Wheat-Crop Failure Becomes First Test of New Farm Law
| NEW LENOX, ILL.
Gary Fritz, a fourth-generation farmer, expects each spring to see rain and sunshine suddenly coax cringing brown stubs of winter wheat into a thick, deep-green carpet.
This spring, though, Mr. Fritz walks on alien terrain as he eyes his 140 acres sown with winter wheat. There he finds just wisps of faint green blades strewn in ragged lines across a gray moonscape.
"It's bad. I've seen it worse, but it's real bad," Fritz says, jamming a stunted sprig back into the earth with the toe of his boot.
Winter wheat has failed this year across much of the Great Plains and Corn Belt. The paltry crop, appearing just weeks after Congress passed sweeping legislation to phase out federal support of agriculture, is a rude reminder to US farmers of the greater risks, rewards, and uncertainties of tilling the earth without Uncle Sam.
The winter wheat crop has failed many times before, of course. But this spring the prospect of a scant yield hits farmers at the dawning of an era of greater self-reliance and price volatility. Federal price supports and other subsidy programs will gradually shrink over the next seven years. Farmers will increasingly rely on themselves, rather than federal bureaucrats, to decide what and how much to plant.
The combination of a poor crop, high grain prices, and shifting agriculture policy has provoked a good deal of head-scratching on American farms. The price of both wheat and corn jetted to record highs last month before generous rain brought prices down a bit.
New options for farmers
Previously, farmers who accepted federal support were obligated to harvest a poor crop and pocket the subsidized price. Under the new Freedom to Farm Act, they may either reap their meager winter wheat or take the risk of plowing it under and planting soybeans, corn, or other crops.
"Before, the farm program dictated what they planted," says Mark Schneidwind at the Will County Farm Bureau. Now the new farm law "gives farmers flexibility: They can look at demand, look at stocks, and determine whether to rip out their wheat and plant corn this year," he says.
"Farmers now have to choose between the bird in the hand or the two in the bush," says Terry Francl, chief economist for the American Farm Bureau Federation.
The wheat crop in hand is a scant one, largely because of drought and bitter cold. Before late April showers, the US Department of Agriculture rated 46 percent of the nation's winter wheat crop as poor or very poor. Usually in early May only 15 percent of the crop is rated inferior and about half is rated good to excellent.
Sparks Company, highly regarded private consulting firm in Memphis, Tenn., on Friday pared its estimate for the 1996-97 US wheat crop from 2.4 billion bushels to 2.1 billion bushels.
Also, a group of grain specialists on Wednesday estimated that Kansas, which accounts for about one-fourth of the nation's winter wheat, would harvest just 170 million bushels of the crop. The state reaped 286 million bushels last year and 433 million bushels in 1994. Wheat supplies are now at their lowest levels in 50 years.
"It's a big loss," Mr. Schneidwind says. He estimates farmers like Fritz in the county south of Chicago have suffered an average setback in income of $10,000.
Losses are even worse elsewhere, however. Winter wheat is a minor crop across much of the Corn Belt, taking up just 8 percent of Fritz's 1,800 acres. The red ink is far deeper at farms in the southern Great Plains, where wheat is the mainstay. Drought has badly damaged the crop in Kansas, Oklahoma, and Texas.
Farmers who manage to bring grain to market will confront greater swings in grain prices because of the new farm law.
"There is unquestionably going to be more volatility," Mr. Francl says. "We've taken out the price supports, and we've taken out government storage, and that means there will be fewer government stocks and the market will respond accordingly."
Consequently, Fritz and other farmers must be more aggressive in managing risk and hedging their potential losses, agriculture experts say. Already, Fritz has stepped up his purchase of crop insurance and begun to more aggressively play the market in grain futures and options. The insurance, he estimates, will shave his loss from the poor winter wheat crop to near zero.
"With the farm bill, we'll have to buy more crop insurance and do a lot more forward pricing," Fritz says.
Even with the most successful risk management, the decision to plow under wheat and plant another crop instead is a hard one. Fritz reckons that he will till only 26 acres of wheat to harvest, turning over the wheat and sowing corn or soybeans on the remaining 114 acres. In some of his fields, there are just three sprigs of wheat for every square foot. About 14 sprigs is considered the minimum for a viable harvest.
Farmers who reap ample grain will likely thrive this year, because the paltry stocks of wheat and corn have boosted prices, experts say. Corn prices in April doubled last year's price of $2.50 a bushel before subsiding recently. Wheat has jumped from an average last year of $4.35 per bushel to more than $6.20 per bushel. "Most farmers are looking at a very optimistic year," Schneidwind says. "Even with the wheat damaged, they can make the decision in the next couple of weeks to turn it under and plant an alternative crop."