US-Soviet relations blow hot on grain sales, cold on neutron bomb; Grain deal may presage wider thaw in trade relations
Chicago — Renewed sales of US grain to the Soviet Union don't yet add up to a triumph for either US exporters or Soviet consumers. But what is clear is that negotiators from the two countries have joined in a well-publicized step toward reestablishing "business as usual" in one key area of their trade relations. And the combination of support from trade advocates within the Reagan administration, predicted low yields from Soviet grain crops, and the prospect of unusually heavy US grain harvests this year may well prompt further steps in the same direction.
Coinciding with activity on the farm front was another trade relaxation which pleases both the Soviets and many Midwesterners: Reagan administration authorization for a $40 million sale to the Soviets of 100 pipeline layers manufactured by the Caterpillar Tractor Company of Illinois.
Where such first steps toward more trade between the superpowers may lead depends on many factors. The extent of Soviet intervention in Poland certainly will help decide whether Washington tones down its opposition to a Soviet- West German pipeline project which could include an order for an additional 200 pipeline layers. Another factor will be the overall state of the American economy.
Secretary of Agriculture John Block had been outspoken in stating that the US agricultural sector is geared to steadily increasing exports of farm products. He says, as well, that the Reagan Cabinet as a whole recognizes the urgency of improving the nation's export performance. According to this view, which weights economic needs over political considerations, hard-liners within the Cabinet are losing their battle against improved Soviet-US trade relations. If true, this may mean selling the Soviets not only more grain and more pipeline equipment, but also surplus US butter below cost and high-technology equipment such as computers.
For skeptical grain traders, however, such a trade thaw still appears far off. They say that only time and a series of carefully choreographed steps can smooth out the political and economic turmoil caused by the Carter administration's 16-month embargo on grain sales to the Soviets.
Mr. Carter's January 1980 embargo came in retaliation for Soviet intervention in Afghanistan. Carrying out a campaign promise, Mr. Reagan ended that embargo in April. Precisely three months later, after a "decent interval," the Soviets responded to American invitations by making three small purchases of US grain.
On Aug. 5, Soviet officials meeting in Vienna with a US delegation led by Special Trade Representative William Brock committed themselves to purchasing, over the coming year, a minimum of 3 million metric tons of wheat and three million of corn. This commitment extends the 1976 five-year grain agreement for a further year. It provides for purchases of up to 8 million tons, with further amounts subject to consulations.
Poor crop conditions in many Soviet grain regions make it probable that the Soviets will need to import from 36 million to 40 million tons of grain in the coming year. This compares with 33 million tons imported in the current year and would stretch Soviet import facilities to the limit.
US government and private projections estimate that the Soviets will only harvest 185 million to 190 million tons of grain this year. This compares with 1980's 189 million tons and their 1981 target of 236 million tons.
If Soviet grain production drops below 190 million tons as predicted, the Soviets can draw on expected good harvests in the European Community, Australia, Latin America, and Canada. But all current projections of world grain supplies forecast that a Soviet harvest of less than 190 million tons will force the Soviets to:
* Either cut back sharply on fattening livestock with feedgrains, thereby angering consumers by restricting meat supplies.
* Or else import approximately 20 million tons of US wheat and corn in addition to the limit of about 20 million tons available from other suppliers.
US government and independent agencies are also agreed in predicting record US grain production this year. An unexpectedly large harvest of US winter wheat planted last fall is being binned throughout the Midwest. When the spring wheat is harvested, the result should set a new wheat record: 2.81 billion bushels, up nearly 20 percent over last year's record crop.
All indications point toward almost as bountiful corn and soybean harvests: a second-largest corn crop ever of about 7.5 billion bushels and a second-largest soybean crop of about 2 billion bushels.
If US grain crops do come in near these forecasts, pressure is bound to build on both sides for improved Soviet-US trade relations.
Bumper US harvests will depress farm commodity prices. This will give the Soviets added incentive to buy -- not only for supplying their current needs but for building up their reserve stocks at bargain prices. At the same time, the US will be anxious to maximize exports to prevent the low prices which hurt farmers and trigger costly federal price support programs.
Any large US grain surplus will make the Soviet market very attractive. This is because US cattle and supermarket shoppers already are consuming all the grain and grain products they can absorb. Meanwhile, Soviet cattle and consumers both are crying out for far more grain. Political decisions in Washington and Moscow over the coming months will decide whether this unmet Soviet demand can be reconnected to abundant US suppl y.