Recovery in Farm Economy Years Away, Experts Believe

Farmers across the country are renewing their partnership with the soil this week, racing to complete spring planting, hopeful of a bountiful harvest--and still caught in the vise of economic depression.

Despite declines in interest rates, oil prices and the value of the dollar overseas, agricultural economists do not expect an early end to the plague of farm failures and financial stress.

“I don’t see a ‘bottoming-out’ happening this year,” says Mark Drabenstott, an economist at the Kansas City Federal Reserve Bank. “We won’t see a significant rebound in agriculture for several years.”

“We could still lose 100,000 farmers this calendar year, and it could get much worse,” says Robert A. Denman, a legislative analyst for the National Farmers Union. “We’re hardly at a point where anyone can forecast a turnaround in the situation.”

In fact, the painful economic and social restructuring of rural America and the gradual disappearance of traditional family farms is likely to continue to the end of the century. As many as 1 million of the nation’s 2.2 million farmers may be forced to leave agriculture by the end of the century, a congressional study predicts.

“By the year 2000 there could be as few as 50,000 large-scale farms producing as much as three-fourths of the (U.S.) agricultural production,” reports Congress’ Office of Technology Assessment. If current government agricultural policies continue, the report adds: “The moderate-size farm largely will be eliminated as a viable force in American agriculture.”

Even a disaster like the radiation-spewing fire at the Chernobyl nuclear plant in the grain-producing Ukrainian “breadbasket” will apparently not help to lift American farmers out of their economic doldrums. Agricultural analysts believe that even if there is widespread damage to the Soviet wheat crop, unexpected Soviet purchases would make only a small dent in worldwide grain surpluses.

“I have strong doubts that an event in the Ukraine will solve a surplus problem that has been building for five years,” Drabenstott says.

The global grain surplus, increases in production and the approaching biotechnological revolution are behind the predictions of extended hard times for agriculture.

Glut is the biggest problem. There are an estimated 100 million metric tons of surplus grain in the world today. To put that in perspective, it would take only about 3.2 million tons of cereal grains to supply Ethiopians with two-thirds of their total calorie requirements for this year, according to the Agriculture Department.

Surplus May Worsen

The world surplus may worsen. Estimates are that the stockpile will grow this year, unless there are massive crop failures or catastrophes of monumental proportions.

“You can’t talk about the future of American farmers without realizing that fairly dramatic productivity increases in other parts of the world mean that Americans won’t be feeding the world,” says Dennis Avery, a State Department analyst.

“I’ve got a list of 27 countries with farm surpluses,” adds Avery, who reports from the Bureau of Intelligence and Research. “If Finland and Saudi Arabia can have farm surpluses, who can’t?”

Because of the global agricultural surpluses, prices for grain remain low, often below the cost of production. This, in turn, is keeping the value of land--a farmer’s principal asset--low. Close to 65% of the farm debt in nine Midwestern states heavily dependent on agriculture is real estate debt. In the last four years, farmland values in the region have declined an average of 50%--almost 60% in Iowa.

Land Prices Dropping

“The decline in land prices is not moving as fast, but here in the heart of the grain and livestock belt land prices are still going down,” says Robert G. F. Spitze, an agricultural economist at the University of Illinois, Urbana-Champaign.

Farmers are also not benefiting significantly from moderating interest rates, lower petroleum prices and a weaker dollar, even though rising interest rates and oil prices and a strong dollar helped trigger America’s agricultural downturn.

The decline in farm interest rates has “lagged well behind market rates because of large losses experienced by lenders and the prospect that those losses will continue,” the Federal Reserve’s Drabenstott says.

“Interest rates for farmers haven’t dropped that much,” says Denman of the Farmers Union. “They are still at 12%--when they can get it. Lower-interest loans tend to be for housing, not for one-year loans for planting a crop.”

Rural banks are continuing to fail faster than at any time since the Great Depression, and those that survive are reporting losses. In Iowa, the nation’s hardest hit agricultural state, five banks have failed so far this year. In 1985, agricultural banks accounted for 68 of the nation’s 118 commercial bank failures.

$206-Million Quarter Loss

And the Farm Credit System, the nation’s largest agricultural lender, reported a first-quarter loss of $206 million last week. That compares to a $118-million profit for the same quarter in 1985.

Falling fuel prices may help farmers in the long run, but economists say prices for agricultural products derived from petroleum--like fertilizers and pesticides--have not dropped significantly. Fuel represents a relatively small component in American farm debt.

For several years, the Reagan Administration attributed U.S. farmers’ economic problems in large part to a strong dollar, which made American agricultural products too expensive for foreign buyers. But now that the dollar is weaker--and American agricultural products cheaper--U.S. farm exports are heading toward an eight-year low. In fact, this could be the first time in more than a decade that American domestic wheat consumption will exceed exports.

There are a number of reasons. Among them:

- The world grain glut.

The fact that the dollar still remains relatively strong when compared to the currency of some competing agricultural nations.

- Falling oil prices, which have cut the purchasing power of some importing countries dependent on oil income.

Falling oil income is also hurting some American farmers in another way. Across parts of Kansas, Oklahoma and Texas, many farmers have relied on income from small oil wells on their farms to offset declines in agricultural income.

“Texas has been insulated from crisis, and it was the only farm state whose land went up between 1984 and 1985,” says Philip M. Raup, an agricultural economist at the University of Minnesota. But so far this year, there has been a 17% drop in farmland prices in Texas, Raup reports.

There are other problems on the horizon for farmers in the Southeast and parts of the Midwest.

Poor Harvest Possible

In the Southeast, farmers have been delaying spring planting because of the driest planting season ever, and they face the prospect of a poor harvest. Grain, cotton and peanut crops are all affected. Meanwhile, in parts of the northern Great Plains, heavy rains are delaying planting of spring wheat. Neither problem will cause dramatic shortages, but for farmers near the edge, the bad spring weather could be a push into an economic abyss.

Not all economists agree that the future for farmers is bleak, although those with hope appear to be in the minority.

One of them, Kansas State University’s Barry Flynchbaugh, says he is “cautiously optimistic that we’ve turned the corner.”

“We’ve still got a long row to hoe but there is no doubt in my mind that the seeds of recovery have been sown,” says Flynchbaugh. “Depending on weather, it will take to the end of the decade to really prosper.”