The rise in retail food prices has been slowing recently at leading grocery store chains in Texas, and executives of these chains expect the trend to continue through midsummer. Lower meat prices have accounted for much of this slowdown, and food chains report that beef prices have dropped to the lowest level in two years—down 10-20 percent from the February peak. However, sales have not rebounded as anticipated because most shoppers now appear to be willing to eat less beef. While total purchases of beef remain depressed, recent buying patterns suggest some consumers are responding to lower prices by resuming purchases of better quality and higher priced cuts. This has led to a slowdown in the sale of vegetable extenders, which accompanied the soaring demand for ground beef last winter.

The reduced demand for beef, coupled with higher marketing costs, is resulting in smaller profit margins for food retailers, according to a representative at one of the leading chains in the state. He points out that over the past year the cost of handling and shipping beef from the feedlot to the meat counter has increased 15 percent, but his stores have been able to pass only about two-thirds of the added expense on to consumers. He expects, however, that because fewer cattle are being fed, beef prices will rise by midsummer as retail supplies are likely to decline.

Cattlemen currently have limited funds for buying animals to place on feed because of the depletion of their equity capital through heavy losses in earnings since last September. Their reduced equity positions are limiting the amount they can borrow from banks. The loan terms of most banks in the Eleventh District require that borrowers maintain an equity investment of about 25 percent in the cattle being financed.

Business loan demand at large banks in the Eleventh District has continued strong through May. A number of these banks were recently surveyed concerning the composition of this demand. While most reported no real change in the composition of loan demand, there was some evidence that long-term business borrowing is being deferred because of depressed bond and stock prices. For example, business loans to oil companies have been strong in recent weeks, and one Houston bank indicated that it was lending to a number of oil companies and gas transmission companies that were using short-term bank funds until conditions improved in bond and equity markets.

Utility rates for gas and electricity in Texas have risen only about one-fourth as rapidly as those for the nation as a whole this year. The wide disparity primarily reflects the cost of producing electricity. Because of the reliance on natural gas as a boiler fuel, electric utilities in the state have largely escaped the dramatic price increases for coal and oil. In addition, production costs and rate increases have been held down because the recent purchases of higher priced gas have been averaged in with existing fuel stocks which were purchased earlier at considerably lower prices. For example, a large electric utility in the state reported that the cost of gas has risen 20 percent in the past year. However, by averaging the newly contracted gas with the lower priced gas purchased earlier, rates paid by customers were raised
just 6 percent.