Swollen Silos, Edgy Farmers

Crops are up, prices are down, and Washington is getting set to step in

In southern Washington, Farmer-Rancher Monte Shaffer, 49, surveyed 2,000 acres of hilly farm land--one-third of his tillage. The fields should have been rippling with mature wheat; instead they were creased with furrows. Shaffer had plowed most of the land under when it produced nothing more than weed-choked stubble only a few inches tall. Land that only two years before had yielded 50 bu. of wheat an acre is yielding a mere 13 bu. this year. But Shaffer said: "I'm more concerned about the export situation than anything else. Until there's a bigger world market, we just can't make money."

In the northwestern section of wheat-growing North Dakota, Stan Erickson, 33, was busy from dawn to dusk, bringing in his crop: 10,000 bu. of durum wheat from 400 acres. The achievement left him and his father with a marketing dilemma. Half of last year's crop--8,000 bu.--is still in storage on the family farm. This year the Ericksons cut back their planting by 200 acres but were still forced to spend $3,000 for an additional, 6,000-bu. storage bin. Says the younger Erickson: "We had too good a year. Last year there was too much wheat. Now there's too much of everything."

Harvest 1977 has been a time of paradox for American farmers: a season of too much and too little. In the Northwest and parts of the Midwest and central California, many grain growers were staggering under the effects of the worst drought in decades (see map page 18). Yet in most of the rich cornfields of the Central U.S. and the sweeping grain belt of the Great Plains, the rain came when it was needed. The land responded generously--and now Jimmy Carter's Administration is grappling with the problem of what to do with the immense bounty.

America's prodigiously fertile farm lands will yield some 2.04 billion bu. of wheat this year, the third best crop in U.S. history and only 107 million bu. less than the 1976 record. Corn production is approaching 6.1 billion bu., second only to last year's alltime high of 6.2 billion bu. A third basic crop, soybeans, will yield 1.8 billion bu. v. a previous record of 1.5 billion bu. in 1973. Beyond what it can consume and export, the U.S. will have on hand 84 million metric tons of those products at year's end. In parts of the growing belts, storage bins are so full that excess grain is being dumped in parking lots and even in the middle of streets.

The catch is that the rest of the world has enjoyed two good harvests in a row. Normally, the U.S. exports some 35% of its grain. Now, however, grain and soybean shipments abroad (an anticipated 89 million metric tons in 1977) are expected to drop by 10% to 15% next year. Says Don Howe, president of the National Association of Wheat Growers: "Even if there was a total crop failure in America, we could still feed the entire country and maintain our commitments abroad for at least a year."

Bin-busting crops are good news for consumers, who will face relatively modest food price hikes of 4% to 6% this year. But among farmers, the law of supply and demand is beginning to look like a punitive statute. Last week wheat sold on Chicago markets for $2.60 a bushel, v. more than $3 a year ago and more than $12 in 1973. Corn, which sold for more than $2.75 a bu. a year ago, brought only $1.75. Soybean prices plummeted from a high of $10.45 last spring to $5.32.

A a result, median farm income has continued on a downward slide from a record $10,529 four years ago to a projected $7,500 this year. That figure does not tell the whole story. The fact is that, by and large, farmers enjoy at little or no out-of-pocket cost many of the goods and services that urban Americans pay dearly for. Food is an obvious example. Many other items--housing, transport, gasoline, heating--can be written off in some measure as business expenses. Moreover, unless he goes bankrupt, the farmer sits atop a constantly appreciating asset: his land and business. There is at least a kernel of truth in the rural adage that farmers "live poor and die rich."

Nonetheless, the rising costs of running a farm have made the living somewhat poorer than usual. Diesel fuel for farm machinery, which cost 17-c- per gal. five years ago, now costs 43-c-. Combines that cost $30,000 in 1971 now sell for $60,000, and their price is expected to rise by another 6% next year. Experts estimate that wheat prices must rise to between $3 and $4 a bu. before farmers can really break even.

Since prices are well below that level, producers are borrowing heavily. As early as last spring, a Department of Agriculture survey taken in the Midwest showed that one in four North Dakota farmers was going to have trouble repaying loans this year. In Minnesota, the ratio was one in five; in South Dakota, one in three. Also, farmers were paying money back to banks more slowly, renewing loans more often, and requesting more loan extensions. According to Banker Sam Smith, a farm-loan specialist in Hoxie, Kans., "If things don't improve within a year, as many as 10% to 20% [of the farmers he deals with] probably will sell out." A banker in Princeton, Ill., views the financial crunch less pessimistically. Says he: "The farmers out here are pretty good businessmen. It's going to hurt. They are not going to take the vacations they've been taking or buy the new machinery they want. But we don't anticipate any of our farmers not being able to get credit for the coming year."

The pressure has been building for months on President Carter and Agriculture Secretary Bob Bergland to do something for the pinched producers. With farmers beginning to sow this year's winter-wheat crop, Bergland's deputy, John White, last week unveiled the Administration's program. It proposes:

1) That farmers "voluntarily" reduce their 1977 wheat-growing area (74.5 million acres) by 20% in 1978. Failure to volunteer would make a farmer ineligible for loans and payments in some federal agricultural programs.

2) That a 30 million to 35 million metric-ton reserve of food and feed grains be established for next year, including a special stockpile of up to six million metric tons for international emergency relief.

3) That the crop-support loan rate be raised from $1.75 a bu. to $2 for corn. The loan rate is a Government-set floor price for grains, used by farmers when they borrow money with their crops as collateral. The proposals do not change the loan rate for wheat (currently $2.25 a bu.). Instead, the Administration increased the "target price" from $2.47 to $3. When market prices fall below the target, Washington will pay out the difference between the loan rate and the target figure--that is 75-c- per bu. Total cost of the program: $4.4 billion, or so the Administration estimates. Some skeptics claim that the cost will be more like $8 billion or $9 billion.

The Administration program is actually a compromise between an inflation-conscious Carter and his activist Agriculture Secretary, a longtime advocate of government grain stockpiling and similar measures. Bergland wanted wheat "set-asides" totaling 25% of acreage. Carter demurred after his economic advisers warned of possible inflationary effects if worldwide harvests took a bad turn in the future. Bergland also preferred higher support levels, but agricultural relief has a lower priority for Carter than balancing his budget by 1981; no massive amounts of money for crop support were about to become available.

What was striking about the Carter proposals was their familiarity. In philosophy, they represent a return to the broad-brush, stockpiling farm-management policies introduced more than four decades ago. These policies were abandoned by Richard Nixon's aggressive, foot-in-mouth Agriculture Secretary, Earl Butz, a dedicated free marketeer. Butz's emphasis on an all-out export drive for farm products yielded spectacular results, including a threefold increase in the domestic price of wheat--but that was largely the result of bad harvests in China and the Soviet Union. One form of Government intervention that even Butz favored was the "set-aside." It was used from 1968 to 1972 to cut U.S. grain planting by 18 million acres.

Carter's relief plan is being accepted by farmers--if only because it offers a safety net. Instinctively, many farmers prefer the vagaries of the free market to even a hint of intervention by Big Government: in this case, however, most recognize that they have come close to being overwhelmed. Ed Burds, 44, owner of a 373-acre spread near Peosta, Iowa, says of the Administration plan: "I don't like it, but that's what we'll have to do. We'd sooner go all out and produce, but we can't when corn sells for $1.50 per bu." Says the Wheat Growers Association's Howe: "It's not a good answer, but it's the least bad of things we could do."

Other experts are more dubious.

University of Chicago Agricultural Economist D. Gale Johnson is concerned that at $3 a bu., the target price for wheat will be "an incentive to expand production. The cost of the program will get so high that it will have to be modified." Others argue that the 20% set aside for wheat will accomplish little, since farmers will withdraw their less productive land and concentrate on planting high-yield acreage. In fact, some Agriculture Department officials project that even a full 20% set-aside program will cut production by no more than 8%. There is also some question as to whether the cutbacks were announced in time: in Colorado, for example, 60% of winter-wheat planting had taken place before the program was unveiled.

Other critics would have preferred that Carter and Bergland concentrated more on export sales. Says Harold Steele of the Illinois Farm Bureau: "This year there was the same amount of wheat on the world market as last year. But our exports dropped to 900 million bu. from over 1.2 billion. The U.S. wheat producer has a less significant share of the market than he had previously."

Will the Carter proposals cure America's agricultural indigestion? Like so much else in farming, more may depend on the weather than on complex Government plans involving stockpiles and support prices. If the weather is good, the mountains of soybeans and cereal could be around for a long time. But the weather has a way of turning bad, and those burdensome American surpluses could soon prove to be a blessing to consumers round the world.

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