Outlook for Farmers Bleak As World Grain Prices Fall
AROUND the globe, a bumper crop of most grains, but wheat especially, has driven prices down and government export subsidies to new highs. The world will produce 592 million metric tons of wheat and utilize 566 million tons, leaving a surplus of 26 million tons, according to the United States Department of Agriculture (USDA).
The figures are for the 1990 crop year, which began last July. By contrast, last year the world grew 9 percent less wheat, consumed it all, and even drew on supplies in storage.
In the US, farmers are expected to grow 36 percent more wheat this crop year. But they will export 9 percent less as former customers meet their own needs or even become competitors in the global grain trade.
US consumption is rising but can't absorb the excess. It will have to be stockpiled, and that will depress prices in the future.
For wheat farmers, who face the worst market conditions in years, ``It's a pretty bleak picture overall,'' a USDA wheat analyst says.
Canada expects its second-largest grain crop ever. Wheat will top 31 million metric tons. (There are 36.75 bushels to a metric ton.) In most years, four-fifths of that crop would be sold to the Soviet Union, China, and 80 other countries, says Brian Stacey of the Canadian Wheat Board, the agency responsible for exports. Mr. Stacey is reluctant to characterize sales except to say that they are ``a little slow.''
He adds that ``Canadian farmers are very much affected by low world returns.'' They receive smaller government subsidies than do US farmers.
The Soviets have a bumper crop, but fuel shortages and lack of spare parts for farm equipment and trucks mean that much of the harvest is going to waste.
Even India may export 200,000 metric tons of this year's crop. ``India is usually an importer, if anything,'' notes a USDA economist.
Iraq, usually a buyer of 1 million metric tons per year of wheat grown in Kansas, Oklahoma, and Nebraska, is off limits as a buyer because of the United Nations trade embargo imposed after Iraq invaded Kuwait on Aug. 2.
Last year a bushel of US wheat earned farmers $3.72 on average. The USDA forecasts that this year's average will fall between $2.55 and $2.85. But the price is around $2.40 now, and has even been under $2 a bushel in the Dakotas and Montana.
``It's very difficult to make a living on prices like that,'' says Clay Pederson of the National Farmers Union in Denver. ``If this is prolonged, they're looking at possibly going out of business.''
When that happens, Mr. Pederson says, lost income and jobs ripple throughout rural communities. Farm families migrating to bigger cities add to urban unemployment. If those wheat acres are left uncultivated or replaced by output from a powerful agricultural corporation, food prices might rise as a result.
Although this year of weak prices follows several high-price years, that doesn't mean wheat growers have a financial cushion. ``Those were good years for those who could grow [a crop],'' Pederson says. A drought hurt farmers in the Dakotas, Montana, and Minnesota in 1988, and in Kansas in 1989. Crop subsidies ``soften the blow,'' Pederson adds, but he worries about those being reduced to an ineffective level in the new farm bill.
For wheat growers the subsidy programs work like this: Farmers who participate agree to reduce the acreage they plant in wheat by a government-set percentage. After the harvest, they borrow money from the government at a below-market interest rate, using grain as collateral. The money enables a farmer to hold his crops until the price is attractive, but not for more than nine months. If the price is never high enough to enable the farmer to sell his wheat, the government accepts the grain as payment of the loan.
The farmer also receives the difference between a government-set target price and the price realized in the market.
The US has more than a million wheat farms, totaling 80.5 million acres. Four out of every five acres are enrolled in the government programs this year. The wheat subsidies cost the government as much as $4.7 billion in fiscal 1985, but only $53 million last year, when supply was tight and prices strong.
This year's US wheat harvest is forecast at 74.7 million metric tons, up from last year's 55 million. Domestic consumption is expected to rise at a slower rate, up to 34.1 million metric tons from last year's 27 million.
But so many countries are either buying less wheat from the US or competing more that US exports are expected to decline by 3 million metric tons, to 30.5 million.
In European Community countries, primary competitors with the US on the world agricultural market, export subsidies have reached $150 per metric ton - more than the price of wheat. The USDA has reacted by increasing US export subsidies to a record $50 per ton.
The subsidies under the Export Enhancement Program aim to help US growers compete against the EC in selling to Algeria, China, the Soviet Union, and most West African countries. Competing in West Africa is especially difficult because families of French and Belgian origin own the flour mills there and have long-standing supply arrangements with EC nations, a USDA economist says.
The US is also prepared to subsidize sales of wheat flour to the Soviet Union for the first time.