Farmers Reap Bumper Crop--of Subsidies

COLCHESTER, Ill. —  Through chilly autumn days and into the frosty nights, Midwestern farmers are piloting combines across dusty fields, racing to complete the annual harvest of grain and beans--and a bumper crop of government subsidies.

This year’s harvest payoff, more than ever before, will come from the federal Treasury rather than from bountiful crops. In fact, about half of what farmers earn will come not from their fields but from federal programs.

$23-Billion Cost

Direct government payments to farmers in 1987 are estimated at about $15 billion, roughly 20% greater than in 1986. The farm economy will benefit from another $8 billion in other federal expenditures, bringing the government’s agricultural costs this year to at least $23 billion.

This year, Agriculture Department economists estimate farmers will earn between $41 billion and $45 billion, about one-third of that coming directly from the government and perhaps as much as a sixth the result of other government spending.

Meanwhile, Congress is wrestling with whether to invest another $6 billion to save the country’s primary farm lender, the Farm Credit System, which is teetering on the brink of failure. The big banking bailout, if approved, would represent an indirect subsidy to the agricultural sector.

“I don’t think there’s been any time in history that you could find farmers more dependent on the government for their income than under the current situation,” says agricultural economist Abner W. Womack.

“We’re seeing record high levels of nominal net cash income and net farm income simply because of the large government payments,” says James T. Ryan, a Department of Agriculture economist.

The harvest of subsidies is a major reason for a moderation in the battered agricultural economy where depressed economic conditions have caused widespread social and financial dislocation for most of this decade.

“If I didn’t have government programs this year I wouldn’t be farming next year,” says Richard P. Myers, 39, who works 740 acres here in west-central Illinois, in the heart of America’s Corn Belt.

Other Countries Subsidize

“Right now, without the government, we’d have a lot of farmers broke,” says Myers’ neighbor, Dean Chenoweth, 52, who farms about 1,100 acres near Macomb and who serves on the local farm credit board. “We’re not happy about taking government payments at all. But the reality of it is . . . governments all over the world are subsidizing farmers.”

Despite the improvement in the farm economy, some analysts describe their mood as “cautiously optimistic.” Economists warn that though the prolonged period of financial stress may have leveled off for the moment, the shakeout, which has already forced tens of thousands of debt-burdened farmers to leave the land and lenders to absorb billions in uncollectible agricultural loans, could continue into the early 1990s.

One reason for this is that the 1985 federal farm legislation which paved the way for this year’s windfall of subsidies also calls for a gradual weaning of farmers and agriculture from government aid. Instead, a free market would evolve where farm commodity prices are determined by supply and demand--a goal that has proved elusive in the past.

But if subsidies drop, and the marketplace rather than the government sets crop prices, one major economic forecast projects that net farm income in the 1990s will drop by half from this year’s projected level.

“Free market agriculture (agriculture without government influence on prices) looks like $20-billion to $25-billion agriculture annually . . . and yes, it will carry more people out of production,” says Womack, an economist at the University of Missouri and the authoritative Food and Agricultural Policy Research Institute. Many economists believe that level of farm income cannot support all of the hundreds of thousands of full-time commercial farmers who are among the nation’s 2.17 million farmers.

“The ones who will be left will be fairly strong farmers,” says Womack.

‘Tired of Struggle’

“I think the shakeout is going to continue,” says Gary Lucier, a Department of Agriculture economist who sees a more gradual fall in net farm income over the next five years. “The thing I do see changing is (the reason) people go out of farming--less for bankruptcy and more for being just tired of the struggle . . . of trying to make it.”

Whatever the struggle ahead, this year farmers are benefiting from a cornucopia of federal programs.

“Economically speaking it’s the best bargain in town,” says James K. Trotter, 45, who gave up a job as a schoolteacher to farm 480 acres in Adair, in west-central Illinois.

Collectively, farm subsidies are helping to shore up finances of those burdened by debt and providing money to those without debt to expand their farming operations, often by buying the assets of their failing or retiring neighbors.

“We think around 60% of the price support amount has gone to people not in trouble,” says Iowa State University economist Neil Harl. “So it is not a very efficient way to deal with the problem. But the 40% that has gone to people in trouble has been of immense value.”

Payment Plans Vary

There are a variety of government payments farmers can collect. Among the most common are:

--Deficiency payments. Farmers are paid the difference--the deficiency--between the loan rate and the target price for specific commodities. For example, this year the government set a $1.82 loan rate for corn, a widely cultivated Midwest crop, and a $3.03 target price. Because corn currently sells for $1.50--less than the loan rate--farmers are paid the difference between the loan rate and the target price, in this case, $1.21 a bushel. If the market price rises above $1.82, they’ll get only the difference between the market price and the target price. To qualify for this program, farmers must agree to idle up to 35% of their normal corn crop land. Barley, wheat, rice, cotton, oats and sorghum also qualify for this program.

--Commodity Credit Corp. loans. Farmers can take low interest government loans using their crops as collateral. If the market price of their crop remains below the loan price they may, after nine months, keep the money and forfeit their crop to the government. For example, a farmer who grows corn this year can borrow $1.82 for each bushel of corn he harvests. If the price of corn remains below that, he can keep the money and the government keeps the corn. If corn becomes worth more than $1.82 a bushel, he can repay the loan and sell the corn. He can do this even if he has received a deficiency payment for this corn.

Erodible Land Targeted

--The conservation reserve. This was designed to sharply reduce the amount of crop land and thus to help reduce government-owned stocks of surplus crop by taking highly erodible land out of production. Under the program the government agrees to pay rent on land farmers agree to idle for 10 years. Under the program it is possible to buy farmland, hold it for three years, enroll it in the conservation reserve and pay for the land with federal rent payments. So far 23 million acres have been enrolled in the program, about half the total acreage the government would like to take out of production.

Payments to farmers for these government programs are both in cash and in Payment In Kind certificates which may be redeemed for government owned surplus crops.

Called “certs” by farmers, the PIK certificates have become a new currency in rural America. So far about $8-billion worth have been issued. They are accepted as payment for seed and fertilizer by some dealers, and brokers have begun trading them, buying them for a premium and reselling them for a profit. Farmers have reported getting as much as $1,200 for a certificate with a $1,000 face value. Last week, here in west-central Illinois, they were selling for $1,070 for each $1,000.

With corn selling for about $1.50 a bushel, a $1,000 certificate is worth 667 bushels of corn. If the price of corn drops to $1.40 a bushel, the certificate is worth 714 bushels of corn, which a farmer can then feed to his livestock or store until the price rises and then resell for the higher price.

Farmers also benefit from federal export subsidies, which encourage foreign buyers to purchase American grain and which reduce government surpluses of grain. As government grain stocks fall, the value of harvested crops often increases.

Shores Up Banking System

Because these programs are pumping cash into a rural economy that would otherwise be generating much less income, they are helping to shore up the banking system weakened by the prolonged farm crisis.

“What we have been involved in since 1982 has been a massive sharing of losses,” says economist Harl. “The lender has been in the middle of this process.”

Harl believes that by the end of this year about $56-billion worth of agricultural debts will have been wiped off the books. “About 60% has been paid off voluntarily and about 40% has been discharged in bankruptcy or foreclosure. . . . We’ve clearly passed the halfway point.”

“A lot of farmers are using any excess cash that they have now to reduce their debt,” says Agriculture Department economist James T. Ryan.

Colchester farmer Richard Myers will use his government payments to keep up on his interest payments.

“The next three years will be critical for me,” says Myers, who remains among the 20% of American farmers threatened by debts. His one-time partner in working the land, his brother Don, has gone back to get a master’s degree in business at nearby Western Illinois University because “the farm just can’t support two families.”

Fewer Farmers Needed

Educated and well-read, Myers goes to the fields these days acutely aware that the country “can get by with a lot fewer farmers than we have.”

“But,” he asks as he stands on Main Street, “if you displace more farmers what’s going to happen to this restaurant or to that grocery store?”

“We would much prefer not to have the government involved,” says his wife, Chris, 34. “But in the last five to 10 years, it’s become a necessity.”

“Right now without the government we’d have a lot of farmers broke,” says Dean Chenoweth, who is among the 40% of farmers who are financially secure and who have continued to expand their operations despite general hard times in agriculture. “But I think (subsidies) stabilized the farm economy. Without them we would have seen a real disaster.”

“I don’t think we’re out of the woods yet,” says James K. Trotter, 45, who farms 480 rented acres. “I think there are some problems ahead of us. I’ve been lucky in this farm crisis. I didn’t go overboard.

“I sure feel sorry for the guys that did.”