010138 Farmers Fear Further Slide in Economy

Kansas City, MO - As a fourth-generation farmer, Brad Boyd is well-versed in the boom and bust cycles of the agricultural economy. But as he ponders how much corn to plant this year on his western Kansas farm, rising production costs and low market prices cause him fear and frustration.

For Boyd and thousands of other American farmers growing key crops such as wheat and corn, farming has become a money-losing game that forces them to rely on government support checks to make ends meet.

“One of the questions I'm asking myself is, 'At what point do you say it doesn't make sense to do this?”' Boyd said in an interview from his Meade, Kansas, home.

Unlike other segments of the U.S. economy, much of the Midwest, and particularly agriculture, have largely missed out on the prosperity that has fueled stock market gains and fattened bank accounts over much of the last decade.

Some economists refer to the economy of the 1990s as a bi-coastal boom, with California and the East doing well and the American heartland lagging behind. “Agriculture does appear to be moving to its own drumbeat. It hasn't enjoyed the boom the rest of the country has,” said Alan Barkema, an economist and vice president at the Kansas City Federal Reserve Bank.

Aside from a relatively healthy year in 1996, when market prices climbed in response to production problems, many growers of the leading U.S. agricultural products have spent much of the decade struggling to survive.

As consumer confidence and spending have climbed, commodity prices have fallen to levels last seen during the 1980s, when an agricultural recession wiped out thousands of farmers. Meanwhile, costs of farm production have spiked, and the population of farm families and the rural communities they traditionally support has shown a steady decline.

Recent industry statistics show faint grounds for optimism over the next few years, but for now, as analysts speculate about the possibility of an impending downturn in the general U.S. economy, farmers fear further financial devastation.

“We feel like we've been in a recession already,” said Larry Kepley, who plants about 1600 acres of wheat, corn and milo on his farm near Ulysses, Kansas. “I don't know that we feel like it could get a lot worse.”

Global Grain Glut

Troubles plaguing the nation's farmers are both as simple as a global imbalance in supply and demand and as complex as the myriad government programs that have paid out an estimated $24 billion since 1998 to keep farmers afloat.

Along with the global glut of grain, natural disasters such as last summer's extreme drought that withered crops and tapped livestock water supplies as well as runaway costs for such production essentials as natural gas and nitrogen have combined to put farmers in such financial straits that the U.S. government has spent more than double the projected costs of the “Freedom to Farm” deregulation law passed in 1996.

The law removed most federal controls on what farmers plant and sought to limit farm support dollars, but it has been dubbed the “Freedom to Fail” law in many farm circles. In 1999 more than 900,000 farms, or roughly 42% of U.S. farming operations, received government support checks, according to the U.S. Department of Agriculture.

The extent to which farmers rely on government payments is illustrated by an analysis of 3,000 farms in Kansas, the nation's largest wheat-producing state. Government support dollars amounted to fully 75% of net farm income from 1997- 1999, Kansas State University agricultural economist Daniel Bernardo said.

“It is a rather depressed market situation,” Bernardo said.

One saving grace for the agricultural industry of late has been the livestock trade. Consumer demand for beef and pork has been increasing and poultry production saw a record high in 2000, according to U.S. government figures.

But the slowing of the general economy reflected in recent economic data could hurt demand if consumer belt-tightening translates to fewer steaks on restaurant plates, experts said.

Rays Of Hope

There have been some signs recently of improvement in the agricultural sector. A January report from the Ninth Federal Reserve District, which includes Montana, Minnesota, the Dakotas and parts of Wisconsin and Michigan, said many farmers in those states are enjoying a respite from hard times, thanks in part to strong cattle prices and healthy crop production.

And throughout the nation crop receipts appear to be rising, the USDA Economic Research Service says. The most recent report forecast total crop receipts for 2000 at $94.1 billion, $900 million above 1999 -- noteworthy because crop receipts declined by $18 billion the previous two years.

Prices were seen creeping higher last year for many commodities. Prices were up for wheat, corn, soybeans, beef, hogs, milk and other products in December 2000 compared to December 1999, according to the USDA.

Yet at $2.75 for a bushel of wheat and $1.92 for corn, for example, prices are still too low to make production profitable without government support. Moreover, the USDA index of all farm products showed that in December prices were still below early 1980s levels.

Farmers hope their industry is headed for a turnaround. The U.S. Federal Reserve's Jan. 3 decision to cut a key short-term interest rate by a half percentage point should be helpful by lowering borrowing costs and giving encouragement to consumers.

More critical will be how the new Bush Administration and Congress view proposals for a revised farm program and continued farm aid, American Farm Bureau senior economist John Skorburg said. “We're starting to turn the corner,” he said.

“Government payments have been a big help. The next step will be what Congress does.”

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