October 21, 1975
The signs of economic recovery are confirmed by increased manufacturing activity in the Tenth District. Manufacturers' inventories as a whole apparently are still higher than desired, with stock runoffs proceeding and expected to continue until the end of 1975. Materials prices are viewed as bound to rise. Despite record or near-record crops of wheat, corn, and soybeans, farm prices in the aggregate have posted firm gains. This increase in farm prices is attributable to reduced supplies of pork and to grain exports. Bank loan demand is weak, except for a small increase in consumer installment credit (primarily auto loans). The weakness in commercial loans reflects both inventory liquidation and little construction activity.
Inventory liquidation by district manufacturers appears likely to continue until year-end. While some purchasing agents say that they have completed their reductions in inventories, most want to reduce their stocks some more. Inventory levels of certain materials, notably steel, reflect recent stockpiling, rather than unintentional accumulation. Agents welcome improving business as an aid in getting inventories down to desirable levels quickly, not as a reason for ending the liquidation. Buyers are now able to get what they need, but several expect shortages to develop as things tighten up in the months ahead. Many agents report recent price increases by their suppliers; all expect prices to go up in the near future.
Although August beef production was 6 percent above a year ago, total red meat output actually fell 5 percent for the month due largely to a 28 percent decline in pork production. However, the record high hog prices that farmers are presently receiving are expected to foster larger farrowings in the near future. The recent hog and pig report indicated that farrowings may rise 6 percent above year-earlier levels in the December-February quarter. Meanwhile, cattlemen are continuing to reduce inventories, with the August 1975 cattle-kill 9 percent over last year and 29 percent over August 1973. These cutbacks in meat production, together with the bright prospects for grain exports, have bolstered farm prices. The index of prices received by farmers rose 3 percent in the month ending September 15, and now stands 18 percent over the 1975 low reached in March.
Corn and soybean harvest is progressing rapidly in most areas. The U.S. Department of Agriculture now estimates corn and soybean production at 5.74 billion bushels (a record) and 1.47 billion bushels (second highest on record), respectively. Rapid harvesting may result in some price softening in the near term as the trade nervously awaits removal of an export embargo to the USSR. The Russian sunflower seed harvest is now anticipated to be even worse than had been expected and this may increase U.S. soybean exports, providing export bans are lifted before Russian needs for vegetable oil have been filled from alternative sources.
Wheat seeding is progressing on schedule in the Tenth District except for delayed planting in southwestern Kansas and western Oklahoma due to lack of moisture. The general consensus is that winter wheat acreage in 1975-76 will be about the same as 1974-75 acreage in the district. However, it is expected that more fertilizer will be applied this year than last, reflecting lower fertilizer prices as well as the general optimism of farmers on wheat prices.
Tenth District banks continue to report that loan demand is generally weak and few bankers expect significant improvement by year-end. Business loan demand is strong only in energy-related businesses. Caution on the part of businesses in rebuilding inventories and in expanding capacity is holding down loan demand. Construction lending for one-to four-family structures has increased somewhat, but lending for multi-family structures is still very low. Large inventories, along with high construction and financing costs, are depressing the demand for construction loans. Consumer installment lending has increased slightly in recent weeks. Several banks reported a small pick-up in auto loans, while others reported above seasonal use of credit cards.