August 13, 1975
Crop conditions in the Ninth District are still good despite damage inflicted by flooding as well as a lack of moisture. Agricultural banks have experienced little difficulty in meeting the attendant strong farm loan demand; weak loan demand from nonfarm sectors apparently has helped boost funds available for farm lending. Despite greater fund availability, interest rates on farm loans have decreased only marginally since last winter. Consumer spending has strengthened during the summer, reflecting heavy tourist traffic and improved auto sales.
Crop conditions vary widely across the District but, on balance, they are good. Excellent crop conditions exist in the western region. Wheat yields in parts of Montana are expected to be considerably above normal; hay production in the western Dakotas has been good to excellent. On the other hand, a flooding of the Red River Valley in early July has caused large losses to potato, sugar beet, and small grain crops in eastern North Dakota and northwestern Minnesota. Moreover, prospects for bumper corn crops in Minnesota have been trimmed sharply by lack of moisture during July. Soybeans have not been seriously damaged by dryness, but continued lack of rainfall in August would spell trouble for that crop too.
The July survey of Ninth District agricultural banks indicated that first-quarter trends continued to midyear. Farm loan demand, especially for farm operating loans, remained strong in the second quarter. The factors cited for strong loan demand are familiar: High-priced farm inputs, reduced supplies of merchant-dealer credit, continued storage of some 1974 crops, and refinancing needs of some farmers. Banks appeared increasingly able to meet farmers' credit needs as evidenced by a less than seasonal increase in loan-deposit ratios. Weak nonfarm loan demand and strong deposit inflows accounted for the increased funds available for farm loans.
Though fund availability at agricultural banks appears to have improved since early 1975, credit remained costly for farm borrowers in the second quarter. Interest rates on farm loans in July were nearly the same as in April and had declined only marginally from the peak levels reached last winter. The constancy of rates is not surprising, however, since rates on farm loans have generally been less responsive to changing supply and demand conditions than have rates in other markets.
Consumer spending has strengthened since spring, and the outlook for fall and winter is for continued expansion. Retail sales are on an upswing. A large national retail chain, based in the Twin Cities, reports a steady expansion since May, with July volume 16 percent above the comparable period in 1974. Tourist spending has generally matched or exceeded expectations over the summer months. Resorts in the northern Minnesota lake country have been filled. Tourism in the Black Hills is reported to be the strongest since 1971, with traffic at Mount Rushmore up 17 percent from a year ago. Auto sales have improved in the past two months: Upper Midwest auto sales in June and July were reported to be up 5 percent over the comparable periods of 1974.