Collapse of free-market farm economy?

Beset by drought, low crop prices, and high fuel costs, farmers are expecting bushels of federal aid.

The Midwest's farm prospects look bleak this year.

Grain prices are wallowing in a trough for the second year in a row. Fuel prices have shot up. And a worsening drought, stretching across nearly half the United States, threatens to stunt the crops before they're even sown.

So what's the mood in farm country? Surprisingly even-keeled.

But the reasons have little to do with crop prospects or soil moisture. Farmers, policy analysts, and just about everybody else expects Congress to step in with bushel baskets of emergency aid.

The subsidies will likely prop up the farm economy for another year, but they're also raising new questions about America's move toward free-market agriculture.

Does the nation's Freedom to Farm policy - the move away from federal subsidies and price supports - work? Or will low crop prices force annual appropriations of largess from Washington? Analysts don't expect Congress will overhaul Freedom-to-Farm this year. Instead, Farm-Belt Republicans and Democrats will rush in with pre-November subsidies.

"Not to be a smart aleck, but when's the election?" asks Mike Duffy, professor of economics at Iowa State University in Ames.

"Until demand is back where it needs to be, you're really going to have to have something to offset these low prices," adds Todd Van Hoose, spokesman for the Farm Credit Council in Washington. "Our sense is that the Congress realizes that and is moving to make that happen this year."

Already this week, House and Senate Republicans are trying to iron out a budget resolution that could include an extra $6 billion in farm aid. Meanwhile, several Farm-Belt Democrats joined more than 1,000 farmers for a Washington rally to protest the Freedom-to-Farm law. Even Agriculture Secretary Dan Glickman weighed in at the protest.

"It is time to rewrite that 1996 Freedom to Farm bill," he said.

Out in the countryside, however, the mood is serious but not panicky.

"I don't think I hear quite as much desperation this spring as I did last spring," says David Brueggemann, a small corn and soybean farmer in Brighton, Ill. "The big concern this year is the dryness."

If history is any guide, farmers are right to expect more aid. Last year, when agriculture faced low prices and drought, the federal government stepped in with some $8.7 billion in extra funds. Prices remain low this year, too, except the market for hogs, which has recovered from Depression-era lows.

And if the government doesn't step in with extra money, the US Department of Agriculture (USDA) estimates farm income could dip to $40.4 billion - about $8 billion less than last year and the lowest total since the 1996 Freedom to Farm Act came into being.

Since USDA made that estimate in January, farmers' plights have worsened. After the warmest winter on record, much of the nation has slipped into a drought.

Already, the National Oceanic and Atmospheric Administration says the nation's Corn Belt and a swath of southern farm country from Texas to northern Florida faces first-stage or severe drought.

Another problem: rising fuel prices. Farmers typically spend close to 10 percent on gasoline and diesel to run their machinery and power their irrigation systems. A price spike is putting pressure on already-low profit margins.

"If it goes higher, that's going to start to become a rather significant input cost," says Dale Farnham, an agronomist with Iowa State University's extension service, based in Ames. "The attitude is better, but the outlook is still pretty bleak."

As the price slump continues in agriculture, more farm operations get stressed.

"There's an upside and a downside," says Mitchell Morehart, agricultural economist with USDA's Economic Research Service in Washington. On the positive side, the current economic situation "is not a surprise. People have had a year of experience dealing with low commodity prices, adjusting practices to cut costs, and trying to maximize what they can get out of the current commodity market. On the other hand, it is cumulative."

Farmers who have had to dip into their savings to stay afloat last year will probably have to do so again this season.

"Even for those people out there who had a good year last year in terms of production, who have a manageable level of debt, they're really entering their third year of terrible prices, and the psychic strain of that is very tough," Mr. Hoose says. "The stress level of having to manage a farm is very tough" nowadays.

These increasing pressures may explain why Iowa State University's crisis line has seen an uptick in calls. In February, the rural hot line received 942 calls, nearly 100 more than a year ago and the fourth highest February number since the service began in 1985, in the midst of the worst farm downturn since the Depression. Six of 10 of last month's calls were agricultural related.

"We had some farmers say: 'I'm going to stop. I'm not going to continue to bleed,' " says Loren Book, a counselor for the hot line and a farmer. For most others, "the sense is: 'Hey, we dodged the bullet, but what is the future really gong to bring?' "

(c) Copyright 2000. The Christian Science Publishing Society

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