March 10, 1976
While drought and wind damage to the winter wheat crop has been substantial, timely precipitation could still improve production possibilities considerably. Residential construction activity, almost all in single-family units, is strong in major metropolitan areas of the Tenth District. Financing appears to be more than adequate, with inflows to thrift institutions strong and loan rates stable after a recent slight decline. Loan demand at District commercial banks has also improved recently, with most of the strength attributable to regional borrowers rather than national accounts.
Savings and loan associations in the District's larger metropolitan areas reported very strong deposit inflows in January, while associations in smaller cities generally experienced good, but not exceptional, inflows. February results were more uniformly good, though in most instances falling short of January and/or not reaching expectations. Generally speaking, relatively large inflows are expected to continue in March and April, followed by a flattening out.
Virtually all respondents report a recent pickup in mortgage demand, and in commitments and/or loans. Lending rates have declined slightly in recent months. The consensus seems to be that rates will be stable to a bit lower in the near term, but perhaps going up slightly later in the year. Customers are shopping around for the best terms, according to some respondents, with the emphasis on size of monthly payments rather than on rate alone. At least one association reported lowering returns offered to savers via raising maturities and minimum amounts on certificates.
Housing demand appears to be strong in major metropolitan areas in the Tenth District. Starts activity continues to be concentrated in single-family units, with virtually no strength reported in multifamily construction. Inventories of unsold single-family homes have apparently been reduced to nearly normal levels, with some builders expressing the desire to have a few more homes on hand. Most builders and builders' associations contacted confirmed the availability of mortgage funds and the stability of rates. Some Kansas City builders are suggesting a possible near-term increase of 10 percent in the price of new homes, primarily due to price increases for lumber, concrete, appliances, and trim items. Some construction union contracts (e.g., carpenters) in the Kansas City area have an April 1 termination date. Builders' anticipations are mixed on the possible results of negotiations, ranging from "some real wild numbers" because of a desire to "catch up" to "no runaway" because of a realization on the part of both labor and contractors that the industry is potentially weak and large settlements ''can get the public turned off pretty quickly".
Market prices for wheat during the spring and summer of 1976 will be sensitive to growing conditions in the wheat-producing areas of the United States and the world. The 1976 United States wheat production has already been adversely affected by drought conditions in the southern great plains. Industry sources are projecting production decreases of as much as 29 percent from the 791 million bushels produced by Kansas, Oklahoma, Texas, Colorado, and Nebraska in 1975. This could presage a 1976 United States winter wheat production of around 1.4 billion bushels, down from 1.65 billion bushels in 1975. Reports from western Oklahoma and Kansas indicate that, while substantial damage to the wheat crop has occurred from drought, wind, and greenbug infestation, timely precipitation over the area could still substantially improve production possibilities. However, to date, weather systems have brought only minimal precipitation to the driest parts of the Tenth District.
While January grain stocks were significantly higher than year-ago
levels for corn, soybeans, and wheat, the price-depressing impact
was largely offset by higher demand projections. For corn,
substantial increases in domestic feed use and in export demand
appear likely to hold stocks to approximately a 674 million bushel
level at the end of the 1975-76 marketing year, up from year-earlier
stocks of 359 million bushels. Sharply increased domestic and export
demand for soybeans is expected to hold stocks to approximately a
330 million bushel level at the end of the 1975-76 marketing year,
up from year-earlier stocks of 185 million bushels. Increased export
demand for wheat appears likely to hold stocks to approximately a
428 million bushel level at the end of the 1975-76 marketing year,
up from
year-earlier stocks of 327 million bushels.
An improvement in loan demand during February was reported by Tenth District bankers contacted in a recent survey. Many bankers indicated that regional business loans had increased, but borrowing by national accounts was unchanged. The strength in regional business loans reflected increased financing needs for manufacturers working capital, construction activity, capital improvements, retail and auto dealer inventories, cattle purchases, and grain elevator storage. Although most banks have not yet seen any effects on their portfolios from the Midwest drought, one banker said it has caused a runoff in his holdings of cattle paper. Bankers also reported a pickup in real estate loans, particularly in the one-to four-family residential category. Consumer loans were said to be down more than seasonally, although auto loans have risen at some banks.
Demand deposit inflows were reported to be strong. Time and savings deposits continued to increase, especially in the consumer area. Two banks reported declines in time deposits due to the Treasury's recent 8 percent note offering. Some banks are running down their negotiable certificates of deposit (CDs) due to the lower cost of alternative sources of funds, while others are competing for CD funds due to increasing loan demand.