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M O N T H LY
eview'
F E D E R A L R E S E R V E BANK
OF ST. LOUIS
• P. O. BOX 442 • ST. LOUIS 66, MO.
Page
Recent Business and Financial Developments
2
District Banking Activity in the Last Half of 1959
Farm Commodity Surpluses
This issue released on January 29
VOL. 4 2 • No. 1 • J A N U A R Y ’6 0
Recent Business and Financial Developments
S e t t l e m e n t of the steel dispute removed the
major obstacle retarding business expansion. Indus
trial production had already recovered in December
to a level close to the pre-strike level of last spring.
Consumer income rose in December from the record
November rate, and consumer spending at department
stores reached a new high. Expansion of business
activity in the near future will probably be stimulated
by a sharp rise in accumulation of business inventories
as stocks of steel and other metal products are re
plenished. Business investment in new plant and
equipment and consumer spending should also sup
port an increase in production. Prices at the whole
sale level have been stable on average for more than
a year as declines in farm product prices have offset
some increases in industrial prices. There is some
danger now, however, that the current upsurge in
production and spending may increase the upward
pressures on industrial prices enough to raise the
averages.
Unemployment in the nation declined between midNovember and mid-December, instead of experienc
ing its usual rise at this time of the year. The decline
meant a drop in the seasonally adjusted annual rate
S e a s o n a lly A d ju s te d
La te st d a ta p lo tte d : D e ce m b e r, p re lim in a ry
Source: Board of Governors of the Federal Reserve System.
Page 2
Credit demands have apparently been strong in
December and early January, reflecting an upswing
in total business activity with the resumption of steel
production. Average yields on three-month Treasury
bills, which were 4.05 per cent in October and 4.15
per cent in November, rose to 4.49 per cent in De
cember and 4.59 per cent in the first week of
January. After the first week in January, yields on
Treasury bills moved downward despite the faster
pace of economic activity. Discount rates of the
Reserve Banks remained below their traditional posi
tion with respect to yields on money market instru
ments.
Total bank credit in the nation rose somewhat more
than seasonally in December according to prelimin
Yield s on U. S. G overnm ent Securities
Industrial Production
Per C e n t
of unemployment from 5.6 per cent of the labor force
in November to 5.2 per cent in December, and
brought the unemployment rate almost back to its
pre-strike level of 4.9 per cent in May and June of
1959. The improvement in the labor situation was
largely the result of the recall of automobile workers
idled by the recent strike and of workers temporarily
laid off by other steel-using industries.
Monthly Averages of Daily Figures
per C e n t
1954
1955
1956
1957
L a t e s t d a t a p lo tt e d :D e c e m b e r
1958
19 5 9
1960
ary indications. Growth centered in loans to metal
industries, commodity dealers and real estate owners
partially offset by a reduction in bank investment
holdings. However, the money supply may have
risen less than seasonally in the month.
The velocity of money probably rose in November.
Turnover of demand deposits at reporting banks out
side the seven large financial centers was at the rate
of about 25 times per year in the month compared
with rates of roughly 24V2 times in October and about
23 times in November of 1958. However, deposit
turnover in November was fractionally below the peak
rate reached in July 1959.
number were at an interest rate of over 6 per cent,
but these loans accounted for less than 2 per cent of
the total dollar amount of business loans granted.
On relatively small loans (under $10,000), where
the costs of administration are relatively high, the
average interest rate was 5.85 per cent in the first half
of December last year. On advances of between
$10,000 and $100,000 the average rate was about 5.55
per cent. Loans of $100,000 and over carried an
average interest rate of about 5.15 per cent.
Money Supply
B illio n s of D o lla rs
B illions of D o lla rs
The Average Interest Rate on Business
Loans in St. Louis
The average interest rate on short-term loans (ma
turity less than one year) to businesses at the four
large St. Louis banks was 5.23 per cent during the
first fifteen days of December 1959. The rate was
virtually the same as the 5.22 per cent average charged
in the first half of September, but was up considerably
from the 4.33 per cent rate during the same fifteen
days of December a year earlier. The December 1959
average was the highest in the postwar period.
Prime borrowers paid 5 per cent for funds in early
December. Eighteen per cent of the loans made qual
ified for this rate, but these loans amounted to 58 per
cent of the total dollar amount extended. At the other
extreme, about 7 per cent of the business loans by
La te st d a ta plotted: D e ce m b e r, p re lim in a ry
Demand deposits adjusted and currency outside banks seasonally ad
justed for last Wednesday of month.
Turnover of Dem and Deposits
Reporting Centers (outside seven large financial cities)
A n n u a l R ate
A n n u a l R ate
Interest Rates on Short-Term Business Loans
Per C e n t
R e p o r t in g S t. L o u is B a n k s
Per C e n t
La te st d a t a p lo tte d -.N o v e m b e r, w h ich in c lu d e s
p r e lim in a ry D e c e m b e r d a t a
Latest d a ta p lo tte d : D e ce m b e r, 1959
Three-month moving averages of seasonally adjusted data.
Page 3
District Banking Activity in the Last H alf o f 1959
I n t h e e ig h t h f e d e r a l r e s e r v e d is TR IC T the pace of banking activity generally accel
erates during the late summer and autumn months,
as loans, deposits, and investments respond to seasonal
forces. A substantial volume of loans is normally
granted to finance the marketing and processing of
the district’s agricultural production. Merchants seek
funds to build up inventories for the Christmas sea
son, and the demand for consumer credit generally
increases in the fall. The expanded volume of loans
to businesses and individuals causes an expansion of
deposit balances at banks in the district.
A seasonal net flow of money into the region fur
ther enlarges the volume of deposits at district banks
as firms in other regions of the country purchase dis
trict agricultural commodities during the harvest
months. Thus provided with additional cash bal
ances, district banks as a whole are usually net buy
ers of Government and other securities during the
second half of each year.
Although strong seasonal forces shape the pattern
of Eighth District banking from June to December,
certain business and financial developments altered
the magnitude and timing of customary changes in
banking activity this past year. For instance, the
usual seasonal growth pattern was supported by a
cyclical business upswing. On the other hand, the
plans of some firms were delayed by temporary short
ages of steel or by uncertainties accompanying strikes
in metals industries. The 1959 cotton program shifted
the timing of the seasonal commodity loan expansion.
Moreover, strong competition for loan funds caused
some customers to economize their requests for credit.
Recent banking data give some indication of the
effects on district borrowers of last year s economic
developments, while showing the strength of basic
seasonal forces.
the supervisory authorities, a detailed balance sheet.
The 6,300 member banks (488 in the district) which
hold roughly 85 per cent of the deposits of all com
mercial banks in the nation (70 per cent in the dis
trict) are asked for a “call” report about four times a
year. Nonmember banks make similar reports about
twice a year.
Because of the need for more frequent data than is
available from the comprehensive call reports, and
the need for data on specialized banking activities,
banks have been asked to make additional reports.
This article is based primarily on information gath
ered from three of these reporting series: 1) a brief
asset and liability statement developed for all mem
ber banks twice a month (the basis of Tables I and V);
2) a more detailed weekly report of condition from
thirty district member banks, holding 56 per cent of
total deposits of all district member banks (the basis
of Tables II and III); and 3) a weekly report of prin
cipal changes in business loans by major industry,
from banks making a substantial volume of these ad
vances; the sixteen banks in the district sample hold
about three-fourths of the business loans of all dis
trict member banks (the basis of Table IV).
Increased Lending at Eighth District Banks
The volume of loans outstanding at the 488 mem
ber banks in the Eighth Federal Reserve District
grew by $200 million, or by 7 per cent, from June
through December last year (see Table I). This rate
Table I
CHANGES IN LOANS AND INVESTMENTS AT
ALL DISTRICT MEMBER BANKS
June 24 through December 30, 1959
488 District
Member Banks
Sources of Banking Data
Periodic reports by commercial banks on their ac
tivities constitute an important source of data for the
analysis of banking and other economic developments.
All commercial banks (about 13,000 in the nation and
about 1,500 in the district) must complete, on call by
Page 4
Loans...............
30 W eekly
Reporting Banks
458 Non-W eekly
Reporting Banks
Change
Change
in
in
Millions
Millions
of
Per Cent
of
Dollars Change Dollars
Change
in
Millions
Per Cent
of
Per Cent
Change Dollars Change
$ + 204
+10%
$+
37
+3%
-0 -
+
75
+6
+112
+5
Investments. . .
+
Total
C re d it.........
+ 275
+7%
7 1 + 3
+5
$+167
—
4
+163
+
6
of loan expansion was well above the increase in
Who Received These Loans?
lending which occurred during the same months of
1958. Loan growth in the similar six months of the
previous five years averaged 6 per cent.
A detailed breakdown of loans extended by all of
the 488 district member banks will be available upon
the compilation of data from the call report of De
While loans at all district member banks increased
7 per cent in the last half of 1959, there was a similar
cember 31, 1959. Meanwhile the weekly reports
from the thirty larger banks furnish some detailed in
increase in lending at member banks throughout the
United States. Because of the particularly large de
mand for credit to finance the movement of this dis
trict’s agricultural products, the district rate of loan
increase at this time of year is usually about a third
formation on loans extended.
greater than the national rate.
In this district the greater part of loan growth in
the second half of the year most often results from
credit extended by larger urban (i.e., weekly report
ing) banks. The larger banks grant loans to finance
the processing and marketing of agricultural products
as well as a general increase in business inventories.
Outstanding loans at district rural banks, on the other
hand, tend to rise only moderately in the second half
of the year, as expanded loans to businesses, consum
ers, and real estate property owners are partially offset
by farmers’ net repayments.
The net increase of loans at district weekly report
ing banks, a growth of roughly 10 per cent between
June and December 1959, was close to the average
seasonal increase of the past several years (see Chart
I). During the same six-month period, the volume
of lending at nonweekly reporting banks expanded
about 3 per cent, or a little more than is usual.
Chart I
Total Loans
Per C e n t E i 9 hth D is t r ic t W e e k ly R e p o r t in g B a n k s Rer C e n t
While the weekly reporting banks held over 60
per cent of all loans extended by district member
banks, they accounted for roughly 80 per cent of the
net dollar increase in lending during the second half
of last year (see Table I). The ultimate loan expan
sion at weekly reporting banks was remarkably close
to the customary rate of growth over the second six
months of the year (see Chart I). On the other hand,
the timing and magnitude of changes in each cate
gory of loans, as reported by the thirty banks, re
flected the unique patterns of business activity during
1959.
Real Estate
The demand for real estate credit continued to be
strong throughout the fall months of 1959. At week
ly reporting banks loans secured by real estate rose
2 per cent from June through December, or at more
than double the usual rate of growth at this season.
Virtually all of the increase took place in the first
weeks of July. In following months real estate credit
outstanding declined much less than seasonally from
this high level: at the end of December the total of
such loans was between 4 and 5 per cent above the
total at the end of either 1957 or 1958. In spite of
the increase in real estate lending, the competition
for mortgage funds was keen and some potential bor
rowers appear to have experienced difficulties in
obtaining the funds they desired.
Consumers
Consumers also appear to have increased their
borrowing from the weekly reporting banks in this
district last year; similarly, there was a marked rise
in consumer credit in other sections of the country.
“All Other” loans, a major part of which are advances
to consumers, rose $17 million, or 3 per cent, in the
second half of the year (see Table II). Special month
ly reports based on a sample of 36 district banks
indicate that there was a particular increase in auto
mobile credit and in repair and modernization loans.
* B a se d on 1950 1956 d a ta
Page 5
Table II
NET CHANGES IN
PRINCIPAL ASSETS
District W eekly Reporting Member Banks
July 1 to December 30, 1959
Change in
Millions of
Dollars
ASSETS
Loans:
Per Cent
Change
$ -f
7
Security.............................................................
-|-
7
+ 2%
+ 13
Agriculture.........................................................
—
5
— 30
Commercial and Industrial..........................
+111
Real Estate.........................................................
Loans to Financial Institutions......................
+
24
All other loans................................................
+
17
+ 16
+ 11
+ 3
Loans to Banks.....................................................
$+
13
+
Total Loans*.........................................................
$ + 173
43%
+ 10%
Investments:
Treasury b ills...................................................
Treasury certificates........................................
$+
49
+ 128%
More than two-thirds of the dollar rise in business
loans at district weekly reporting banks was account
ed for by the banks in Memphis. The largest part
of this rise occurred in late October and November
as merchants borrowed heavily to purchase cotton
from the Commodity Credit Corporation, meeting the
large domestic and foreign demand for cotton.
Although the new marketing procedures delayed the
expansion in cotton loans, the ultimate increase last
year was much greater than usual.1
Lending by banks in the St. Louis metropolitan
area accounted for about 20 per cent of the ultimate
credit rise at district weekly reporting banks. Growth
of commercial and industrial advances at Little Rock
from June through November was partially offset by
net repayments in December. Expanded loans to
food processors and to textile and leather manufac
turers, as well as advances to commodity dealers,
accounted for the rise in loans by Louisville banks.
— 17
— 27
Within 1 y e a r..........................................
-{- 41
+
After 1 but within 5 ye a rs....................
— 86
— 15
Table III
CHANGES IN COMMERCIAL AND INDUSTRIAL LOANS
OF WEEKLY REPORTING MEMBER BANKS
After 5 ye ars............................................
+
21
+ 14
July 1 to December 30, 1959
Other securities................................................
—
7
Treasury notes and U. S. G ov’t
bonds maturing:
Total Investments*..............................................
-Q -
Total Bank C redit* ..............................................
$ _ |_ 17 3
—
58
3
+
6%
Cash Assets...........................................................
$-f- 60
+
6%
Other Assets.........................................................
$-|-
+
1%
TOTAL A S S ET S .....................................................
1
$ + 233
+
6%
* Note: Totals do not add), due to rounding.
Businesses
The credit requirements of commercial and indus
trial firms accounted for two-thirds of the total loan
increase at district weekly reporting banks. During
the six months their business loans rose approximate
ly $111 million, or 16 per cent. The largest stimulus
to lending activity came from the financing of crop
movements in the district. Business lending in the
nation, on the other hand, was only 7 per cent higher
in December than in June: strong seasonal loan growth
in farming regions of the country was counterbalanced
by the less sharp rate of expansion in predominantly
nonagricultural areas.
In this district, the total rise in commercial and in
dustrial loans seems to have been less rapid between
June and October 1959 than in similar periods of
previous years, although net borrowings of some groups
of businesses were greater than usual. In November
and December however, commercial and industrial
loans apparently rose at a relatively rapid rate, and
the total dollar increase from July through December
was close to the average rise of recent years.
Page 6
Change in
Millions of
Dollars
-o -
Eighth District .......................................
St. Louis A re a * ........................................
Louisville ................................................
Memphis ................................................
Evansville ................................................
Little Rock ..............................................
$ + 1 ,9 8 3
in
+
+
+
+
—
Per Cent
Change
+ 7%
+ 16
22
+
13
+ 11
+ 54
— 4
77
2
1
+
* City of St. Louis, East St. Louis, and National Stock Yards.
+
6
3
According to the sixteen larger district banks which
report principal changes in commercial and industrial
loans by business category, business loans other than
advances to commodity dealers showed, as a whole, a
less vigorous rise than in the same months of previous
years (see Table IV).
The volume of credit extended by the sixteen larg
est district banks to metal-producing and using in
dustries was temporarily affected by strikes during
the period between June and the end of 1959. The
final net change in the volume of such loans was,
however, remarkably close to the average for the
similar six months of previous years. A relatively large
volume of loans outstanding in July and August was
repaid far more rapidly than usual during October
and November as inventories were being depleted.
But loans by the sixteen district banks rose quickly
in December when certain types of steel could again
be purchased.
1 S ee: “The Im pact of Recent Cotton Marketing Changes on Bank
Credit” in this Revieiv for December 1959.
Building activity was reportedly hampered to some
extent in recent months by the short supply of con
struction steel, higher credit costs, and the uncertain
outlook. Loans made by the sixteen reporting banks
to contractors, though at a high level, showed a more
than normal decline in the final three months of 1959.
While leather, apparel, and textile firms generally
make large net repayments to the sixteen reporting
district banks in the second half of the year, the net
decline in the past six months was relatively small
(see Table IV). The substantial volume of such loans
which remained outstanding at the end of 1959 may
partially reflect a greater demand for shoes and cloth
ing in the past year. Moreover, wholesale and retail
shoe and apparel prices continued to rise last year;
as a consequence, the dollar value of firms' inven
tories may have increased.
Loans made by the sixteen banks to food processors
showed an expansion over the six months which was
far less than usual for the time of year; food manu
facturers’ loans declined contraseasonally at reporting
banks in Little Rock. Meat packing firms which con
tinued to decentralize their operations may have con
tributed a smaller demand for credit at the reporting
banks. It is also possible that lower prices on certain
agricultural commodities diminished processors' credit
needs.
Table IV
NET DOLLAR CHANGES IN COMMERCIAL AND
INDUSTRIAL LOANS AT SIXTEEN LARGE BANKS
IN THE EIGHTH DISTRICT
July 1 - December 30, 1959
(In thousands of dollars)
District
1959
Loans to:
District
Average
1954-1958
Food
........................................................... $ +
28,093
479
Textiles, Apparel, and Leather.............
—
Metals and Metal Products......................
— 13,857
Petroleum, Coal Chem icals and Rubber
453
Other
—
+
Manufacturing and Mining Concerns
—
5,783
— 12,161
+
1,004
4,290
665
................................................
36,371
Wholesale Trade Concerns.............................
+
4,180
+
7,372
Retail Trade Concerns.....................................
—
8,807
—
2,176
Commodity D ealers..........................................
+ 101,236
+
67,050
Public Utilities...................................................
+
4,461
+
3,140
Contractors.........................................................
—
3,973
+
456
All O thers...........................................................
4,477
+
9,337
Total............................................................
+ 105,259
+ 107,125
Investments
While all Eighth District member banks increased
their loans outstanding by 7 per cent between June
and December of 1959, they also added to their hold
ings of investments (see Table I). Typically, during
these months when seasonal net flows of money into
the district increase bank deposits and reserves rapid
ly, the banks enlarge their investment portfolios.
In the last six months of 1959, country (i.e., non
weekly reporting) banks increased their holdings of
Government and other securities by nearly 6 per cent.
Meanwhile, the thirty weekly reporting banks’ hold
ings showed virtually no net change; however, the
maturity distribution in their portfolios of securities
shifted significantly over the six months (see Table
II). In the aggregate the weekly reporting banks con
tinued to sell Treasury notes and U. S. Government
bonds, in the one- to five-year maturity range, and
Treasury certificates. At the same time, many of
these banks increased their holdings of short-term
Treasury bills. The thirty weekly reporting banks re
duced their portfolios of municipal and corporate se
curities somewhat during the six-month period.
Increase of Total Credit
Most of the 5 per cent increase in total credit in
the Eighth District during the past half year took
place at the thirty weekly reporting banks (see Table
I). As we have seen, these banks’ loans outstanding
increased nearly 10 per cent. Although weekly re
porting banks did not make net purchases of securi
ties this past half year, they played the more sig
nificant role in creating new credit. District non
weekly reporting banks, on the other hand, held an
increased volume of both loans and investments at
the end of the six-month period, but contributed less
than half of the new credit extended in the district.
Expansion of Deposits
While loans and investments held by all district
member banks increased about $275 million between
June and December of 1959, total deposits rose $460
million. The difference, reflecting a net surplus in
cash transactions between this area and the rest of
the nation, permitted Eighth District weekly and non
weekly reporting banks to build up their cash position
(see, for instance, Table II ). The net inflow of funds
this past year may be from two principal sources: pay
ments for Government purchases under the new cot
ton program, and purchases of district agricultural
products by dealers and manufacturers in other parts
of the country.
Page 7
Chart II
Total deposits at the 488 district member banks
increased about 7 per cent between June and De
cember of 1959. In similar six-month periods of
recent years, the average net change in total deposits
was also close to 7 per cent. However, the volume
of demand deposits at district banks as a whole grew
at a more rapid rate than usual, expanding about 10
per cent in the second half of the year. Time de
posits, on the other hand, failed to show their custom
ary expansion.
Demand Deposits
Per C e n t
^
E ig h t h D is t r ic t M e m b e r B a n k s
Demand Deposits
A large portion of the net flow of funds from out
side the district, and a part of the funds created by
loans from district banks, were, directly or indirectly,
payments to farmers and other rural bank depositors.
From the end of June to the end of October the dol
lar increase in demand deposits (other than inter
bank deposits) was four times greater at nonweekly
reporting banks than at weekly reporting banks. By
the end of December, however, the later expansion of
loans and a seasonal flow of payments into the cities
had sharply raised deposit accounts at the thirty
weekly reporting banks in metropolitan areas. Fur
thermore, nearly $179 million was added to corre
spondent accounts at the thirty larger banks between
June and December. As a consequence, by the end
of December, weekly reporting banks had gained
nearly two-thirds of the nearly $440 million net in
crease in total demand deposits in the district, while
the 458 nonweekly reporting banks, as a whole, had
gained one-third (see Table V).
* B ase d on 1 955 -1 9 5 8 d a t a
Note: Last Wednesday in June, which was June 24 in 1959, used as
base for both series.
Time Deposits
Rural (nonweekly reporting) bank time deposit bal
ances generally rise in the fall months of each year
as farmers, receiving the bulk of their incomes with
in a short period of time, add to their accounts. Most
of those holding time deposits in the thirty urban
banks, on the other hand, add to them gradually
throughout the year; large net withdrawals are made
from savings accounts in November and December,
however, and weekly reporting bank time deposits
generally decrease near the end of each year. The
(Continued on back page—page 12)
Table V
CHANGES IN DEPOSITS AT ALL DISTRICT MEMBER BANKS
June through December 1959
W eekly Reporting
Member Banks
All Member Banks
Change
in Millions
of Dollars
Per Cent
Change
Change
in Millions
of Dollars
Non-W eekly Reporting
Member Banks
Per Cent
Change
Change
in Millions
of Dollars
Total Deposits.............................................................
$+458
Total Demand Deposits..............................................
+463
+ 10
+ 285
+ 11
+ 272
+
7
+ 106
+
+ 191
+ 29
+ 179
+ 29
+
12
— 14
— 2
+
9
Demand Deposits Other Than Interbank.........
Interbank Deposits................................................
Total Time Deposits..................................................
Page 8
—
5
+
7%
-o -
$ + 271
+
8%
5
$+187
Per Cent
Change
+
7%
+ 178
+
9
+ 166
+
9
+ 30
+
1
F A R M COM M OD ITY SU RPLU SE S
C a r r y o v e r o f f a r m c o m m o d i t i e s rose to
new record heights in 1959. Commodity Credit Cor
poration holdings (price support loans and invento
ries at cost) totaled $9.2 billion on October 31, 1959
or $1.3 billion more than holdings a year earlier. Com
modities constituting the major part of farm surpluses
include corn, grain sorghum, wheat, and cotton. How
ever, supplies of barley, rice, soybeans, and a number
of other commodities are more than adequate. Carry
over of feed grains (corn, oats, barley, and sorghum
grain) into the 1960-61 marketing season is expected
to total 80 million tons or 60 per cent of domestic con
sumption last year. Stocks of wheat that will be car
ried into 1960-61 are estimated at 1.4 billion bushels,
more than double domestic consumption last year and
about 40 per cent greater than domestic consumption
plus exports. Cotton stocks at the beginning of the
next harvest season may total almost 9 million bales,
about equal to annual domestic consumption.
The large supplies of farm commodities have de
pressed prices in recent months despite an increase
in demand. Prices have generally trended downward
since mid-1958 while consumer incomes, business in
vestments, employment, and other demand factors
have moved upward. At the end of 1959, prices of
farm commodities were about 9 per cent below the
average in mid-1958. Lower prices combined with
higher cost put the squeeze on net income to farmers,
which in the third quarter of 1959 was down about 25
per cent from the level of the previous year. The
United States Department of Agriculture has pre
dicted lower average prices for 1960 compared to
1959 and a further decline in net income of farm
operators. In recent weeks prices have risen slightly.
The beginning of the first wave of Government
holdings of farm commodities dates back to acquisi
tions by the Federal Farm Board in its efforts to sta
bilize farm commodity prices in the early thirties.
Substantial losses were taken by the Board in liqui
dating stocks of wheat, cotton, and wool which were
held off the market through a loan program while
prices were declining. Farm commodity price stabil
izing activities were continued on a more extensive
scale under the Agricultural Adjustment Act of 1933.
A program under this act was designed to reestablish
prices at a level sufficient to give farmers purchasing
power equivalent to that in a base period. Basic fea
tures of the program including acreage controls and
price support operations through the CCC (Com
modity Credit Corporation) are still in effect.
The build-up in farm commodity stock holdings by
the CCC was at a relatively slow rate in early thirties.
Price supports on most commodities were held at
modest levels relative to market prices. The value of
commodities, at the loan rate or cost, under the pro
gram on December 31, 1937 totaled only $312 million,
or less than 4 per cent of cash farm income from mar
ketings for the year ( Chart 1).
Chart 1
Billions of D o llars
Three Waves of Surplus Stocks
Since Early 1930’s
The build-up in Government holdings of farm com
modity stocks has come in three waves—the 1930’s
into World W ar II, the end of the War to the out
break of the Korean conflict, and the post-Korean
wave.1
1 Government holdings of farm commodities as defined in this
article include both inventories owned by the Government and
stocks on which loans or purchase commitments have been made
in connection with the price support program.
culture.
B illions of D o lla rs
Following the higher mandatory price-support loans
authorized in the Agricultural Adjustment Act of 1938
larger stocks of commodities began to accumulate.
The earlier loans were mostly on cotton but following
higher price supports large quantities of wheat and
com began to accumulate under the program. By
1940 the value of stocks held by the CCC in price
support operations totaled $1.2 billion or almost 15
per cent of total cash farm income for the year. Dur
ing the war years (1941-1945) the CCC was able to
unload most of the stocks which had earlier been a
matter of great concern.
Following the war a second wave of farm com
modity stocks began. Compared to the earlier wave,
the build-up was quite rapid. Price supports which
were kept at incentive levels throughout the war to
encourage a high level of output were retained fol
lowing the war to prevent sharp price declines. The
value of stocks held by the CCC in loans or inven
tories rose from $528 million in 1946 to $3.6 billion,
or 14 per cent of total cash farm income, in 1949. The
uptrend, however, was short-lived as the situation
was relieved by the war in Korea. Stocks declined to
below the $2 billion level in December 1951 when the
current build-up began.
The third wave of farm commodity stock holdings
began in 1952 near the end of the Korean conflict.
This wave has been greater than either of the earlier
two. Furthermore, it continues unabated despite the
strenuous governmental efforts to move such commod
ities to consumers in both this nation and throughout
the world. Price supports were changed somewhat
in the period, but prices on most supported commodi
ties are still generally considered sufficient incentive
for increased production. Stocks rose more than four
fold from 1951 to 1955. A large Government export
subsidy program was begun in 1956 which coupled
with a short cotton crop served to temporarily halt the
up-trend. The upward movement, however, was re
sumed in 1958, and stocks reached new record peaks
in both 1958 and 1959. On November 30, 1959
stocks held by the CCC totaled in excess of $9.5
billion or about 25 per cent of total cash farm income
for the year.
Price supports, however, have been sufficient to pro
vide incentive for increased production despite the
reduced acreage.
Feed Grain Supplies
Feed grains are an excellent example of the latest
build-up in farm commodity stocks. Carryover of feed
grains into the 1959-60 marketing season totaled 67.4
million tons, equivalent to almost 50 per cent of total
domestic consumption in 1959, according to prelim
inary estimates of the Department of Agriculture.
Estimated carryover into the 1960-61 marketing sea
son is 80 million tons—approximately 60 per cent of
domestic consumption in 1959.
Feed grain carryover into the 1952-53 marketing
season totaled only 20 million tons. The build-up in
surplus stocks since that time has been at the rate of
about 7M million tons per year, i.e., feed grain produc
tion in the past eight years has exceeded average
domestic consumption plus exports by about 5 per
cent per year.
Corn and grain sorghum are the major contributors
to surplus feed grain stocks. A two-billion-bushel
carryover of corn is expected in 1960—almost 50 per
cent of 1959 production and more than four times the
carryover in 1952. Sorghum grain carryover is expect
ed to total 550 million bushels—almost equal to 1959
production and more than double the average 1948-57
production. Sorghum grain carryover in 1952 was
only 10 million bushels.
Chart 2
Carryover Stocks, Selected Farm Com m odities
B illio n s o f B u s h e ls
B illio n s o f B u sh e ls
Third Wave of Stocks Includes Most
Major Commodities
The third wave of farm commodity stocks has
spread to most of the major crops produced in the
nation. Acreage controls were authorized for most
crops and in recent years substantial quantities of
cropland have been taken out of production by the
Government through rental agreements with farmers.
1952 1953
Page 10
1954
1955
1956
1957
1958
1959
1960
Wheat
Wheat stocks have increased at about the same
rate as feed grains despite a more rigid acreage con
trol program, plus substantial export subsidies. Car
ryover stocks have increased from 256 million bushels
in 1952 to 1,276 million bushels in 1959 and an esti
mated 1,366 million in 1960. Estimated 1960 carry
over is substantially in excess of the 1.1 billion bush
els produced in 1959. In the past seven years such
stocks of wheat have increased almost 150 million
bushels per year. An average of 15 per cent of each
crop has been added to carryover stocks.
Domestic consumption of wheat in 1959 was 626
million bushels, slightly more than 50 per cent of the
crop. Exports totaled 410 million bushels of which
approximately 70 per cent moved under special gov
ernment subsidy programs.
Cotton
Cotton also remains in excessive supply despite a
large export and domestic subsidy program. Carry
over of cotton in 1959 was 8.9 million bales, about
equal to a year's requirements for domestic consump
tion.
Cotton exports in 1959 totaled about 5.5 million
bales, most of which moved only at a heavy Govern
ment expense. Such subsidies are currently ranging
from 8 to 10& cents per pound or $40 to $52.50 per
bale.
Other Commodities
A number of other commodities are in abundant
supply. As of October 31, 1959 the Commodity Credit
Corporation was holding substantial quantities of
barley, oats, milled and rough rice, soybeans, shelled
peanuts, butter, and cheese. Smaller quantities of
dried milk, dry beans, flaxseed, rye, linseed oil, rosin,
tobacco, and other commodities were also held in
price support operations.
Rising Yields Per Acre A Major Factor
Technological factors, permitting greatly increased
yields per acre with the price support incentive have
played a major part in the high level of farm output,
reducing the effectiveness of the acreage control pro
gram. Production gains via increased yields per acre
have been more than sufficient to provide for domes
tic consumption plus exports. Hence, the nation has
added to agricultural stocks almost every year since
the end of the Korean conflict.
production was sufficient to offset increased consump
tion and add large quantities to carryover stocks.
Table 1
AVERAGE ANNUAL FEED GRAIN ACREAGE,
PRODUCTION, AND CONSUMPTION BY
DOMESTIC LIVESTOCK
for Selected Postwar Periods
Acres
Yield
Harvested
Per
(Million
Acre
Production
acres)
(tons)
(Millions of tons)
0.88
116.8
1951-53............. 132.8
0.91
128.3
1954-56............. 141.2
1957-59............. 141.0
1.11
155.9
Fed to
Livestock
101.0
103.7
122.1
Harvested acres rose about 8 per cent in the period,
but the 25 per cent gain in yield per acre was the main
factor in boosting feed grain output.
Wheat has followed the same general pattern as
feed grains with the exception that acreage harvested
has declined substantially. Total use of wheat (domes
tic use plus exports) rose about three per cent from
the 1951-53 average to the 1957-59 average. Acreage
harvested declined about 25 per cent. Rising yields
per acre were again a major factor in building up
supplies. Average yields rose almost 40 per cent be
tween the two periods.
Harvested acres of cotton declined almost 50 per
cent and the average 1957-59 mill consumption plus
exports were down about 5 per cent from 1951-53
levels. Yield per harvested acre, however, rose more
than 50 per cent. Thus, production was maintained
at a high level despite the substantial acreage reduc
tion.
Yields of other crops have also been the major
factor in the build-up of stocks. In fact, total acreage
of land used for crops has declined substantially
since 1945, whereas yields per acre have increased
about 25 per cent (Chart 3).
Chart 3
Crop A crea ge and Y ie ld s 1 9 4 5 -5 8
P er C e n t
Per C e n t
Output of feed grains rose from a 1951-53 average
of 116.8 million tons per year to a 1957-59 average of
155.9 million tons (Table 1). Consumption by domes
tic livestock rose substantially — about 20 per cent
during the period, but the 34 per cent increase in
Page 11
Future Carryover Prospects
Assuming that acres used for total crop production
are not reduced substantially, stocks of farm com
modities are likely to pose serious problems. Technilogical changes in production are likely to remain
important. Better seeds through plant breeding, in
creased use of fertilizer and lime, soil conservation,
improved methods of insect control, and irrigation
are factors. Price supports add to the incentive to
farmers to adopt high yielding practices on a wide
spread basis.
Reduction of stocks through a rapid build-up in
consumption plus exports does not seem probable in
the near future. Grain-consuming animal units have
increased in recent years, but increased efficiencies
have come into feeding operations off-setting a por
tion of the gain. Feed units required to produce 100
pounds of broilers have declined almost 40 per cent
since World War II. Increased exports through var
ious types of subsidies have been effective in reducing
cotton stocks under a rigid acreage control program,
but the program is expensive and has also aroused
antagonism in other cotton exporting nations. Similar
methods have also been used to slow the build-up in
wheat stocks with comparable repercussions. Wheat
stocks have nevertheless continued to increase.
Conclusion
In summary, under our system of price supports
and acreage allotments, the build-up in farm com
modity stocks has come in three major waves. The
first wave, which built up slowly with the more mod
est price support levels in the early years of the
program, was reduced during World War II. At the
end of the War a second wave built up rapidly with
the incentive of higher price supports. Again the
situation was relieved by the Korean conflict. A third
wave greater than either of the earlier two began near
the end of the Korean conflict and continues unabated.
Price supports are apparently sufficient to provide the
incentive for farmers to increase yields and output at
a faster rate than gains in domestic consumption plus
exports, despite acreage controls and other programs
designed to reduce stocks.
District Banking Activity in the Last H alf o f 1959
(Continued from page 8)
Conclusion
credit continued to rise. Business loans at metro
politan banks showed a delayed, but almost seasonal
increase. Uncertainties and slowdowns accompany
ing major strikes this year may have caused some
firms to keep their borrowing below year-ago levels.
Higher costs of credit may have prompted firms and
individuals to scale down their requests for loan
funds, although there was probably little shortage
of bank credit to worthy borrowers in the Eighth
District during the period.
The acceleration in banking activity which has
been observed over the months from June through
December of 1959 generally followed the seasonal
pattern observed in similar months of previous years.
Loans at district banks increased with the rising de
mand for credit in the second six months of the year.
Real estate loans expanded sharply, and consumer
Loans made by district banks, and their net pur
chases of U. S. Government securities, combined to
expand total bank credit to an extent that is usual
between June and December each year. At the same
time, a seasonal inflow of cash payments from other
parts of the country further enlarged deposit ac
counts at both country and city banks in the district.
increase in time deposits at country banks was un
usually small last fall, their semi-monthly reports
showed; moreover, there was a greater than usual
decline in such deposits at the thirty larger banks.
Presumably, some savers continued to prefer to hold
assets yielding a higher rate of return than the in
terest paid on commercial bank time deposits.
Page 12
@FedFRASER