As appeared in U.S.News and World Report, May 24, 1999 (889 words)

Seeds of Discontent

Down on the farm, suddenly there's too much food--and prices are plunging

BY WARREN COHEN

Sam Zook's land has been used for hog farming for more than a century. But after last year's disastrous hog prices, which hit Depression-era lows, Zook sold off the last of his 1,500 drove--and did not replenish it. "Farmers are usually an optimistic bunch," says Zook, "but we were gushing too much blood." Instead of taking hogs to market this year, he's trying to scrape by with the old Midwest standbys, soybeans and corn. But the prices of these commodities aren't too hot either. The situation has gotten so bad that Congress last week set aside $ 566 million in emergency funds to aid financially strapped farmers; that's on top of $ 6 billion last fall and about $ 5 billion more farm-state lawmakers will try to get later this year.

It's no secret that small farmers are an endangered species in the United States. Since the 1930s, the number of farms has dropped from nearly 7 million to 2.2 million, as large operators have gobbled up more and more land (box). And economists predict that the typical attrition rate, estimated at 2 percent annually, may double over the next few years as farmers confront a problem more vexing than inclement weather, expensive combines, and stingy bankers: too much bounty. Over the past three years, U.S. farmers have produced more grain than ever, and record amounts of milk and pork. The surplus plunged farm prices to record-low levels. Last December, pork fell to a measly 9 cents a pound, the cheapest price this century. The cost has rebounded to generally around 30 cents--but that's not enough. Economists say farmers have to clear 37 cents just to break even. In February, milk prices dropped a record 37 percent. Corn prices, which were nearly $ 5 a bushel three years ago, are expected to fall to around $ 1.70 sometime this year. In the past, diversified farmers could bank on strong animal or dairy prices when grain rates tumbled--and vice versa. But the 1990s farm crisis is different; this time, all prime agriculture products are in the dumps, so there's no fallback. "Nineteen ninety-eight was a year of tremendous stress on American farmers," says Leland Swenson, president of the National Farmers Union. "And we're faced with the same struggles in 1999."

The plummeting prices will further cut farm income, which is expected to drop 12.4 percent from 1997 levels, according to U.S. Department of Agriculture statistics. Across the Midwest, where milk, corn, and soybeans are sliding toward the bottom of the price cycle, farm income is expected to sink to $ 32,700 this year, 30 percent below the five-year average of $ 46,500. USDA economists say the situation is so dire that 1 out of 4 farmers may not earn enough to cover expenses. Some rural communities are so worried that they're passing out green ribbons and asking people to pray for farm families.

How did the farmers get into such a mess? Part of the problem is overconfidence spawned during the booming mid-1990s. In 1995, commodity prices hit record highs, and U.S. farm exports were rapidly expanding. With such sunny prospects as a backdrop, Congress passed a bill, dubbed "Freedom to Farm," which was designed to wean farmers from government subsidies and get the feds to stop controlling supply. To persuade farmers to sign on, the federal government paid them fees--set to be phased out in 2002--to make it easier to adjust to the lower prices.

Flush with federal dollars, farmers went on planting sprees, using new varieties of disease-resistant seeds to further bolster their yield. They hit the jackpot in 1996, exporting a record $ 60 billion worth of agricultural products. Much of the produce went to the Pacific Rim, where markets were growing along with incomes. But then, in 1997, the Asian economic crisis hit. The hangover from the worldwide economic slowdown is expected to crunch exports to only $ 49 billion this year. Asia accounts for 80 percent of the decline.

Hard to stop. Despite the hefty existing stocks and vortex of falling prices, it's tough for most farmers to put on the brakes. Hog farmers, for instance, can't take piglets to market until they're at least five months old and weigh roughly 250 pounds. So by the time farmers got word that there was a surfeit of hogs, they were already raising another litter. Adding to the problem: Many farmers can't afford to let their land lie fallow and machinery remain dormant because they have property taxes and bank loans to pay.

All the trends indicate that 1999 will be another depressing year on the farm. The federal government will try to help out with emergency aid and by opening trade barriers, as it did recently with a new export agreement with China. But that won't be enough for farmers like Todd Hochstetler. Last month, the Mylo, N.D., farmer auctioned off his trusty old tractor, tools, and grain bins. He had decided to quit farming a year earlier because of dirt-low wheat prices, but he says he couldn't bear to part with his equipment in case he changed his mind. "My last two years, I lost money and had to borrow, but I didn't earn enough to pay for what I borrowed the year before," he laments. "I couldn't see doing this long term." If the grain glut continues, many farmers may be forced to follow his lead.