Seeds Of Recovery in the Farmbelt

By Gordon Bock

For the first time in several years, Minnesota Farmer Alan Larsen had reason to be truly thankful on Thanksgiving. As members of his family sat down to a holiday feast last week, they could take some pride and satisfaction in this year's harvest. The 700 acres of corn and soybeans surrounding the Larsen homestead near Heron Lake (pop. 783) yielded a bountiful crop, and 700 head of cattle sold for good prices. Larsen's earnings are up, his indebtedness down. ! "Two years ago I was badly stressed," recalls Larsen, 31. "Now things look a lot better."

The same can be said over a lot of tables in America's Farmbelt. After enduring five years of sluggish income, rising bank foreclosures and surging rates of divorce and suicide, the U.S. farmer seems to be struggling to his feet, with a big assist from Uncle Sam. Farm income has increased at least 12% in 1987, to a projected $42 billion. Meanwhile, the amount of debt that farmers owe has dropped an estimated 10%, to $158 billion. Even agricultural exports, which have been too low in recent years to help the U.S. trade deficit much, are improving. Spurred by the falling dollar, overseas sales of farm products are likely to rise nearly 6.5% this year, to $28 billion. Says Agriculture Secretary Richard Lyng: "Over and over again, we get a feeling that things have turned around."

The optimism may be short-lived, however. The prices farmers are receiving for their produce are far below the peaks reached in the late 1970s. In many parts of the U.S., grain sits in huge stockpiles -- a sign that prices will stay low until those inventories can be reduced. Moreover, this year's farm- income figures were inflated by $22.4 billion in Government subsidies, including $12 billion paid to farmers to leave idle 68.5 million acres of cropland (an area bigger than Colorado). Now those payouts are threatened by Washington's efforts to slash the federal deficit. "This has been a good year, but everyone's looking over his shoulder," warns Iowa State University Economist Neil Harl. "There are still some dark clouds."

Those clouds, though, could not dampen the 1987 harvest. Despite all the idle farmland, wheat production was up 1% from last year's sizable crop, to 2.1 billion bu., while the soybean crop also rose 1%, to 2 billion bu. Good weather resulted in especially strong yields in Iowa, which vaulted past Illinois to become the top producer of corn and soybeans.

While the bumper crops have kept grain prices low, farmers have nevertheless boosted their profits because expenses are lower. Total U.S. farm production costs dropped more than 3% this year, to an estimated $116 billion, the lowest level in nine years. Part of that decline came about because many farmers have reduced acreage under cultivation and the size of their herds. But, at the same time, unusually low feed and fuel prices have helped farms cut the cost of producing a bushel of grain or a pound of beef.

Farmers are getting smarter in the way they go about their business. Many Midwestern growers are using pesticides and fertilizers less wastefully, while trying to hold down energy costs. Says Iowa Farmer Jack Drake: "I'm making fewer passes across my fields with machinery and looking everywhere for least- cost methods." Strawberry farmers on the California coast have begun covering their soil in plastic to keep fruit from rotting on the ground. Farmers close to Colorado State University are taking seminars to learn how to use computers for better money management.

In most cases, farmers are becoming more careful about capital investments. Spending on tractors and other equipment is expected to fall by nearly 6% this year, to $4.4 billion. Of course, the downside of that trend is a continuing shake-out in the farm-implement business. In Iowa alone, 274 dealers have shut their doors since 1982. Complains Larry Southard, co-owner of a John Deere dealership in Marshalltown, Iowa: "People are making do with the equipment they have for yet another year."

Soon they may have to make do with less income as well, because October's stock-market crash has given a new sense of urgency to congressional efforts to trim the federal budget. The fiscal 1988 budget calls for farm subsidies of $21 billion, down 6% from this year's, and the tentative deficit-cutting agreement reached two weeks ago by congressional and Administration leaders aims to chop out another $900 million. For many farmers, those federal payments can mean the difference between survival and failure. Montana farmers, for example, last year earned $303 million in net income but received $336 million in subsidies.

A falloff in federal support could be especially devastating to the many farmers who are overextended. While most farmers are gradually digging out from under their obligations, economists estimate that more than 20% of farms remain dangerously deep in debt. "Despite a good year, they are still financially vulnerable," says Michael Boehlje, an agricultural economist at the University of Minnesota. It could take several years of happy Thanksgivings before American farmers feel confident that their rough times are behind them for good.

With reporting by Lee Griggs/Des Moines and David Wilson/Los Angeles