Spring planting may reap lower profits
The Asian economic crisis, along with other countries' falling markets,wreaks havoc on plans for US fall harvests.
It's spring planting time here in the Midwest. But as farmers sniff the air and toe the ground in anticipation, storm clouds are gathering on a different front.
Low crop and livestock prices are making this the most uncertain planting season of the 1990s. Some farmers are already pushed to the financial breaking point. And unless the outlook improves next year, economists say, a broad swath of rural America could sink into a new farm crisis, accelerating agriculture's move to industrialized farming and away from traditional family-size operations.
So far, the outlook for the next 12 to 18 months looks grim.
"Farmers are pretty depressed," says David Brueggemann, a corn and soybean farmer in Brighton, Ill. "It's definitely the worst spring we've had this decade."
The ill winds come from overseas. The Asian financial crisis, economic contraction in Russia, and the devaluation of Brazil's currency are dampening the world's ability to pay for American food and fiber. And with farmers in the United States so reliant on exports - about a fifth of their corn goes abroad - global surpluses are building and domestic prices are slumping.
Barring a weather disaster or some other unforeseen event, wheat, for example, will average $2.70 a bushel this season, the lowest season-average price in eight years, according to US Department of Agriculture forecasts. Corn and soybeans will fall to lows not seen in more than a decade. Cotton may be the most vulnerable, USDA says, because textile and apparel imports are surging while cotton exports have plunged to their second lowest level in 20 years.
Pressures are also building in parts of the livestock industry. After reaching 18-year lows last year, pork prices are beginning to recover and should reach break-even by early June, estimates Chris Hurt, agricultural economist at Purdue University in West Lafayette, Ind. But hog farmers have lost so much money in the interim that one-quarter of them will leave the industry by the end of next year.
The gloomy outlook is already beginning to take its toll. In a few isolated areas, agricultural land values have fallen 10 to 15 percent. While the vast majority of farmers have enough savings to get them through this year, some have been pushed to the brink.
"We are getting a lot of suicide calls," says Roger Hannan of the Farm Resource Center, a crisis line in Mound City, Ill. Call volumes are up nearly 50 percent since January.
The situation has become so critical here in Illinois that the agricultural extension service at the University of Illinois has resurrected its own crisis hot line, not used since the 1980s.
Sadly, there's little sign the situation will improve anytime soon. While most farmers can make it through one bad year, many will be hard-pressed to endure many more.
"We can get them through this year," says Ron Frenn of Farm Credit Services of Central Illinois in Champaign. "Several good years during the 1990s bolstered the savings of most farmers, but they're now dipping into them to put a crop into the ground. But if this should go on much beyond a year or 18 months, [lenders will have to ask] how much of their equity are they eroding?"
It was eroding equity - falling land prices plus high interest rates on big debts - that got farmers into trouble in the 1980s. This crisis is different, economists say, driven more by low crop prices than high debts.
In Iowa, for example, economists calculate that the average farmer will spend $2.47 this year to raise a bushel of corn. Unfortunately, Mr. Wisner at Iowa State University forecasts that even after federal subsidies, Iowa farmers will get only about $2.25 for that bushel.
The same holds true for soybeans. Iowa farmers will spend an average $6.01 to raise a bushel, but only make $5.15.
Agriculture is so variable that farmers expect the occasional downturn. They'll scrimp on maintenance, apply less fertilizer, and tighten their belts enough to make it through. "You can get by with those [moves] for one or two or three years," says Robert Wisner, agricultural economist at Iowa State University at Ames, Iowa. "But if you keep doing that your equipment turns into a pile of junk."
Economists hope the world's financial situation will improve before then and boost US farm exports. "My personal view is that we're near the low part of the price cycle," says Terry Francl, senior economist with the American Farm Bureau Federation in Park Ridge, Ill.
Southeast Asia's slumping economies appear to have stabilized. And federal farm programs no longer stockpile huge amounts of grain, which would keep prices low. When the global market improves, "prices are going to rebound fairly quickly and probably pretty significantly," he says.
But other observers aren't so sure. "From my perspective, the crisis that we're in now ... will surpass the crisis in the '80s," Hannan says. In the hog industry, for example, the financial squeeze came so quickly that farmers were blind-sided.
"In June, they were doing OK; in December, they were out of business.... It's a major tragedy and it's very, very difficult for these families to be able to keep it together emotionally."