Kansas City: July 1975

Although the Tenth District wheat harvest is running somewhat behind normal, recent improvement in the weather picture has permitted the harvest pace to accelerate, with reports received on yield and quality quite favorable. With prices strengthening, the District livestock picture has brightened considerably in recent weeks. Tenth District bankers surveyed continue to report weakness in total loan demand, although some improvement was noted in business loans in recent weeks. Contraseasonal declines in both demand and time deposits were reported at many Tenth District banks in June.

Contrary to reports in the Wall Street Journal of purchasing managers relating a surge in new orders and production, a quickened pace of inventory liquidation, and encouraging employment trends, a survey of a number of Tenth District purchasing managers does not discern those developments occurring to any appreciable extent within the District. The term "stability" best describes the situation as related by the respondents to our inquiries. Although some further liquidation of purchased inventories is still under way, there were scattered reports of modest accumulation, mostly seasonal in nature. But most purchasing managers report plans to hold inventories at present levels. Production and sales have been holding steady recently and little or no change in employment was reported, nor were any sizable increases or layoffs being contemplated for the very near term. However, General Motors has announced that 2,200 workers laid off in January will be recalled to work at their Kansas City assembly plant by mid-August.

The District's wheat harvest is running about 10 days behind normal this year due to the late development of the crop as well as poor harvest weather in some areas. However, hot and dry conditions have dominated the District's weather picture for the last several days, allowing the harvest to progress at a rapid pace. Most of the reports on yield and quality are quite favorable. In fact, the crop has been a pleasant surprise in those areas suffering wind and hail damage earlier in the year. Like last year, the farmers seem to be holding their wheat in anticipation of higher prices at a later date. However, there is a general feeling that a significant amount will be sold before the end of the year to pay production expenses.

The livestock picture has brightened considerably in recent weeks. Prices have approached, and in some cases exceeded, the highs achieved in 1973 following sharp declines in beef and pork slaughter. Although feedlot placements have recently begun to rise and will probably continue rising the rest of the year, fed-beef supplies are expected to remain relatively tight. The seasonal increase in marketing from grass later this summer will probably push prices down, but the slippage may be less than earlier anticipated due to the very sharp reduction that is in store for pork output. Based on the most recent hog report, slaughter during the second half of the year could fall 20 percent or more below the year-earlier figure. Therefore, hog prices promise to be strong for the next several months, and this will tend to buoy cattle prices throughout 1975. Reflecting these developments, the index of prices received by farmers rose 2 percent during the month ended June 15, the third consecutive monthly rise. While the future direction of this index will depend heavily on the weather, it seems clear that retail food prices will continue to increase through the summer.

Bankers surveyed in the Tenth District continue to report weakness in total loan demand. Declines are still occurring in consumer loan volume and in loans for residential and commercial construction. Agricultural loan demand also is said to be very weak, reflecting in part earlier declines in feeder cattle prices and placements at feedlots. As noted previously, however, the livestock picture has improved recently. One bright spot in the loan picture is that business loans are reported to be picking up in recent weeks. Some of these loans were said to be for purposes of inventory accumulation. Tulsa area banks also noted a large increase in loans to oil and gas drilling interests, with one respondent indicating the loans were extended to finance drilling in Alaska. The prime rate charged by all respondents was either at or above the national level.

Deposit outflows have occurred recently at many Tenth District banks. Both demand and time deposits appear to have dropped contraseasonally during June. Many bankers reported that a sizable decline had taken place in their large CD's over the past several weeks. However, a few respondents indicated that because of their belief that interest rates would rise they had made a recent decision to become more aggressive in the CD market and to acquire 6-month to
1-year CD's.