An abstract for this article is not available.Agriculture

Sada L. Clarke

English

Research Papers in Economics

AGRICULTURE:  OUTLOOK  FOR 1975 IS CLOUDY 
This  year’s  prospects  for  the  nation’s  agriculture,  outlined  by  leading  analysts  of  the 
U. S. Department  of  Agriculture  in early  December,  have  recently  been  revised. 
A  brief  rundown  of  their  new  forecasts  follows. 
Many  uncertainties  cloud  the  outlook  for  agri- 
culture  in  1975.  Weather,  as  always,  is  a  major  un- 
known.  The  cost-price  squeeze  will  likely  continue; 
how  tight  it  will  get  is the  question.  There  seems  to 
be  little  doubt  that  production  costs  will  go  up. 
Moreover,  prospects  regarding  the  level  of  farm 
prices  are  not  at  all  clear.  Supplies  of  some  farm 
inputs-notably  fertilizer-are  unsure.  And  the  de- 
mand  outlook,  both  domestic  and  foreign,  is  hazy. 
Income  and  Expenses  Farm  income  prospects 
have  weakened  considerably  since  early  December. 
Consequently,  it  now  looks  as  if the  nation’s  farmers 
will  wind  up  1975 with  less cash  in their  pockets  than 
they  had  at  the  close  of  1974.  Farmers’  net  earnings 
in  1975  could,  in  fact,  show  a  sizable  downturn- 
possibly  even  greater  than  the  one  last  year.  Any 
such  decline  would  follow  on  the  heels  of  nearly  a 
16  percent  drop  in  1974,  leaving  realized  net  farm 
income  far  short  of  the  record  level  set  in  1973. 
Farm  production  expenses  can  be expected  to  shoot 
upward  again.  But  the  1975  increase  may  not  be  as 
large  as  that  experienced  last  year.  Feed  costs  are 
not  likely  to  be  quite  as  high.  Moreover,  fuel  and 
fertilizer  prices  are  not  expected  to  rise  as  dramati- 
cally  as  they  did  in  1974. 
Crop  output  will  be  a  key  factor  in  determining 
the  level  of  farmers’  net  income  in  1975.  Major 
crop  prices  have  weakened  in  recent  months  and  are 
expected  to  remain  highly  sensitive  to  supply  and 
demand  developments  throughout  the  year.  Signifi- 
cantly  larger  crop  production  than  in  1974,  accom- 
panied  by  reduced  demand,  could  lead  both  to  lower 
farm  prices  and  to  much  lower  net  farm  income.  But 
crop  output  in  the  neighborhood  of  last  year’s  level, 
coupled  with  high  demand,  would  tend  to  shore 
up  prices  and  maintain  net  farm  income. 
Demand  factors  will,  of  course,  play  a  major  role 
in  determining  farmers’  1975 net  farm  income.  Both 
the  domestic  and  foreign  economies  continue  to  sag. 
With  the  general  economic  climate  here  at  home, 
unemployment  has  risen  dramatically  and  inflation, 
while  apparently  easing,  remains  only  slightly  below 
the  double-digit  level.  Consumers’  real  purchasing 
power  has,  so  far,  continued  to  deteriorate.  Unless 
the  general  economic  situation  rights  itself,  some 
further  erosion  in  the  strength  of  domestic  demand 
could  occur.  On  the  other  hand,  should  proposed  tax 
cuts  be  enacted  and  contribute  to  a  turnaround  in  the 
general  economy  at  an  early  date,  domestic  markets 
could  be  bolstered  significantly. 
The  worldwide  economic  slump  has  softened  the 
foreign  demand  for  U.  S.  farm  products.  Further- 
more,  recent  shifts  and  cancellations  in  commodity 
purchases  by  the  Soviet  Union  and  the  People’s  Re- 
public  of  China  have  added  still  more  uncertainty  to 
the  export  outlook.  Export  volume  of the  major  bulk 
commodities  in  fiscal  1975  is  currently  expected  to 
drop  more  than  15 percent  below  the  tonnage  shipped 
last  season,  with  much  of  the  decline  occurring  in 
grains,  soybeans,  and  cotton.  Higher  prices  for  many 
farm  products,  however,  will  more  than  likely  offset 
the  decline  in  volume  and  push  export  value  into  the 
neighborhood  of  $22  billion,  up  slightly  from  the 
record  set  in fiscal  1974. 
Farm  Finance  Outlook  Because  of  wide  differ- 
ences  in the incomes  of  crop  and  livestock  producers 
last  year,  the  financial  positions  of  farmers  at  the 
beginning  of  1975  also  varied  widely.  Crop  farmers 
in general  were  better  off  than  they  were  at  the  same 
time  last  year,  but  livestock  producers  were  much 
weaker  financially.  Little  change  in  their  respective 
financial  positions  is  anticipated  this  year.  Farmers 
and  lenders  alike  will be faced  with  some  tough  finan- 
cial  decisions.  Some  farmers,  particularly  livestock 
producers,  are  going  to be hard  pressed  to  repay  their 
old  debts.  Still  others  will  need  to  carry  over  a  large 
amount  of  short-term  debt. 
Demand  for  operating  loans  is  expected  to  remain 
strong.  There  may  be  some  slackening  in  the  need 
for  intermediate-term  financing,  however,  since  farm- 
ers’  purchases  of  capital  goods  are  expected  to  ease. 
The  weakened  demand  for  farmland  and  the  slow- 
down  in  the  advance  in  farm  real  estate  prices  will 
reduce  the  need  for  new  money  for  farm-mortgage 
loans.  Much  of  the  demand  for  operating  loan  funds 
will  stem  from  farmers’  needs  to  finance  the  higher 
costs  of  planned  crop  production. 
Since  farmers  will  need  to  borrow  heavily  in  1975, 
the  important  question  is : “Will  farm  lenders  be  able 
to  provide  the  loan  funds?,’  Overall,  it  appears  that 
FEDERAL RESERVE BANK  OF  RICHMOND  19 farmers’  borrowing  needs  can  and  will  be  met.  Most 
commercial  banks  are  experiencing  an  increase  in 
their  farm  lending  capacity.  Some  banks,  however, 
are  hesitating  to  provide  additional  loans  to  those 
farmers  who  have  had  to  renew  last  year’s  production 
loans  and  who  are  showing  a  deteriorating  financial 
position  and  prospects.  Lenders  with  access  to  na- 
tional  money  markets-the  Federal  land  banks,  for 
example-and  individual  farmers  who  sell  their  own 
farms  are  expected  to  expand  their  lending  signifi- 
cantly. 
Some  easing  in  farm  loan  interest  rates  is  antici- 
pated  during  the  first  half  of  the  year.  It  appears 
unlikely,  however,  that  rates  will  fall  more  than  one- 
half  to  1 percentage  point  below  the  1974  level,  since 
rates  at  many  rural  banks,  as  well  as  at  the  Federal 
land  banks,  did  not  follow  the  sharp  rise  in  1974 that 
occurred  in  short-term  rates  generally.  However, 
farm  borrowers  from  large  banks,  and  perhaps  PCA 
borrowers  also,  may  experience  a  significant  reduc- 
tion  in their  borrowing  costs  compared  with  last  year. 
Food  Price  Prospects  The  nation’s  homemakers 
will  be  unhappy  with  the  outlook  for  food  prices,  for 
they  will  need  to  find  ways  to  stretch  their  family 
food  budgets  still  further  in  1975.  Retail  food  prices 
are  expected  to  climb  higher  during  the  first  half  of 
the  year,  but  the  increase  is likely  to  be much  smaller 
than  was  expected  just  a few  months  ago. 
By  midyear,  higher  retail  prices  are  likely  for  both 
crop-  and  livestock-related  foods.  Biggest  price  gains 
during  the  first  quarter  will  show  up  in  crop-related 
food  items,  while  slightly  sharper  increases  for  red 
meats  and  poultry  will  follow  in  the  second. 
Many  uncertainties  surround  the  outlook  for  food 
prices  this  year.  Among  them,  these  three  stand  out  : 
l The  impact  of  the  current  economic  recession- 
its  length  and  severity-on  consumer  demand. 
l The  rate  at  which  beef  cattle  with  limited  grain 
feeding  are  slaughtered  to  increase  smaller  supplies 
of  grain-fed  beef,  pork,  and  poultry  products. 
l The  weather  and  its  impact  on  farm  production, 
both  here  and  around  the  world. 
Developments  relating  to  these  uncertainties  could 
alter  current  food  price  prospects  considerably  as  the 
year  unfolds.  On  the  one  hand,  they  could  bring  a 
substantial  slowdown  in  food  price  increases.  On  the 
other,  they  could  lead  to  further  sharp  upturns  in 
food  prices. 
Commodity  Summary  The  Department  of  Agri- 
culture’s  analysis  of  the  outlook  for  principal  Fifth 
District  commodities  shapes  up  in  this  manner. 
Tobacco:  Further  gains  in  U.  S.  cigarette  output 
and  strong  foreign  demand  holding  leaf  exports  near 
recent  high  levels  are  in  prospect  for  the  current 
marketing  year.  Supplies  of  domestic  tobacco  are  3 
percent  below  last  season’s  level  because  of  lower 
beginning  carry-over.  And  with  tobacco  use  during 
the  current  marketing  year  likely  to  exceed  market- 
ings  of  the  1974  crop,  another  decline  in  carry-over 
stocks  can  be  expected  in  mid-1975. 
Marketing  quotas  for  flue-cured  and  burley  have 
been  increased  for  1975  in  order  to  provide  adequate 
supplies  of  tobacco  to  meet  rising  market  demands. 
Compared  with  last  year,  the  effective  flue-cured 
quota  is  18 percent  higher,  while  quotas  in  effect  for 
burley  are  up  about  12  percent.  With  larger  farm 
quotas,  growers  are  expected  to harvest  more  tobacco. 
Tobacco  price  support  levels,  determined  by  legal 
formula,  will  average  about  12 percent  higher  than  in 
1974.  Cash  income  from  tobacco  marketings  should 
rise,  but  grower  costs  will  probably  increase  further. 
Soybeans  and  Peanuts:  Supplies  of  soybeans  are 
down  13 percent  from  last  season’s  record,  but  a  big 
boost  in supplies  is likely  if the  nation’s  farmers  carry 
out  intentions  to  increase  spring  plantings  by  some  3 
million  acres.  This  potential  boost  in  supplies  is 
coming  at  a  time  when  soybean  usage  is falling  from 
the  heavy  pace  of  recent  years. 
Because  of  weakened  demand  for  soybean  oil  and 
meal,  the  processing  industry  is  running  at  only  two- 
thirds  of its  capacity,  and  soybean  exports  are  lagging 
behind  last  year’s  rate  by  more  than  10  percent. 
Based  on  current  indications,  soybean  crushings  this 
season  may  fall  about  9 percent  from  year-ago  levels, 
and  exports  may  drop  some  12  percent.  Major 
factors  behind  this  slackening  demand  are  the  decline 
in consumers’  real  purchasing  power,  reduced  feeding 
and  production  in  the  livestock  and  poultry  indus- 
tries,  and  larger  world  supplies  of competing  fats  and 
oils.  These  same  factors  affecting  the  U.  S.  market 
are  also  affecting  our  soybean  markets  overseas. 
Farm  prices  for  soybeans  have  dropped  from  over 
$8 per  bushel  in  October  to  less  than  $6 in  February. 
Should  the  recession  deepen  and  prospective  1975 
production  seem  favorable,  prices  could  drift  lower. 
Peanut  supplies,  at  record  levels  about  a  tenth 
above  a year  earlier,  are  in excess  of requirements  for 
both  edible  and  farm  use.  Use  of peanuts  is declining 
in  all  major  edible  categories-salted  peanuts,  peanut 
butter,  and  peanut  candy-and  is  currently  running 
about 8  percent  below  a  year  ago.  Crushings  of  pea- 
nuts  for  oil  and  meal  are  also  down  and  for  the 
entire  season  may  run  15 percent  below  the  previous 
year.  Export  demand  is  strong,  however. 
20  ECONOMIC  REVIEW,  MARCH/APRIL  1975 Peanut  marketing  quotas  and  acreage  allotments 
for  1975 are  at  the  minimum  levels  permitted  by  law. 
Cotton:  The  slowdown  in  the  textile  industry, 
reflecting  the  poor  health  of  the  general  economy,  is 
having  a  major  impact  on  the  cotton  situation  and 
outlook.  Demand  for  textile  goods,  especially  cotton 
products,  is  extremely  sluggish,  both  at  home  and 
abroad.  Moreover,  foreign  inventories  of  both  raw 
cotton  and  textiles  are  large.  Domestic  mill  use  this 
year  may  total  only  about  6  million  bales,  in  contrast 
with  7½  million  last  year,  and  exports  are  expected 
to  fall  to  about  3¾  million  bales,  down  from  last 
season’s  6.1  million.  With  prospective  mill  use  and 
exports  adding  up  to  around  9¾  million  bales- 
smallest  disappearance  since  the  turn  of the  century- 
year-end  carry-over  this  summer  is  likely  to  be  sub- 
stantially  larger  than  at  the  beginning  of  the  season. 
Faced  with  sagging  demand,  low  cotton  prices 
and  high  production  costs  relative  to  competing 
crops,  cotton  farmers  on  March  1  indicated  that 
planting  this  spring  would  be  sharply  lower  than  in 
1974.  Nationally,  farmers  plan  to  cut  1975  cotton 
acreage  29  percent. A  cutback  of  55  percent  is 
planned  in  the  District. 
Poultry  and  Eggs:  Last  year  was  disappointing 
for  poultrymen,  and  prospects  going  into  1975  have 
improved  little.  Feed  supplies  will  continue  to  be 
tight  and  feed  prices  high  well  into  the  year.  Al- 
though  feed  prices  have  dropped  from  their  highs  last 
fall,  they  remain  above  a year  ago  and  well  above  the 
levels  of  other  recent  years.  Expectations  are  that 
producers  will  hold  production  of  eggs,  broilers,  and 
turkeys  at  reduced  levels  through  midyear.  Egg 
output  may  trail  year-earlier  levels  by  some  4  to  6 
percent  ;  broiler  production  will  probably  slump 
around  8  percent;  and  turkey  output  is  expected  to 
be  sharply  lower. 
As  production  lags,  look  for  these  developments 
on  the  price  front.  Egg  prices  can  be  expected  to 
remain  strong  during  the  first  quarter  but  will  likely 
decline  as  usual  in  the  spring.  Broiler  prices  will 
probably  be  bolstered  by  smaller  supplies  of  broilers, 
turkey,  and  pork.  But  larger  supplies  of  beef  and 
the  erosion  of  consumer  purchasing  power  will  mod- 
erate  broiler  price  increases.  Turkey  prices  may 
improve  slightly  in  coming  months;  however,  price 
gains  will  be  limited  by  the  large  cold  storage  hold- 
ings  of  turkey  meat  and  large  supplies  of  beef. 
Meat  Animals:  Sharply  reduced  pork  supplies  will 
keep  hog  prices  on  the  high  side  in  1975.  Based  on 
inventories  of  market  hogs  last  December,  hog 
slaughter  and  pork  supplies  in the  first  half  are  likely 
to  be  the  smallest  in nine  years.  Moreover,  hog  farm- 
ers  cut  breeding  stock  inventories  sharply  last  fall 
and  have  reported  plans  to  reduce  sow  farrowings 
this  spring  to  the  lowest  level  on  record.  These  indi- 
cations  point  to  a  14 to  16 percent  reduction  in  hog 
slaughter  in  the  second  half. 
Hog  prices  are  expected  to  strengthen  throughout 
most  of the  first  six  months  of  1975 as slaughter  dips 
below  year-ago  levels  and  are  likely  to  remain  strong 
in  the  second  half.  Large  beef  supplies  and  demand 
uncertainty  will  temper  the  advance  in  hog  prices, 
however. 
Huge  cattle  inventories  are  threatening  to  keep 
cattle  producers  in  a  financial  bind  again  in  1975. 
Winter  cattle  slaughter  is  expected  to  remain  large, 
running  about  10 to  15 percent  above  a  year  ago  as 
cows  and  nonfed  steers  and  heifers  continue  to  offset 
smaller  fed  cattle  slaughter.  Cattle  feeders’  profits 
this  winter  will  be  marginal  at  best,  and  placements 
of  cattle  in  feedlots  will  continue  low.  Should  total 
cattle  slaughter  decline  seasonally  as  expected,  even 
though  remaining  large,  cattle  prices  could  strengthen 
later  in the  winter.  The  smaller  supplies  of  pork  and 
poultry  may  also  provide  some  price  strength  for 
cattle  in  the  spring. 
Slaughter  supplies  in  the  last  half  of  1975  could 
be  record  large,  exceeding  a  year  earlier  by  a  wide 
margin.  Should  this  potential  slaughter  materialize, 
cattle  prices  could  weaken.  Range  conditions,  feed 
prices,  and  prospects  for  the  1975 feed  grain  harvest 
will  help  to  determine  the  direction  of  prices  in  the 
second  half. 
Dairy  Products:  Dairy  farmers  will  probably  con- 
tinue  to  be  plagued  by  cost-price  problems  early  in 
1975.  Milk  output  may  hold  about  even  as  dairymen 
cut  back  on  feeding  high-cost  grain  and  concentrates 
and  reduce  dairy  herd  culling.  Commercial  stocks  of 
dairy  products  are  large,  however,  so  dairy  supplies 
should  be  adequate  for  consumers.  With  the  recent 
increase  in  support  prices  for  manufacturing  milk 
and  the  action  bringing  minimum  Class  I  prices 
under  Federal  milk  orders  in  line  with  the  boost  in 
price  supports,  farm  milk  prices  may  rise  slightly.  A 
milk  price  increase,  coupled  with  the  recent  easing 
in  grain  prices,  could  bring  about  some  slight  im- 
provement  in  the  milk-feed  price  ratio. 
Cheese  sales  are  facing  stiff  competition  from  large 
supplies  of  other  high-protein  foods.  But  butter, 
which  reversed  its  long-term  sales  slump  in  1974, 
continues  to be priced  favorably  relative  to margarine. 
Sada  L.  Clarke 
FEDERAL RESERVE BANK  OF  RICHMOND  21 

Agriculture : outlook for 1975 is cloudy

http://www.richmondfed.org/publications/research/economic_review/1975/pdf/er610203.pdf

Agriculture : outlook for 1975 is cloudy

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