May 10, 1977
Although little change has occurred in district nonagricultural economic activity in recent weeks, the agricultural situation has brightened. Recent rains in the eastern portion of the district and higher cattle prices have been encouraging. Nevertheless, the western areas continue to face considerable moisture deficiencies, and expectations for continued low grain prices are working to diminish farm income prospects. Consumer spending has improved in rural areas where considerable rain has fallen, but has remained weak in those areas that are still very dry. Directors don't expect a boom in district plant and equipment spending but neither do they think the Administration's energy program will have any immediate adverse effects on manufacturers' capital spending plans.
Although concerns about prices and moisture have not vanished, the district's agricultural situation appears more favorable than it did several weeks ago. Recent increases in fed cattle prices have been heartening to feedlot operators. Rains have eased concern about moisture conditions in many areas of Minnesota and South Dakota. However, serious drought conditions continue in Montana and North Dakota.
In general, district farm plantings should follow the USDA's April 1 survey of planting intentions: plantings of spring wheat will be cut back from last year, soybean plantings will be increased, and corn plantings will approximate last year's acreage. Several directors, however, foresee more shifting out of corn into soybeans than the survey results indicate. In one director's opinion, this shift should help to prevent a large carryover of corn and lower corn prices and should work to keep soybean prices down. Nevertheless, other directors expect continued high soybean prices and no substantial increase in corn prices. Prospects are for continued abundant wheat supplies and low wheat prices. Continued low grain prices are expected to depress district farm income; 61 percent of the bankers responding to our latest Agricultural Credit Conditions Survey look for farm earnings in the coming months to be below last year's level.
District consumer spending activity in recent weeks appears to be closely related to moisture conditions. Long awaited rains have improved retail sales prospects in several areas. Nevertheless, many farmers remain hesitant to spend until they become certain of what to expect from this year's crops. Farm implement sales, with the exception of irrigation equipment, are weak. And 63 percent of the bank respondents to our latest Agricultural Credit Conditions Survey also expect farm spending in the next few months to be lower than it was a year earlier.
Given the district farm income situation, many bankers continue to report greater-than-usual demand for refinancing farm debt. Of the bankers responding to our latest Agricultural Credit Conditions Survey, 75 percent characterized the current rate of farm debt repayment as "slow," 51 percent observed a greater proportion of farmers at their debt limit than last year, and 66 percent expected an adverse change in farmers' ability to repay debt. Nevertheless, district bankers appear fairly confident of their ability to meet the current credit needs of agriculture, and 56 percent of the respondents were still seeking new farm accounts. More bankers than in January, however, are making greater numbers of loan referrals to nonbank credit agencies.
No boom is expected in district nonagricultural capital spending. One director, whose firm sells control devices to industrial customers, indicates that his firm's business has not reflected any substantial pickup in plant and equipment outlays. And no other directors reported any substantial capital spending outlays in their areas.
According to this Bank's directors and a survey of several district manufacturers, the Administration's proposed energy policy will have little effect on capital expenditures planned for this year, but many respondents are unsure of its longer-run impact. No business reported cutting any capital spending plans this year as a result of the President's program. One director thought that the current uncertainty surrounding the program might curb some capital outlays but had no documented proof. Another director indicated that the uncertainty "didn't help" the capital spending situation. An economist with a large firm that manufactures energy management devices stated that the President's program has caused them to make upward revisions in their sales forecasts. They plan to increase their capital spending in late 1977 and 1978 to meet this increased demand. Many businesses already have programs under way to conserve energy or are making efforts or plans to convert from natural gas to some alternative energy source, particularly coal. Consequently, some felt the President's program may accelerate programs already under way. Several commented that it is just too early to fairly assess the proposed energy program until Congress' intentions are better known. Consequently, most respondents had a wait-and-see attitude.