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American Farmers at the Brink

Dearth of crop sales to Asia is depressing prices for everything from cattle to corn.

By Staff writer of The Christian Science Monitor / September 24, 1998



ST. LOUIS

Prices have tumbled. Investors are nervous. The turmoil threatens to push them into a deep financial hole.

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Wall Street? No, rural America.

As harvests get under way in the nation's heartland, crop prices are falling to levels that many farmers haven't seen for decades. The slump is unusually broad because it's affecting everything from corn to cattle.

And it's sparking grass-roots protests in Minnesota and North Dakota, while Congress and the White House scramble for a solution.

If the situation doesn't improve soon, many farmers could lose their livelihoods, and policymakers would have to rethink the historic farm-subsidy cuts they made two years ago.

"This is the first time in my career that both the grains and livestock are so devastating," says Randy Sims, who has been raising both in Liberty, Ill., since 1970. A month ago, he sold cattle and lost between $75 and $90 a head. The local cash price for corn stands at about $1.57 a bushel, a level not seen since the early 1970s.

"We're going broke and going broke fast," says Hank Zell, a livestock and grain producer in Shelby, Mont., and one of the organizers of three blockades this week as US farmers tried to stop shipments of Canadian grain and livestock from crossing the border.

Those protests are largely symbolic. The real problem isn't Canadian trade but the economic turmoil in Japan and southeast Asia. Until recently a big market for farm goods from the United States, Asia is cutting back on everything from soybeans to pork. The result: Farm goods are piling up and prices are falling.

A year ago, for example, wheat averaged $3.56 a bushel; last month it stood at $2.46 - a 30 percent decline, according to the US Department of Agriculture's August price survey. Corn prices are down 24 percent in the same period. US farmers have produced so many soybeans - the second record crop in a row - that the global surplus is expected to double from two years ago. But prices are off 26 percent.

Even cattle is fetching 9 percent less than a year ago. In each case, today's prices are even lower than the averages that prevailed from 1990 to 1992. If Wall Street had undergone a similar slump, the Dow Jones Industrial Average would never have broken the 5000 barrier and today it would stand well below 3000.

"If [the slump] continued for another couple years, it could cause severe financial distress," says Terry Francl, senior economist of the American Farm Bureau Federation in Park Ridge, Ill. "But the recovery is going to be fairly dependent on the Southeast Asian situation. I don't see any signs of a robust recovery in the immediate future."

HIS guess: An upturn is 12 to 18 months away. Congress and the White House aren't waiting. On Monday, the Clinton administration announced a $7.1 billion rescue package that includes $2 billion in emergency aid.

Republicans in Congress are pushing their own $3.9-billion plan. Both proposals would aim money at drought-stricken farmers in the South and producers with disease-ridden crops.

One big difference, however, is that the administration's proposal would give farmers a one-year boost in a key price subsidy called a marketing loan. That move alone would channel some $5 billion to farmers. But it violates the spirit of the landmark farm legislation passed two years ago that reduced such price subsidies and made farmers more dependent on market conditions.

At the time, farmers were doing well. Republicans in Congress have vowed to stay the course of market-oriented agriculture. But the latest turmoil, if it continues, would pressure lawmakers to rethink that position.

"If we don't have something, I don't know what's going to happen in rural America," says Mr. Zell, the Montana farmer. "Personally, I'm really hurting."

Unable to repay his operating loan last year because of poor crop prices, he now faces the prospect of having to remortgage his land to stay in farming. The 1996 Freedom to Farm Act didn't give him much flexibility, he adds, because the climate and land in his area make it hard to grow anything but wheat and barley.

Mr. Sims in Illinois is more optimistic. He's partnering with nearby farmers to build a new hog facility that would sell directly to a local meat processor. The agreement would smooth out the highs and lows of hog prices, presumably giving him a more consistent return. "Asia, Russia, Mexico, South America, Africa - all those areas will have stronger economies," he says. "American agriculture has the capacity to feed the majority of the demand. And I truly believe that the demand will come pretty shortly."

But can farmers endure such prices for long? "A year form now if nothing's changed, [the mood] is going to be different," he says.