Hard Times in the Heartland

By Ed Magnuson. Reported by Gisela Bolte/Washington and Lee Griggs/Chicago

With costs up and prices down, farmers are facing a grim year

No one sheds crocodile tears like a U.S. farmer. He is either crying about too much rain--or not enough. And he cries again when the harvest is so bountiful that it depresses the prices he gets. But when he examined his ledger over the winter, he usually had something to smile about: annual farm income often rose, and the value of land and machinery soared. No more. The tears flooding rural America this spring are genuine. Caught in a cashflow crunch, farmers are facing their bleakest year since the Depression.

In California's lush Central Valley, Donald D. Sills, 50, wistfully recalls the good years, 1974 and 1975, when his own 160-acre farm and other acreage he leased netted him about $70,000 annually, mostly from rice. But last year, while farming 1,485 acres, he lost $60,000. The price of rice, which was $14 a hundredweight in 1981, is expected to plunge to a mere $7 or $8 this year. Sills had accumulated $300,000 in debts, on which he was paying $ 142 a day in interest. "High interest rates have killed me," he says. Now he is trying to sell his farm--and no one seems willing or able to buy it.

On the lonely dry-land plains of Foard County in north Texas, Jackie Walker, 46, raised wheat and cotton on 1,300 acres. He lost $60,000 in 1980 and 1981 and, with the prospect of more losses this year, decided to "get out while the getting out was good." Says Walker: "It's heartbreaking to see about ten years' work go down the drain for nothing."

In the rolling fields of western Wisconsin last week, Jim Lemanski, 44, and his wife Martha, 43, watched their 330-acre farm near Fennimore being sold at auction. They had left Madison, where he had been an appliance salesman, less than four years ago, going $380,000 into debt to take a fling at farming with hogs, cattle and corn. But prices fell, his 10% loans came up for renewal at 20%, and Lemanski lost $10,000 on corn alone last year. Overall, his try at farming cost him $100,000. "Numbers like that take a lot of the fun out of farming," he says.

America's 2.4 million farmers are squeezed between rising costs and falling prices. In part, they are the victims of their own remarkable productivity. Last year they turned out record crops of corn (8.2 billion bu.) and wheat (2.8 billion bu.). The 2 billion-bu. soybean harvest was exceeded only in 1979. Oats, barley and grain sorghum also had near record yields, making 1981 probably the most productive year in U.S. farm history. Unfortunately, all that abundance knocked the bottom out of prices. Corn, the nation's biggest cash crop, dropped from $3.60 per bu. in the Chicago market to $2.60 by year's end. Cotton sometimes sold as low as 350 per Ib.--but it was costing farmers 600 per Ib. to produce.

Farmers do not panic at the occasional bad year. If anything, they are an overly optimistic breed, always willing to gamble their physical labor and financial assets, going deeply into debt on the premise that next year will be better. Unfortunately, 1982 is shaping up as the third consecutive year in which net farm income is sharply depressed. After reaching $32.7 billion in 1979, it plummeted to $19.9 billion in 1980, limped along at $22.9 billion in 1981 and could slide below $15 billion this year. Adjusted for inflation and with the paper value of immense unsold inventories deducted, farm income has dropped to its lowest level since the 1930s. Millions of farmers are operating at severe losses.

In a business that depends heavily on credit (a typical Kansas wheat farmer borrows about $75,000 a year just to plant and fertilize his crop), the combination of declining income and high interest rates is pushing countless farmers toward bankruptcy. Total farm debt has sharply risen (see chart); it now is about 13 times as high as this year's projected total income. Where farmers normally estimated their annual interest expense at about 11 % of their costs, they now have to set aside more than 20%. Some big operators with expensive equipment are paying as much as $70,000 a year in interest alone.

The overextended small farmer is getting squeezed most. When his finances are so precarious that even the sympathetic local banker will not extend credit, he turns to the Farmers Home Administration, an agency of the Department of Agriculture. That lender of last resort finds that 51% of its one-year operating loans were delinquent at the beginning of this year, compared with 26% in 1979. In the past three years, the number of delinquent loans has nearly tripled, to 218,054, and their value has multiplied nearly five times, to $14.9 billion. While the FHA has begun foreclosure proceedings against only 2,500 farmers so far, many more are either quitting the fields or selling parts of their acreage to stay in business. One farm auctioneer in New Mexico reports that he is booked solid until July, with a sale every day except Sundays.

Beyond the emotional trauma of selling beloved land, farmers are finding buyers scarce and the returns slim. "Some land goes up for sale and doesn't even bring out a bidder, since nobody has much money," says the Illinois Farm Bureau's Dale Butz, brother of former Agriculture Secretary Earl Butz. After a long, spectacular climb, the value of crop land is falling. Average Indiana farm land sold a year ago for $ 1,200 an acre. Last month it was fetching only $700. Predicts Robert Maurer, a banker in Fairbury, Ill. (pop. 3,400): "I'd say 5% of Midwest farmers may have trouble surviving this year. And an additional 15% may not get through the next year." He tries to put together "survival packages" for his farm customers, advising them to use less fertilizer, borrow against life insurance and get part-time jobs off the farm, so they can hang on until times get better.

The farmers' plight has produced an inevitable ripple effect. Sales of large tractors (they cost as much as $90,000 each) are down 40% from a year ago, and $150,000 combines are selling even more slowly. Some 37,000 workers, about 25% of the total in the farm equipment industry, have been laid off. International Harvester, one of the industry giants, lost $393 million last year and an additional $299 million so far this year. Says Don Goodrich, who hopes to sell his Harvester dealership in Gilmore City, Iowa: "You'll see a lot more dealers trying to get out unless there's a turn-around soon." Adds Lloyd Long, a John Deere dealer in Oklahoma: "Reagan tells us to tighten our belts, but this is turning into a tourniquet."

Whether farmers mainly blame Reagan for their troubles is not yet clear. But the general economic downturn is having a severe effect, even on those who raise livestock. Looking for bargains, shoppers are buying more chicken and cheaper cuts of red meat. As a result, consumption of beef and pork is down markedly.

Even more hurtful to farmers has been the worldwide recession. This and the strength of the dollar abroad have cut into U.S. agricultural exports, which normally account for nearly one-fourth of farm income. But so far this year exports of corn, for example, are down about onefourth. The Soviet Union, stung by the 1980 U.S. grain embargo (which one economic consulting firm estimates cost American agribusiness $22 billion), has spread out its purchases among more suppliers. Of the 43 million metric tons of grain it is expected to import from the West this year, the Soviet Union has so far bought only 13.8 million tons from the U.S. Contends Agriculture Secretary John Block: "We are still paying a big price for the 1980 embargo."

Pending the Administration's predicted upturn of the economy, about all that U.S. farmers can do is pray for plagues and bad weather overseas. Midwest cattle producers have no grudge against their counterparts in Denmark, but a recent outbreak of hoof-and-mouth disease there caused Japan to suspend $215 million worth of Danish meat imports. This could mean some $100 million in unexpected sales for American cattlemen. Says Ronald Knutson, an economist at Texas A&M: "If there is a major crop failure some place in the world, we'll look back on this as a good year." American farmers may be the "miracle workers of the Western world," as President Reagan proudly says, but now many are hoping that the fates will work a miracle for them. --by Ed Magnuson. Reported by Gisela Bolte/Washington and Lee Griggs/Chicago

With reporting by Gisela Bolte/Washington and Lee Griggs/Chicago

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