Federal Reserve District, 12th ; Agriculture - West

Stephen O. Dean

English

Research Papers in Economics

FABSF WEEKLY LETTER
February 15, 1991
District Agricultural Outlook
Over the past several years, agriculture has been
a strong performer in the Twelfth District econ-
omy. Although the number of acres farmed in the
district has declined, farm income has steadily
risen. Since 1985, District real net farm income
has increased an average of 12 percent per year.
Conditions entering 1990 were relatively strong,
with high prices and solid production for many
of the District's most important crops. As 1991
begins, however, the situation has changed mark-
edly. Last year's high prices spurred record plant-
ings of many crops, pushing current prices
sharply lower. In addition, the severe freeze in
late December and early January and a fifth con-
secutive year of drought in California will worsen
conditions for many farmers. This Letter discusses
the outlook for agriculture in the Twelfth District
in 1991 and describes the problems presented by
the freeze and the continued drought.
Profile
The agricultural sector in the Twelfth District
is remarkably diverse. In 1988, 32 District
products brought in over $100 million each
in cash receipts. The number and variety of
crops tend to insulate the District's aggregate
agricultural performance from problems with
a single crop.
Within the District, 60 percent of the agricultural
production takes place in California, by far the
largest producer; the next largest producer,
Washington, accounts for just 12 percent. Still,
a number of important crops are grown outside
California: Idaho grows 22 percent of the nation's
potatoes; Washington produces 42 percent of the
nation's apples; Oregon grows all of the nation's
grass seed; Hawaii accounts for all of the U.s.'s
pineapples; and Arizona produces a substantial
amount of lettuce and citrus fruit.
Because of the Twelfth District's strengths
and diversity, its agricultural outlook for this
year differs significantly from the nation's. In the
remainder of this Letter, the implications of the
u.s. Department of Agriculture's annual projec-
tion are drawn for the Twelfth District's agricul-
tural economy.
Livestock and dairy
Conditions in the District's cattle and dairy
industries should remain solid in 1991, but
growth will not be as strong as last year because
of lower prices and deteriorating range condi-
tions. Cattle and dairy are the highest value
agricultural products in the Twelfth District.
The USDA forecasts record U.S. meat supplies
in 1991, with beef production up 1 perc~~t. The
District's cattle-on-feed numbers are down 10
percent from a year ago, however, and drought
conditions will likely force many cattle into
feedlots soon. Combined with lower prices for
most dairy products, growth in cash receipts
may be lower in the District in 1991.
Field crops
The top five District field crops (cotton, wheat,
hay, barley, and rice) accounted for $4 billion in
cash receipts in 1988, 14 percent of total District
receipts. Prospects for these crops in 1991 are
worse than a year ago. These are crops in which
the West faces abundant competition from other
areas of the country, and, indeed, the rest of the
world. The USDA estimates that 1990-91 world
competition will be strong, with production of
many field crops reaching record levels which
will push prices lower and weaken export
markets.
A look at cotton and wheat provides a good
feel for the District field crops outlook. Cotton
production in the U.s. for the 1990-91 season is
forecast to increase 22 percent, but because of
low beginning stocks, total cotton supply will fall
7 percent. Arizona, which produces 30 percent
of the cotton in the District, will probably enjoy
the same bright outlook as the nation. California,
THE WESTERn ECOnOmy The Western Economy is a quarterly
review of economic conditions in the Twelfth Federal Reserve District. It is published in the Weekly Letter
on the third Friday of February, May, August and November.FRBSF
however, which produces the remaining 70 per-
cent of the District's cotton, will likely see pro-
duction fall due to the drought. Record world
and U.S. wheat production has reduced prices
37 percent from last year and should lead to sig-
nificantly lower wheat plantings in 1991. Lower
prices weaken the District wheat outlook and
hurt the overall agricultural picture in Idaho and
Washington, where most of the District's wheat
is grown.
Vegetables
The outlook for the District's 1991 vegetable
crop is for continued strong production, although
prices for some important crops will be much
lower than a year ago. The majority of the na-
tion's vegetables are grown in the Twelfth Dis-
trict, and two-thirds of the District's crop comes
from California. Although the top five income-
producing vegetables (lettuce, potatoes, toma-
toes, broccoli, and carrots) bring in about $1
billion less than the top five field crops, these
vegetables represent a significant share of
national production.
Fruits and nuts
District fruit production will be lower in 1991,
but rising prices should help keep cash receipts
stable. Nut production in the District, however,
will rise sharply, leaving prices lower. Over 60
percent of the nation's fruit and nut crop is grown
in the Twelfth District. The top five District fruit
and nut crops (grapes, almonds, apples, oranges,
and strawberries) had a value of $3.4 billion in
1988. The USDA expects U.S. fruit and nut pro-
duction to be mixed in the 1990-91 season, with
an 8 percent drop in noncitrus fruit, a 26 percent
increase in citrus fruit, and an 11 percent rise in
nut production.
The drop in noncitrus fruit production is largely
the result of reduced production of apples and
grapes. In Washington, where 90 percent of the
District's crop is grown, production is expected
to drop 6 percent, which will push prices up.
Production is expected to fall for all types of
grapes in California, with raisins down 12 per-
cent, wine grapes off 4 percent, and table grapes
down 3 percent. The expected increase in U.S.
citrus fruit production is mostly the result of high
production in Florida and Arizona. With the loss
ofapproximately 80 percent of California's $250
million navel orange crop to the freeze, Califor-
nia production is likely to drop significantly. Nut
production, however, will be strong, especially
California almonds and pistachios.
Freeze and drought
Weather problems temper the Twelfth District
agricultural outlook more than ever this year.
The year-end freeze on the West coast and the
increasing likelihood of a fifth consecutive year
of drought in California cause significant con-
cern. Extreme cold in eastern Washington report-
edly damaged much of the winter wheat crop. In
California, estimates put the potential damage to
agriculture from the freeze at $1 billion. Most of
the naval orange, lemon, grapefruit, and arti-
choke crop was wiped out in California. In Cal-
ifornia's San Joaquin Valley, a majority of the
avocado crop suffered permanent damage. On
the positive side, farmers in Arizona and some
areas of southern California where these crops
were not destroyed wiII be able to take advan-
tage of higher prices.
It is more difficult to estimate the potential
impact from the continued drought in California.
Many experts suggest that the losses couId be
worse than from the freeze. The fact that the
drought is in its fifth year makes conditions
especially bad. Reservoir levels already are at
historically low levels, and, with just 20 percent
ofthe normal level of precipitation having fallen
by January, agricultural water delivery cutbacks
may reach 75 percent or more. Normally, Califor-
niafarmers adjust to reduced water supplies by
idling some land, reducing production of certain
water-intensive field crops, and pumping more
ground water. With ground water sources already
heavily used in the last several years, pumping
water this year will be even more expensive than
usual. Even if, as in past droughts, these adjust-
ments allow cash receipts to remain relatively
unchanged, costs will be significantly higher
for California farmers this year.
Summary
In 1991, Twelfth District agriculture faces its
most difficult conditions in several years. High
production of many field crops and vegetables
has left prices sharply lower than a year ago.
Severe weather problems darken the normally
bright agricultural outlook in California.
Despite these concerns, the West's enormous
diversity of crops will help it withstand such
difficult conditions. Because numerous District
crops have few competitors outside the District,
reduced production quickly causes prices to rise.
Thus, District cash receipts for many crops are
affected less by reduced production than they
would be in other parts of the country.
Stephen o. Dean
Research CoordinatorDISTRICT INDICATORS
(Seasonally Adjusted)
9OQ4 9OQ3 9OQ2 9OQ1 8904 89Q3 89QZ 89Q1
AGRICULTURE
U. S. CROP PRICES, 1985=100 114.4 116.9 118.0 118.7 115.3 112.9 115.0 116.2
DISTRICT CROP pRICES, 1985=100 113.0 112.7 112.2 129.6 117.2 114.9 122.1 120.6
FARM CASH RECEIPTS, MILLION S N/A 2508.5 2389.6 2350.7 2534.2 2425.5 2511.8 2431.5
CATTLE ON FEED, 1985=100 84.1 88.0 90.2 90.5 90.4 92.5 90.5 93.4
CATTLE PRICES, CALIFORNIA, S/CWT. 63.9 65.9 68.3 63.6 62.4 62.7 61.8 61.7
FORESTRY
LUMBER PRODUCTION, MILLIONS BOARD FEET 1358.2 1564.3 1669.5 1767.2 1795.1 1787.9 1732.8 1630.0
NORTHWEST LUMBER INVENTORY, MIL. BOARD FEET 2315.2 2497.8 2620.5 2611.7 2523.1 2535.5 2444.5 2423.7
U. S. LUMBER PRICES, 1986=100 120.1 130.1 132.0 130.3 128.1 123.8 119.5 123.4
ENERGY
SPOT PRICE OF OIL, S/BARREL 32.1 26.2 17.8 21.8 20.3 19.3 20.5 18.5
U. S. RIG COUNT 1084.1 994.1 1038.2 921.7 1002.3 878.2 828.7 765.3
DISTRICT RIG COUNT 73.6 74.4 72.8 56.8 69.2 73.4 68.5 62.9
FUEL MINING EMPLOYMENT, 1985=100 78.2 79.7 80.1 BO.1 79.6 BO.1 79.6 78.3
U.S. SEISMIC CREW COUNT 118.0 123.9 128.4 126.1 128.0 131.3 129.9 137.3
MINING
MINERAL PRICES, 1986=100 112.2 133.5 125.6 123.3 125.5 131.8 134.3 147.4
"En.L HIMIMG EMPLOYMENT, 1985=100 204.5 202.1 200.7 201.0 191.2 '\87.7 182.5 176.3
CONSTRUCTION
NONRESIDENTIAL AWARDS 1411.4 1557.5 1585.5 1726.2 1469.9 1655.5 1519.8 1437.1
RESIDENTIAL PERMITS 18676 22758 25989 32741 33475 30509 31304 31065
WESTERN HOUSING STARTS, THOUSANDS 18.7 29.1 31.2 30.7 29.3 35.2 37.7 29.6
CONSTRUCTION EMPLOYMENT, THOUSANDS 1020.9 1031.4 1042.3 1052.3 1029.0 1013.9 1003.2 983.7
MANUFACTURING
WAGES, CALIFORNIA, S/HOUR 11.6 11.6 11.4 11.3 11.3 11.2 11.1 11.0
EMPLOYMENT, THOUSANDS 3097.5 3124.2 3140.1 3163.0 3151.2 3151.9 3152.9 3148.0
DURABLES, 1985=100 100.5 102.0 103.1 104.0 103.6 104.0 104.1 104.0
CONSTRUCTION DURABLES, 1985=100 105.4 108.6 111.2 114.0 111.1 111.3 110.9 111.6
AEROSPACE, 1985=100 111.2 113.4 115.8 116.6 116.1 115.8 115.3 113.8
ELECTRONICS, 1985=100 94.1 94.3 94.5 95.2 94.8 94.7 95.2 95.7
SEMICONDUCTOR ORDERS, MILLIONS S, NOT S.A. 1151.4 1192.2 1309.7 1227.7 1197.9 1166.3 1300.0 1300.0
WHLS/RETAIL TRADE EMPLOYMENT, THOUSANDS 4854.0 4859.7 4830.6 4809.9 4755.0 4718.7 4681.8 4654.9
RETAIL SALES, PACIFIC DISTRICT, MIL. S 25287 24983 24865 24685 23961 23815 23417 22730
SERVICES EMPLOYMENT, THOUSANDS 5408.1 5355.4 5281.8 5234.5 5191.9 5126.7 5065.6 5015.3
HEALTH CARE, 1985=100 127.4 125.5 123.8 122.6 120.6 118.9 117.7 116.9
BUSINESS SERVICES, 1985=100 113.2 113.3 113.6 113.0 110.3 109.8 109.4 108.8
HOTEL, 1985=100 139.7 134.9 133.8 133.7 131.9 128.7 127.1 126.2
RECREATION, 1985=100 133.4 128.7 128.2 126.6 128.5 125.9 125.9 125.1
FINANCE, INSUR. AND REAL ESTATE EMPLOYMENT 1283.8 1278.5 1268.7 1265.5 1256.1 1244.6 1232.7 1227.4
GOVERNMENT EMPLOYMENT, THOUSANDS
FEDERAL GOVERNMENT 616.3 633.1 657.1 626.9 623.1 619.0 625.2 624.8
STATE AND LOCAL 2845.5 2833.3 2784.5 2758.7 2731.8 2700.3 2663.6 2644.8
Data are weighted aggregates of available 12th District state data and are expressed as monthly rates unless otherwise noted.
District indicator data are constructed by FRBSF research staff from public and industry sources.
Opinions expressed in this newsletter do not necessarily reflect the views of the management of the Federal Reserve Bank of
San Francisco, or of the Board of Governors of the Federal Reserve System.
Editorial comments may be addressed to the editor or to the author.... Free copies of Federal Reserve publications can be
obtained from the Public Information Department, Federal Reserve Bank of San Francisco, P.O. Box 7702, San Francisco 94120.
Phone (415) 974-2246.OU176 V::> 'O:>SPUI?Jj UI?S
lOLL xog 'O'd
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JO ~U08
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o Recession
~ Slower Growth
III Same
• Faster Growth
• The index is constructed from asurvey of approximately 75 business leaders
in thet2th Federal Reserve District.
Twelfth District Business Sentiment Index'
GNP
o
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
1988 1989 1990
80
60
20
40
100
Percent
UNEMPLOYMENT RATES
AVERAGE QUARTERLY DATA
9004 9OQ3 9002 9001 89Q4
ALASKA 7.0 6.9 7.1 7.1 6.7
ARIZONA 5.5 5.3 5.3 4.8 4.6
CALiFORNIA 6.5 5.5 5.2 5.1 5.1
HAWAII 2.8 2.5 2.6 3.1 2.6
IDAHO 6.1 5.8 5.9 5.0 5.0
NEVADA 5.8 4.6 4.9 4.5 4.8
OREGON 6.0 5.8 5.0 5.1 5.5
UTAH 4.4 4.5 4.7 4.3 4.1
WASHINGTON 5.5 4.9 5.2 5.5 6.2
12TH DISTRICT 6.2 5.3 5.2 5.1 5.1
U.S. 5.9 5.6 5.3 5.3 5.3
PERSONAL INCOME
ANNUALi ZED PERCENT GROWTH RATES
9OQ3 9OQ2 9001 89Q4 89Q3
ALASKA 6.0 9.9 5.9 -5.8 15.2
ARIZONA 8.8 5.6 6.7 5.2 5.6
CALIFORNIA 7.2 4.1 14.6 3.4 5.9
HAWAII 6.8 9.7 7.7 8.7 11.2
IDAHO -0.1 3.1 18.4 14.6 0.1
NEVADA 12.5 6.0 11.7 11.3 9.7
OREGON 4.8 6.9 8.0 11.0 5.8
UTAH 7.1 8.1 7.3 9.6 4.2
WASHINGTON 5.8 4.7 12.6 9.1 7.7
12TH DISTRICT 7.0 4.8 13.0 5.0 6.2
U.S. 5.0 5.3 8.7 6.3 3.. 6
* Year-to-date
NON-AGRICULTURAL EMPLOYMENT
ANNUALiZED PERCENT GROWTH RATES
9OQ4 9QQ3 9OQ2 9001 89Q4
ALASKA 2.9 0.4 3.4 2.8 -3.1
ARIZONA 1.9 3.6 1.4 4.6 5.2
CALIFORNIA -2.1 1.3 2.4 3.2 2.5
HAWAII 3.5 -0.5 3.1 1.9 3.4
IDAHO 4.4 2.0 -1.3 9.2 7.0
NEVADA 7.9 7.3 0.1 9.6 8.9
OREGON 0.4 0.7 2.1 6.7 2.4
UTAH 4.5 2.2 7.6 4.0 4.0
WASHINGTON 3.7 2.0 2.1 6.0 6.0
12TH DISTRICT -0.1 1.7 2.4 4.1 3.3
U.S. -1.6 0.4 2.3 2.6 2.0

District agricultural outlook

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District agricultural outlook

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