April 10, 1974
Texas steel producers are faced with rising demand which has outstripped supplies of many steel products. Because of the strong demand, some steel producers report they are allocating supplies to customers on a nonprice basis, and they expect to continue to limit shipments throughout 1974. A shortage of drilling pipe has already hampered efforts to increase oil production, especially by wildcatters. Shortages of structural and reinforcing steel are also causing disruptions in construction activity. In addition, an executive of one steel company claims their entire output could be sold to customers in Japan at substantially higher prices. However, exporting all the firm's production would force its domestic customers to severely curtail operations.
The relative scarcity of steel in Texas has not been due to inadequate supplies of energy. However, the ability to keep pace with expanding demand is being hindered by a shortage of high quality scrap metal and the requirement that increased capital expenditures comply with Environmental Protection Agency guidelines on pollution control. Record exports of scrap last year have forced the State's steelmakers to rely on poor quality scrap, which in the case of one plant resulted in production being cut from six days to five days a week. Also, a steel industry spokesman pointed out that exporting scrap was equivalent to exporting energy since it takes four times as much energy to produce steel from ore as it does from scrap. Even with the scrap shortage, the manager of one plant maintains an additional gas oven would have been installed this year if the cost of complying with the EPA guidelines had not been so high. Another steel producer said plant improvements, planned to be operational in late 1973, were delayed until this year in order to implement a pollution control program.
Texas building contractors agree that the shortage of reinforcing steel has delayed both the beginning of new jobs and the completion of many projects already under way. But as of now, the shortage has not caused a significant number of construction plans to be abandoned. To acquire a sufficient supply of construction steel, the largest commercial builder in the State has relied on higher priced foreign supplies. In addition to paying approximately 40 percent more for steel bars purchased abroad, foreign producers often insist on large orders, which resulted in an additional inventory cost to this builder.
The cattle feeding industry in the Southwest is under a severe cost-price squeeze. Because of the drop in price for fed cattle and the relatively high cost of grain, many cattle feeders have experienced major losses in earnings in recent months. Net losses have ranged from $100 to $150 per head recently, with one feeder reporting to have lost $1 million since the break in prices for slaughter cattle last fall. The president of the Texas Cattle Feeders Association estimates these losses will result in 10-15 percent fewer cattle placed on feed in the State this year as compared to 1973. However, one windfall to feeders has been the shortage of fertilizer. Brisk demand for manure has boosted prices to $2 per ton, four times the price a year ago.
Drought in West Texas has diminished prospects for the dryland winter wheat crop in Texas. This year's crop is expected to be about half of the nearly 100 million bushels of wheat harvested in 1973. According to a Lubbock banker, a considerable amount of wheat acreage in the southern high plains has already been plowed under in hopes that enough rainfall will occur to plant grain sorghum later this spring.
The lack of rain plus shortages of chemical fertilizer, herbicides, pesticides, and baling wire is disrupting agricultural production in the Southwest. In addition, many farmers and farm lenders are concerned about a possible drop in agricultural prices. With the recent decline in spot and future prices of farm commodities and with substantial investments in the 1974 crop, farmers are alarmed that a big world harvest could cause a sharp setback in farm incomes this year.