Very Down on the Farm

By James Kelly

The President goes to Iowa, bearing good cheer

As presidential fence-mending trips go, the visit to Donald Dee's place last week was picture perfect. Alighting from he U.S. Marine helicopter in sweltering 90DEG heat, Ronald Reagan strode accross the front yard of Dee's 500-acre hog farm in central Iowa and shook hands with his smiling host. The President headed for the farmyard, where he gingerly scratched the ear of Shank, an 800-lb. boar freshly scrubbed for the occasion. Then he and his Agriculture Secretary, John Block, perched themselves on a picnic table and chatted amiably with a group of 40 farmers, all of whom had voted for their guest in 1980. The President sipped lemonade, spooned into homemade peach ice cream and drew hearty laughs with vintage Reagan storytelling.

His hosts surely needed the cheering up. America's 2.4 million farmers are struggling to survive the worst slump since the Depression, caught in a vise of rising costs and falling prices. Though they are expected to chalk up near record crops of wheat (73.8 million metric tons) and corn (208 million metric tons) this year, the silo-busting harvests will only push low prices even lower. Since 1975, as farm expenses have nearly doubled (from $75.9 billion to $141.5 billion), net farm income has fallen. Profits, which declined from $32.7 billion in 1979 to $22.9 billion last year, may dip as low as $16 billion this year, making 1982 the third dismal annual showing in a row. Says Thomas Urban, president of Pioneer Hi-Bred International, a Des Moines-based seed company: "There is nothing for the farmer to be feeling good about."

This may still be the case despite the White House announcement, three days before the Iowa visit, that the President was extending for one year the grain supply agreement with the Soviet Union that is due to expire this September. Speaking last week to some 5,000 members of the National Corn Growers Association and their guests in Des Moines, assembled in the half-filled Veterans Memorial Auditorium, Reagan proclaimed: "The granary door is open, and the exchange will be cash on the barrelhead."

Despite the predictable applause, Midwest farmers would have much preferred a new, long-term pact with Moscow that would guarantee sales over several years and assure them of a buyer for their bulging surpluses. Reagan's decision clearly left most of them disappointed. The extension permits the Soviet Union to buy a minimum of 6 million tons of corn and wheat, but requires further consultation between Washington and Moscow for a deal of more than 8 million tons. Farmers believe that the U.S. could easily sell Moscow as much as 23 million tons over the next year. The U.S.S.R. has just suffered its fourth bad harvest in a row; the U.S. Agriculture Department estimates that this year's Soviet crop will be a disappointing 170 million metric tons, 68 million tons below the goal. The department also predicts that the Soviets will be forced to import 46 million tons this year, at a cost of $6 billion.

Surfeited with some 100 million surplus tons of grain, U.S. farmers bewail the missed opportunities. "It's a little like spitting in the ocean," complains Robert Delano, president of the American Farm Bureau Federation. "We have simply invited the Soviet Union to shop elsewhere to fill in its shortages." Says Republican Senator Charles Grassley of Iowa: "This extension is great news for Argentine, Australian, Canadian and European farmers."

The extension was an understandable compromise between domestic political pressure from the farmlands and foreign policy concerns. Though President Reagan had lifted in April 1981 the partial embargo on grain sales that had been initiated by Jimmy Carter after the Soviet invasion of Afghanistan, he also abruptly cut off talks for a new, multiyear grain deal with Moscow after martial law was imposed in Poland last December. Since the military crackdown in Poland is still in effect and European allies are squawking about U.S. opposition to helping build the Soviet natural gas pipeline, Reagan could hardly strike a long-term grain pact with the Soviet Union at this time.

Even if he had done so, the immediate effect on grain prices would have been negligible unless the Soviets had signed on for astronomical amounts of grain. The farmers' central problem is that bumper crops and record surpluses have put grain prices at dismal lows. In Kansas, where farmers have just harvested a record wheat crop of 440 million bu., grain is selling at a meager $3.65 per bu., down from $4.05 a year ago and from over $5 in 1973. In Oklahoma, where wheat is selling at $3.20 per bu., farmers invest nearly $6 to harvest each bushel. These are the mathematics of desperation. "The farmer's got his livelihood tied up in a crop he can't sell," said Mike Kubicek, executive director of the state's wheat commission. "He can't produce it for $6, sell it for $3 and say he's had a wonderful crop. He's going to have to bite the bullet for the third straight year and borrow again against the equity in his land."

If he can borrow, that is. Interest rates now hover around 17%, and many simply cannot afford to take out another loan. American farmers were $200 billion in debt this spring, which is more than twice as much red ink as in 1975. Younger farmers, as well as farmers who borrowed heavily over the past decade to expand their operations, have been especially hard hit by high rates. Farmlands, which once served as attractive loan collateral, are falling in value, and thus many commercial banks no longer view farmers as worthy risks. In the past ten years, commercial bank participation in farm debt has dropped from 57% to 41%. Taking up the slack somewhat, U.S. Government lending institutions have increased non-mortgage farm loans from 14% to 31% during the same period.

Bankruptcies among farmers are creeping upward; the Farm Credit Administration liquidated 1,024 of the 650,000 loans during the first quarter of 1982, almost double the number in 1981. Manufacturers of farm machinery are directly affected: International Harvester expects to lose $1 billion this year, and Caterpillar Tractor Co. has laid off 17,500 of its 52,700 U.S. workers, including 8,000 in June alone. Other sufferers are the fertilizer companies, whose sales are off sharply for the first time in seven years.

Not all farmers are hurting equally. Grain farmers are in the worst shape: corn producers are even worse off than wheat growers because there is less demand abroad for their crop. Those who raise hogs and cattle are doing relatively better, thanks to climbing meat prices and, ironically for grain growers, the low cost of feed. Dairymen, who make up only 13% of all farmers, are faring best of all, since Washington buys up nearly all of their surplus products; last year the Federal Government paid out more than $2 billion in dairy price supports.

Not surprisingly, therefore, the political picture in the Midwest is not as bleak for Reagan as it might be. Moreover, farmers tend to be conservative politically and well inclined toward Reagan's politics. Even those who disagree with his policies tend to admire the President's personal style, and doubt that they will readily abandon him. "I don't blame Reaganomics or anything the President has done," says John Ed Tarkington, 36, who raises rice and soybeans on his 1,900-acre farm near Almyra. Ark. "We are at the mercy of the market." Indeed, many farmers still seem willing to give Reagan more time to turn the economy around with his policies.

The question is how much time. As Bob Kerr, a wheat grower in Altus, Okla., and lifelong Democrat, puts it, "I'll admit our problems didn't start with Reagan. But farmers just couldn't be worse off than they are now. If things don't change, the farm economy will certainly be an issue in two more years."

For their part, the Democrats are betting on more like two months than two years. With the November elections looming, five incumbent Republican Governors in the Midwest are stepping down this year, and Democratic leaders are looking to win the statehouses in Minnesota, Nebraska, Iowa and Illinois. They also expect to pick up at least several congressional seats in the region. That is one Midwest harvest that has the Republican Party especially worried.

With reporting by Gisela Bolte/Washington, Christopher Ogden/Chicago

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