Although Bank directors foresee no resurgence in inflation, they generally feel wage-price controls should remain past April 30. District farm income is at a record high level and district farmers are cautiously optimistic about the future. Improved farm income has reduced the demand for short-term agricultural credit, but has bolstered the demand for intermediate- and long-term loans. Rising interest rates are not expected to impede the pace of district economic activity.

Although future price increases are anticipated, Bank directors generally foresee no significant pickup in the rate of inflation. One director indicated that farm prices in coming months would not be exerting as much upward pressure on consumer prices as they have recently. Also, according to another report, consumer resistance to price increases was tending to dampen inflationary pressures in one director's area. On the other hand, another director stated that recent advances in wholesale prices made future increases in consumer prices inevitable. One director revealed that some of his area's merchants view the prospect of more inflation as a spur to their current business, as consumers purchase now to avoid future price increases.

The consensus among Bank directors was that wage-price regulations should be continued past April 30, even though they dislike controls. Several directors, however, would favor liberalizing Phase II guidelines and gradually lifting controls. One director indicated wage-price controls will become ineffective if continued too long. Another advocated terminating Phase II and holding federal expenditures at $250 million.

Due to high grain and livestock prices, district farm income has swelled to a record high and district farmers are cautiously optimistic about the future. Two directors stated that livestock prices should remain generally high. The grain price outlook is also considered favorable, providing export demand continues strong. A director from the South Dakota cattle feeding and feed grain producing area, however, pointed out some weak spots. Corn prices remain relatively low and unseasonably wet weather in South Dakota has caused problems, depressing local prices further. Also, fat cattle prices have recently declined, and currently the margin between fat and feeder cattle prices will not allow cattle feeders to realize a profit. Canadians recently have been buying fat cattle in South Dakota and this should help raise prices. Furthermore, two directors indicated that hog prices will drop as production increases next spring.

According to our recent Agricultural Credit Conditions Survey, a strengthening farm income situation has produced a disparity between demands for short-term credit and demands for longer-term loans. Demand for short-term loans fell as this year's stronger cash income from higher livestock prices, larger grain marketing receipts and government farm program payments decreased the need for short-term funds. Stronger incomes, however, have recently made farmers and ranchers more confident of investing in their operations and this has bolstered the demands for intermediate- and long-term loans.

The survey points toward a resurgence in farmer borrowing in the fourth quarter at some district banks, which will be about evenly balanced by further declines at others. Farmers' and ranchers' incomes are expected to continue strong, displacing needs for short-term funds. Farmer spending will increase as will investment, which will cause some increases in demands for debt refinancings. Comments from respondents indicate that investment plans will lift overall demands for intermediate-term loans. Still, however, only a very small percentage of banks expect problems in meeting loan requests during the next three months.

District businessmen and bankers generally foresee some advance in interest rates, but don't consider these increases of sufficient magnitude to affect district economic activity. One director reports, for example, that the prospect of higher interest rates doesn't bother his area's businessmen. Also, two bankers believe jawboning efforts have and will dampen interest rate increases. Nevertheless, a director associated with the construction industry reported that businessmen are currently lining up financing on future projects in order to avoid expected interest rate boosts. Although he doesn't anticipate higher interest rates locally, one director indicated that money in his area will become tighter as local bankers will allocate more funds to investments in order to take advantage of improved yields.