Amber Waves of Strain

By Stephen Koepp.

Across the farm belt last week, it was clear that another bumper crop is on the way. In Illinois, the corn is already seven feet high in spots and not close to topping out. Some corn is tasseling weeks ahead of schedule, and an early harvest is in prospect. Soybeans have also benefited from perfect weather; many plants are waist high and flowering ahead of time. Good, dry planting weather came early this year across Iowa and Nebraska, and even scattered flooding has not hurt the promise of a bountiful harvest. Elsewhere in the Midwest, it is much the same, a year so good that Dennis Vercler, news director of the Illinois Farm Bureau, calls it "absolutely phenomenal."

Yet the great bounty of U.S. agriculture continues to be a curse as well as a blessing. As the corn rises speedily, so does a forest of new silos that signals a crop-storage problem of epic proportions. All across the corn belt, from Indiana to Nebraska and Missouri to Minnesota, a binge of bin and silo building is in full swing. Reason: by the end of summer, U.S. farmers and the Department of Agriculture will be buried under more excess wheat, corn, rice and other products than ever before in history. Last week the immensity of the surplus became clear in the marketplace, as commodities traders sent the price of corn futures plunging to $1.71 per bu., the lowest level in twelve years.

While farmers fret about how to store the huge harvest, much tougher questions will loom as unavoidably as tarpaulin-covered mountains of wheat. The unsentimental truth is that America's farm industry, once a source of pride and power, has become an economic burden. Because so many other countries have improved their agricultural output, maintaining America's vast farming capacity is now a costly exercise in excess. During fiscal 1986 the expense to taxpayers for supporting farm programs will reach, according to the Government's estimates, $24 billion -- a 36% increase over last year. As exports shrivel and imports increase, the U.S. agricultural industry no longer even produces the hefty foreign exchange earnings that farmers once provided.

To put the situation in order, the Government is allowing thousands of farmers to fail but is spending billions to boost foreign sales and prop up incomes for those who survive. Yet the adjustment process is a bitter one that promises hardship not only for farm families but for the thousands of already troubled farm-oriented businesses, including machinery builders, petrochemical companies, seed producers and the mom-and-pop shops that keep small rural towns alive.

This year's corn crop will be the most dramatic example of U.S. agriculture's relentless surpluses. Because of the almost perversely ideal weather, with exactly the right amount of rain at the proper intervals, says Illinois' Vercler, "crop development is just about the best ever." Last year's corn crop was the largest in history, 8.9 billion bu., of which a record 5 billion bu. is left over in storage. The expected bumper harvest of 8 billion bu. this year, smaller in volume than 1985's because an increasing number of farmers have taken some acreage out of production to qualify for Government support programs, will send prices plummeting even further into the cellar.

Other vast surpluses abound. At the beginning of last month, the U.S. held 1.9 billion bu. of wheat, a record overstock, and 847 million bu. of soybeans, almost 40% more than at the same time last year. Kansas alone held 178.8 million bu. of grain sorghum, a livestock feed, almost 80% more than in June 1985. The U.S. is producing a huge excess of milk as well, a problem reduced only partly by the USDA's program this year to pay thousands of dairy farmers some $1.8 billion to send their herds to slaughter or export markets.

The Midwest's surplus is so stubbornly large that even this year's severe drought in the South will fail to boost depressed farm prices. The sad result: farmers in those states will face a double bind of low prices and small harvests, which could push many of them over the financial brink. Last week's heat wave, which reached 105 degrees F in parts of the Carolinas, further scorched crops and killed more than 500,000 chickens. "This could put us completely out of business," laments Dairy Farmer Charlie Bouldin, of Chatham County, N.C., who expects less than 30% of his hay and corn crops to survive.

But for most farmers, the problem is a lack of customers. Foreign sales of U.S. farm products have faltered because dozens of countries from Brazil to China have become more self-sufficient, while heavily indebted Third World nations lack the money to buy significant imports. This year total U.S. farm exports are expected to dip to $27.5 billion, down 12% from fiscal 1985 and 37% from 1981. At the same time, U.S. imports of such products as fish, fruit and vegetables have increased. Earlier this month the USDA announced that during May the U.S. became a net importer of farm products for the first time since 1959, except for occasions when dockworkers were on strike. May's farm deficit was $348.7 million. Although the USDA predicts a $7.5 billion agricultural-trade surplus for the year as a whole, the historic one-month deficit outraged farm-state legislators. Said Senate Majority Leader Robert Dole of Kansas: "Something is radically wrong when the greatest food producer in the world is buying more agricultural commodities than it is selling. This trend simply cannot continue."

& The best hope for boosting exports at the moment is the Food Security Act of 1985, the farm legislation passed by Congress last December. The act allows the Government to lower agricultural price supports and thereby make U.S. products cheaper in foreign markets. The new farm policy, however, is proving very costly. To compensate farmers for lowered price supports, the law provides dramatic increases in so-called deficiency payments, which are given directly to farmers to ensure that their net incomes remain stable. Under the new plan, farmers will generally derive a larger portion of their income, typically more than a third, from the Government. As a result, budget-cutting pressure could force the program to be scaled back next year in Congress. Moreover, the dramatic increase in U.S. farm subsidies fans protectionist sentiment in other countries.

The subsidies, however, are backed by many farm-state voters with an understandably desperate zeal. More than 50,000 of the country's 2.3 million farmers hung up their tractor keys for good during 1985, and 50,000 more will probably be forced to quit this year. Says Enid Schlipf, who grows corn in Gridley Township, Ill.: "If a farmer's got a lot of debt, he's in deep trouble, no matter how good an operator he is." Foreclosures and bankruptcy have devastated the morale of many lifetime farmers and spurred at least a score of heartland suicides. Last week a 54-year-old farmwife in Chattanooga, Okla., despondent over her family's debts on their 1,280-acre wheat-and-cotton operation, killed herself by climbing atop a barrel of burning trash.

The financial strain has been aggravated by a get-tough lending policy at the Farmers Home Administration, the federal agency that makes and guarantees agricultural loans, and the Farm Credit System, a network of more than 600 banks and credit associations. Both organizations have adopted a more stringent policy, cutting off the most overextended farmers. The FCS suffered a loss of $2.7 billion last year, and holds some $12 billion in problem loans on its books. Says FHA Administrator Vance Clark: "We're going to lose a lot of farmers this year, and we've got to accept that."

Besides farm lenders, thousands of other businesses have suffered ripple effects. Tractor sales, for example, totaled only 58,500 in 1985, compared with 139,000 during the last good year, 1979. The slump has prompted several famous manufacturers to leave the business. Milwaukee's Allis-Chalmers, New York's Sperry and Chicago's International Harvester (renamed Navistar International) have sold their farm-machinery operations to competitors, a consolidation trend that has caused tens of thousands of employee layoffs. Of some 20 farm-equipment dealers who prospered in McLean County, Ill., five years ago, only three remain.

Some of the more optimistic farmers think they see a few rays of dawn on the horizon. The continuing decline of interest rates, for example, makes it easier for them to meet payments on their land and equipment. Falling prices for fertilizers, seed and other supplies have helped too, by reducing farm expenses. Finally, the falling value of the U.S. dollar should make farm exports more affordable for foreigners. But it will take the U.S. a long time to sell off the surpluses it has produced. Those rays of dawn are still barely visible through the lush, tall cornstalks.

With reporting by Gisela Bolte/Washington and Lee Griggs/Des Moines