Why cotton farmers find themselves in such a bind
Farmers are ''caught in a cost-price squeeze that is totally beyond their control,'' says a Texas Tech University agricultural economist.
Prof. Don Ethridge has no doubt about agriculture's bright long-term prospects. He advises his students to go into farming -- if they can inherit a farm well-enough financed to withstand several more years of losses.
''The immediate problem is short-term survival,'' Dr. Ethridge explains in his office located in the center of one of the world's most important cotton-producing regions.
The hard economic facts, as explained by Ethridge, are that no farmer can expect to turn a profit when faced with:
* Current 18 percent interest rates for farm loans.
* Low world commodity prices.
* Sluggish world demand.
* Good weather (which could bring another bumper crop, adding to surpluses and so keeping prices low).
''If a young farmer goes to his banker today and wants to borrow $200 an acre , which adds up to $120,00 to plant 600 acres,'' Ethridge says, ''the banker being a businessman has to look at the potential profit.'' With high interest rates and cotton likely to bring only 50 cents a pound this year rather than the 80 cents of past years, Ethridge says the banker will have to conclude that even a good crop couldn't yield enough return to cover the loan.
That simple calculation doesn't help Lubbock's cotton farmers, however. As Ethridge explains, farmers took the correct action after the boom year of 1973, expanding their operations and continuing to farm on borrowed money. Now, after a string of bad years, most farmers have heavy land and machinery payments due or overdue.
It may make no economic sense for bankers to lend money on a 1982 crop that is almost certain to sell for less than it will cost to produce. But the farmer has payments to meet. And, says Ethridge, ''Farmers are hopeful by nature. They can always go into the new crop year thinking they could have another crop year like 1973.''
Knowing that farmers don't have the option of shutting down their operations, Ethridge's advice is: ''Retrench . . . approach your decisions in such a way as to deliberately minimize your losses.''