose to more than $10 billion in
1973 and to $20 billion in 1974. Reflecting both the
sharp increase in the amount of crops harvested and
an increase in export demand, the volume of exports
of some major crops, including wheat and corn, is
expected to exceed the 1974-75 levels by 25 to 30
percent (Table I). An increased volume of soybean
Page 11

F E D E R A L R E S E R V E B A N K O F ST. L O U IS

FEBRUARY

1976

T a b le I

ESTIMATED SUPPLY AND USAGE O F MAJOR EIGHTH DISTRICT CROPS IN 1975-76
AND PERCENT CH A N G E FROM 1974-75
B e g in n in g Stocks

Production

A m oun t

Percent
Change

W h e a t (m illio n b u sh e ls)

320

+30%

2 ,1 3 4

+19%

Corn (m illio n b u sh e ls)

359

5 ,7 6 7

+ 24

Crop

Rice (m illio n c w t.)
S o y b e a n s (m illio n b u s h e ls )
Cotton (m illio n b a le s )
Tob acco (m illio n p o u n d s) *

7.1
186
5 .7
2 ,7 3 1 .5

+50
+

Am ount

1 2 7 .6
1 ,5 2 1
8 .3
2 ,0 4 9 .0

Percent
Change

+ 14
+ 25
-2 8
+ 10

Dom estic Use
A m ount
707
4 ,0 4 0
4 1 .8
850
7 .0
1 ,1 8 2 .3

Exp o rts

Percent
Change
+

+ 11

Am ount
1 ,3 5 0

+ 30%

1 ,4 5 0

+ 26

1 1 1 .3

475

+ 19
-

Percent
Change

3 .8
6 1 8 .3

+ 1
+ 13
—

-1 0

•Flue cured types 11-14 and burley type 31.
S ou rce: USDA W heat Situation, Feed Situation, R ice Situation, Fats and Oil Situation, C otton Situation, and T obacco Situation.

exports is anticipated, whereas rice volume may total
about the same as a year ago, and cotton and tobacco
shipments may decline.
Commercial sales, rather than government subsi
dized exports, are likely to account for most of the
export increases. Sizable increases in exports of grain
to the Soviet Union and Eastern Europe are indi
cated. The volume of farm exports to Western Europe
and Latin America is expected to equal that of last
year, but the dollar value of shipments to these areas
may decline. Increases are projected in both volume
and value of farm exports to Japan, which continues
to be our largest single foreign market for farm
products.
The sharp increase in Soviet demand for U.S. grain
reflects both their increased livestock production of
recent years and their much publicized shortfall of
crops. The U.S.S.R. grain crop, estimated at 140 mil
lion tons, was about 55 million less than a year earlier
and 75 million below the original amount planned. It
was the smallest grain harvest in the Soviet Union
since 1965. Soviet imports of grain during the July
1975-June 1976 period are projected at 27 million
metric tons, about one-half of which will be shipped
from the United States. Despite these imports, the
Soviets are expected to cut feed usage by about 5
percent. Substantial numbers of livestock, primarily
hogs and poultry, have already been slaughtered.
The feed supply situation in Eastern Europe is
somewhat less severe than that in the Soviet Union.
Total grain output in these nations is down about 5
percent, and reports indicate a slowdown in livestock
feeding.
The grain situation improved considerably in the
less developed countries this year with production
rising about 5 percent from the 1974 level. Even
Page 12

though this reverses a four-year deterioration in per
capita output in these nations, per capita grain sup
plies are still only equal to those in 1973-74, and re
main below the average for the 1969-71 marketing
years.

Production Expenses Rise at Slower Rate
Farm production expenses in the United States are
expected to continue their upward trend in 1976;
however, the rate of increase will likely decline from
the relatively high rates of recent years. As gross farm
income rose at a relatively rapid rate, farmers bid up
the price of production items. Such prices rose at an
annual rate of 15 percent from 1971 to 1974.
The variable costs for producing six major crops is
projected to increase an average of 6 percent this year
from the 1975 level.2 These costs rose an average of
19 percent in 1975. The costs per unit of production
will rise less than 6 percent, since higher average
yields are expected.
The slower growth of farm production expenses
this year largely reflects the slower rate of increase in
the price of farm inputs. In contrast to the substantial
price increases for most input items during the past
three years, such prices are tending to level off, and
the price of some will be less than a year ago. The
price of fertilizer, for example, is expected to average
7 percent less (Table II). Fertilizer prices dropped
sharply last summer and, with the exception of potash,
now average below late 1974 levels.
Part of the increase in farm input prices since 1971
has been o f a short-term nature, reflecting maladjust
ments caused by higher oil prices, wage-price con
2Crops included are wheat, corn, grain sorghum, barley, soy
beans, and cotton.

F E D E R A L R E S E R V E B A N K O F ST. L O U IS

trols, and some unexpectedly poor crop yields both
here and abroad. The actions of the foreign oil cartel
led to higher prices for both fuel and fertilizer, but
unless more restrictive actions are taken, the cartel
will have no further impact on farm input costs. With
the reduced incentive to produce during the period of
wage-price controls, production of many input items
was cut back and “shortages” developed. With the
removal of controls and a return to free markets,
prices increased sharply to short-run equilibrium
levels. Supplies of farm inputs, however, adjust more
slowly than input prices as a period of time is required
to increase the productive capacity for major input
items. For example, the higher prices for fertilizer in
1974 eventually led to a buildup in production last
year.
Some upward pressure on farm wage costs is ex
pected to result from an increase in the Federal
agricultural minimum wage rate to $2 an hour, effec
tive January 1, 1976. This will result in fewer workers
being hired, increased unemployment, and higher per
unit labor costs. Relatively high nonagricultural un
employment, however, will tend to moderate the over
all increase in farm labor costs.

PROSPECTS FOR MAJOR
EIGHTH DISTRICT FARM PRODUCTS
Beef Cattle
With the greater incentive for cattle feeding, a re
turn to more normal relationships between slaughter
of fed and nonfed cattle is expected this year. Fed
cattle slaughter has steadily declined, on a seasonally
adjusted basis, since the second quarter of 1973. By
spring of 1975 such slaughter accounted for only about
one-half of the total number of cattle slaughtered, as
compared with 80 percent two years earlier. A turn
around in the fed-nonfed cattle slaughter ratio is ex
pected this year. The number of cattle on feed on
January 1 in the 23 major feeding states was up 28
percent from a year ago pointing to a larger slaughter
of fed cattle. In contrast, nonfed cattle slaughter is
expected to decline as a result of the higher demand
for feeder animals and the increased incentive for
calf production.
Total cattle slaughter picked up in late 1974 and
1975 as feeder cattle prices declined to levels where
there was no incentive for further herd increases. The
price of feeder cattle for slaughter became competi
tive with prices of cattle moving into feedlots, and
large numbers of cattle began to move to slaughter

FEBRUARY

1976

Tabl e II

PRICE INCREASES O F SELECTED
FARM INPUT ITEMS SINCE 1973
Item

Percent In cre a se
1973
to
1974

Feed

17%

Fee d e r livestock

-2 3

1 9 7 4 to 1 9 7 5
P re lim in a ry
—

— 13

1975
to 1 9 7 6
Projected
— 9%
+ 10

M otor su p p lie s

M otor ve h icle s

+ 18

+8
+5
+ 11

Form

m a ch in e ry

+ 23

F e rtiliz e r

+ 15

Farm su p p lie s

+ 16

Seed

W ages

+ 10

A ll p ro du ctio n item s
in clu d in g in tere st
a n d ta xe s

A ll item s e xclu d in g
teed an d fe e d e r
livesto ck

+ 14

S ource: Original data from John G. Stovall, “ The Cost o f Producing
Agricultural Comm odities” (p a p er delivered at the National
Agricultural Outlook Conference, N ovem ber 18, 1975).

houses directly from pastures and ranges. The total
number of cattle slaughtered in 1975 was about 10
percent above that of 1974, but the decline in nonfed
cattle slaughter in 1976 may more than offset the in
crease in fed cattle slaughter, resulting in a small
decline in the total. The beef catde inventory, which
had been increasing at a relatively rapid rate since
the early 1970s, may have declined slightly last year,
the first reduction in the beef cow herd since 1958.
While beef production is expected to increase some
what this year, demand for fed beef cattle is likely to
rise, and prices may average for the year near or
slightly above the 1975 average. The greater incentive
for feeding will also result in an increase in demand
for feeder cattle, and rising cow and feeder cattle
prices from the relatively low levels of 1975. Feeder
prices might again exceed fed cattle prices, rising to
$40 to $50 per cwt. for higher grade steers on midwestern markets. This compares with prices of $25 to
$30 per cwt. in January and February 1975.

Hogs
Hog producers have also reacted to the higher profit
margins from feeding, but major increases in pork
production are not likely to occur before mid-1976.
Based on the number of hogs on farms last September,
pork production through the first quarter of 1976 will
be 10 to 15 percent below the relatively low levels of
a year earlier. As a result of the sharp increase in
Page 13

F E D E R A L R E S E R V E B A N K O F ST. L O U IS

farrowings beginning in the fourth quarter of 1975,
however, slaughter in the spring quarter will rise
somewhat from the first quarter and will likely con
tinue up through the year, with the total for 1976
exceeding that of 1975 by 3 to 5 percent.
Despite the upswing in hog production, pork out
put will remain relatively low throughout the first half
of the year, as compared with recent years. Hog prices
are expected to average above year-ago levels through
mid-year; however, they dropped below $50 per cwt.
near yearend and are likely to move lower during the
year as marketings increase.

Poultry and Eggs
A year ago poultry producers were facing declining
profits and bleak prospects for a recovery of earnings;
consequently, production declined. Since then, how
ever, the spread between feed costs and broiler prices
increased, providing incentive for expanded produc
tion. Broiler production is likely to be up about 10
percent in the first half of 1976 from a year earlier.
Last November USDA analysts did not expect broiler
prices to decline much in the first half of 1976 from
the fourth quarter of 1975 with the smaller supply
of red meat in prospect; but broiler prices have al
ready dropped about 10 percent from the mid-October level. In late January such prices were only $0.02
per pound above the year-ago level.
Turkey production in the first half of 1976, although
small relative to most recent years, will likely be sub
stantially above that of a year earlier. Turkey prices
rose steadily from last February through August as
production declined and prices of other meats rose.
In late October New York wholesale turkey prices
averaged $0.07 per pound above those of a year
earlier, but a seasonal decline occurred near yearend.
Similar to the broiler situation, relatively high prices
for red meat and rising consumer incomes will tend
to maintain turkey demand and prices above year-ago
levels during the first half of 1976.
Per capita consumption of eggs has trended down
ward for a decade or more reflecting consumer prefer
ence for other foods; the demand for eggs this year is
not expected to reverse this trend. Several egg sub
stitutes have been introduced which are making in
roads into traditional egg markets. Egg production
increased late last summer and fall, but the third
quarter production was still slightly below a year
earlier. Despite the relatively weak demand, produc
tion is expected to continue up in early 1976 as a
result of the lower feed prices.

Page 14

FEBRUARY

1976

Egg prices began to drift below year-earlier levels
late last summer, but in recent weeks they have in
creased and moved above year-earlier levels. Never
theless, egg prices are likely to average near or below
late 1975 levels through the first half of 1976.

Dairy Products
Milk production has been stable during the past
three years with total output ranging between 115
and 116 billion pounds each year. However, net ex
ports have trended downward, and per capita sup
plies of dairy products have been about constant since
1967.
Dairy products are subject to Government price
supports, and in early 1975 a substantial amount of
Government buying occurred as market prices were
below the support level. Production declined some
what during the summer, but turned up in October,
and is expected to rise throughout 1976 because of the
greater incentive for feeding. Milk prices turned up
during the year, rising to an average farm price of
$9.53 per hundred pounds in October. The price of
milk averaged about $8.60 per hundred pounds in
1975, up from $8.32 in 1974.
Milk prices will possibly show sharper-than-normal
seasonal declines in early 1976, but the decline will
be limited by Government price supports, and farm
prices for milk are expected to average above yearearlier levels.

Feed Grain
Estimated feed grain production of 202 million tons
in 1975 ( about 80 percent of which was c o m ) was 22
percent larger than a year earlier and only slightly
below the record 207.7 million ton crop in 1971.
Carryover stocks last year were down to 15.8 million
tons, the smallest since 1948. Hence, despite the large
crop the total quantity available this year is only 16
percent larger than a year ago. The growth in do
mestic demand, however, will be held in check by the
relatively small number of grain consuming animals
on farms. By yearend, stocks of feed grains were 21
percent above the relatively low year-earlier levels.
Nevertheless, domestic use of corn is expected to rise
11 percent from the 1974-75 level (Table I).
Export demand for feed grain is relatively strong.
As indicated earlier, the drought in the Soviet Union
will result in major increases in exports to that nation.
Total corn exports are projected at 1.4 to 1.5 billion
bushels, compared with 1.15 billion a year ago. Sor

F E D E R A L R E S E R V E B A N K O F ST. LO U IS

FEBRUARY

1976

ghum grain exports of 250 to 300 million bushels are
projected, well above the 212 million of a year ago.
Oats and barley exports are also expected to increase.

in 1970-74. Domestic use of cotton declined faster
than exports, dropping 15 percent from 1960-64 to
1970-74, while exports dropped 12 percent.

Given the projected supply and demand situation,
com prices at the farm are forecasted to average
about $2.60 per bushel during the 1975-76 marketing
year. Prices of the other feed grains will tend to move
with corn prices. Based on a January 1, 1976, survey
of growers, acreage planted to feed grains will be
increased again in 1976. Farmers reported intentions
to increase corn acreage 4 percent, sorghum 2 percent,
and oats 1 percent.

The major factors contributing to this decline were
the rising competition in the fiber market from both
manmade fibers and cotton production abroad. Per
capita consumption of manmade fibers in the United
States rose almost four-fold from 1960 to 1974,
whereas per capita consumption of cotton declined
about 33 percent. Cotton production in the foreign
noncommunist countries rose from 22 million bales in
1962 to more than 28 million in 1974, somewhat faster
than cotton usage grew in these nations during the
period.

Soybeans
Large carryover stocks last year and a near record
crop boosted the quantity of soybeans available for
the year to a new high, 23 percent above the year-ago
level. The harvest last fall was 25 percent larger than
a year earlier, and carryover stocks were 9 percent
larger (Table I ). Although domestic soybean use plus
exports is expected to continue moving upward, rising
to 1.3 billion bushels, this may be the third consecu
tive year in which total utilization is less than produc
tion. By yearend soybean stocks were 26 percent
above the January 1, 1975 level, and stocks at the end
of the marketing year on October 1 are projected at
375 million bushels — double last year’s carryover.
Reflecting the larger supply, prices received by
farmers for soybeans last fall averaged less than $5
per bushel, compared with $8 a year earlier. Prices
may increase somewhat during the year, but the sea
son average price is expected to fall sharply below
the $6.50 per bushel of 1974-75. Reflecting the rela
tively low price for soybeans, fanners reported inten
tions to reduce the acreage planted to soybeans this
year by 7 percent.

Domestic demand for all fiber is strengthening
somewhat this year, however, and mill consumption of
cotton is projected to rise. Exports, however, may be
down slightly because U.S. cotton prices have been
above prices of foreign competitive cotton for about a
year. As a result, numerous export contracts were
cancelled by foreign purchasers, and a sharp decline
in shipments occurred. However, some recovery in
foreign cotton prices is expected in early 1976, and
U.S. cotton exports for the year may be only slightly
below the 1974-75 level.
Reflecting the prospects for a relatively small 1975
crop, cotton prices rose sharply from January to Sep
tember last year and are now above those of domestic
competitive manmade fibers. This slight price disad
vantage for cotton, however, is not considered a ma
jor factor in domestic cotton consumption for the year.
The higher cotton prices have provided incentive for
increased cotton acreage. In January farmers reported
intentions to increase their acreage of upland cotton
by 17 percent this year.

Rice
Cotton
The trend in usage of U.S. cotton has been declin
ing. Thus, while production last fall was down 20
percent from a year earlier, carryover stocks were up,
and the total available for the year is down only
moderately. Production declined to 8.3 million bales
from 11.5 million in 1974, but carryover stocks were
up almost 2 million bales, resulting in production plus
carryover of 14.1 million bales (Table I ). This is the
second smallest quantity of cotton available for any
year since the early 1930s.
Domestic consumption plus exports declined from
an average of 13.8 million bales during the five years
1960-64 to 12.5 million in 1965-69, and to 12.1 million

The main features in the outlook for rice are the
currently large domestic supplies and a continuing
growth of demand. The estimated 1975 rice crop of
128 million cwt. was 14 percent larger than the pre
vious record crop in 1974. Carryover stocks at the
close of the 1974-75 marketing year were 7 million
cwt., slightly less than a year earlier, resulting in a
total supply of 135 million cwt. — about 12 percent
above the quantity available a year ago. However,
rice shipments this year have been relatively slow,
and on January 1 stocks of rice were about 32 percent
above year-earlier levels.
Demand for rice, however, is expected to continue
upward for the year. Domestic use has increased
Page 15

about two percent per year in recent years, and a
similar rise is expected this year. Exports are expected
to remain at last year’s relatively high level. Exports
to the Mid-East rose sharply last year to 15.5 million
cwt., reflecting the enhanced oil revenues of OPEC
(Organization of Petroleum Exporting Countries). A
high level of exports to these nations is expected again
this year. Larger commercial sales to the U.S.S.R. and
larger shipments through Government aid to Bangla
desh are also in prospect. The generally larger world
rice crop, however, may result in smaller shipments
to some traditional commercial markets.
The season average price for rice is likely to fall
short of last year’s $10.45 per cwt. Prices to farmers
averaged $8.29 in mid-December, down from $9.80
in August. Some increase in price may occur during
the marketing season, but the increase is not likely to
be as great as a year ago.

Tobacco
The tobacco outlook is highlighted by increasing
supplies both in the United States and abroad. U.S.
tobacco production in 1975 was about 10 percent
more than a year earlier, and the total amount avail
able is up about 5 percent. The quantity of burley
tobacco (the major type grown in the Eighth District)
available for domestic use plus export this year is up
about 3 percent from the year-ago level. Burley
usage was down last year, but may increase this year
with the somewhat larger amount available. Carry
over stocks at the close of the year are expected to
be about the same as a year ago.
Burley production is subject to government acreage
controls, marketing quotas, and price supports. The
legal formula requires that price supports go up about
13.5 percent this year. The marketing quota is ex
pected to be maintained at about 667 million pounds.

U. S. BICENTENNIAL

Full text of Review (Federal Reserve Bank of St. Louis) : February 1976

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