Sitting tall in his combine, Will County farmer Don Werner Jr. sees prosperity all around him–at least when he looks beyond his acres of corn and soybeans.
In the pricey new subdivisions cropping up nearby, the most common lawn ornament seems to be a spiffy powerboat parked on a trailer, he says. And as he moves his slow equipment from field to field, he’s noticing more luxury cars blowing by.
“It seems like an awful lot of people have an awful lot of money to spend,” says Werner, who farms 4,500 acres in a family partnership near Manhattan, 35 miles southwest of Chicago’s Loop. “My land and equipment, they’re just not bringing much of a return.”
So it goes in a lean year for many Midwest farmers.
With another big crop heading for the bins as harvest begins in earnest this month, the supply of agricultural commodities is soaring.
At the same time, global demand remains sluggish as Asian markets that usually gobble more than a third of U.S. farm exports struggle back from a collapse two years ago.
That imbalance in supply and demand drove commodity prices earlier this summer to some of the lowest levels in three decades, and they’ve recovered only slightly in recent weeks.
For most Americans, though, one of the surprises about the latest trouble in farm country is how little impact it has had on the nation as a whole.
The U.S. jobless rate stands at enviable lows, wages are rising and the economy is expanding without creating inflation. The stock market has soared, notwithstanding the poor results at agribusiness basket cases such as Archer Daniels Midland Co.
Even in some rural areas, economies are growing on the strength of tourism and service jobs, in spite of the difficult operating environment for farmers such as Werner.
“The struggles of agriculture have not had a major carryover to other sectors of the economy,” notes Carl Tannenbaum, chief economist at LaSalle Bank. “If anything, falling commodity prices have helped keep interest rates low, and that’s been stimulative.”
Indeed, even within agriculture, not everyone is suffering equally. While small operators who rent acreage are prone to struggle, bigger farmers who own their land have had opportunities to thrive.
In Illinois, robust farm income between 1992 and 1997 markedly slowed a generations-long decline in the number of farms. The 5.9 percent drop recorded during that period might sound precipitous, but it’s far less than the 12.6 percent plunge in the previous five years.
As the numbers fell, the farms got bigger and richer. The average value of land and equipment on the state’s remaining 79,000 farms stood at $773,141 as of 1997, according to the Illinois Agricultural Statistics Service.
Unlike in the farm crisis of the 1980s, the agricultural banking network has stayed solid, and land prices strong. The livestock crisis that produced much hand-wringing in the hinterlands late last year has since subsided, as hog prices recovered.
At the same time, the growth of companies in other industries has more than offset trouble in agribusiness. So when Deere & Co. pulls back, as it did recently, it’s not the statewide crisis it would have been a decade ago.
Instead, the impact is more localized. In the Quad Cities, where Deere is based, unemployment has jumped to 6.9 percent, well above the 4.6 percent statewide average as of July. And, to be sure, in agriculture-dependent rural communities that don’t have nice scenery or nearby businesses to provide alternate sources of jobs, times are tough.
Still, it presents a varied picture. As analyst Dan Basse of Chicago research firm AgResource Co. puts it, “I don’t see any train wreck.”
Meantime, the federal government is playing an increasing role in supporting big agriculture, particularly when commodity prices plunge as they have in the past two years.
In August, the Senate approved more than $7 billion in additional aid on top of the $16.6 billion already slated for the nation’s 2 million farmers. House lawmakers are expected to push for an expansion of the aid measure when they take it up in coming days.
The biggest farms get a huge proportion of the aid, which in turn props up land values as those high-rollers compete for ground. Past studies have suggested the top 10 percent of farms get nearly half the handouts.
“It’s one of the few programs involving federal government checks that the bigger and richer you get, the more money you get,” said Chuck Hassebrook of the Center for Rural Affairs think-tank in Nebraska.
In spite of all that costly intervention, the future remains uncertain for Illinois farmers big and small.
Though dry weather this summer cut into yields somewhat, lifting prices from their lows, U.S. farmers are expected to haul in another mammoth crop.
On Friday, the government pegged this year’s soybean crop at 2.78 billion bushels–92 million fewer bushels than last month’s forecast, but still a record. The corn crop was forecast at 9.38 billion bushels, and the wheat crop at 2.31 billion bushels.
Those big crops could set the stage for more trouble in the future if world grain stockpiles continue expanding.
In the U.S., stocks of corn and soybeans have mounted to some 70 days of supply, nearly double the more typical levels of the 1980s and early 1990s, according to analyst Basse. “We’re still building a mountain ahead of us,” he says.
To top it off, global demand is just beginning to recover, with U.S. farm exports set to inch up only slightly in 2000, still stuck substantially below their 1996 peak.
That makes it tough for many agribusiness concerns. Farmers don’t buy as many Deere tractors or spread as much IMC Global fertilizer or ship as much grain through ADM facilities when prices and demand are depressed.
They’re also more prone to be cautious–bad news for Monsanto Co. and other purveyors of the genetically engineered crops that have sparked a backlash in Europe and Japan.
Even for chicken producers Tyson Foods Inc. and Pilgrim’s Pride Corp., which benefit from low feed costs, poultry oversupplies are starting to weigh on earnings.
Still, some believe agribusiness has hit bottom, especially with Asia starting to rekindle the taste for meat that made it such a hungry customer of U.S. feedstocks in the years immediately before its economic collapse.
“As the Asian markets improve, you’ll see some improvements from these companies,” said analyst John McMillin of Prudential Securities Inc. in New York.
But it’s still a tough sell on Wall Street, he added. “Investors want to see numbers,” McMillin says. “Agribusiness stocks . . . are kind of in a `show-me’ situation.”
U.S. farmers need more than an incremental improvement in demand and commodity prices, which could merely encourage foreign competitors in South America and elsewhere, while not improving their prospects substantially.
Arturo Vierheller, an agriculture consultant and ex-Argentine government official, believes land values in the Midwest will have to decline for the U.S. to remain competitive. “The U.S. has double the price of Argentine land, which is in turn double the price of Brazil’s,” he says. “We have to correct this equation.”
That correction could start to show within a few years, especially if bumper crops continue pouring in, bringing more price pressure.
If that happens, the millennium could bring a frightening echo of the foreclosures and heartache of the mid-1980s, as today’s slight slip in farmer credit-worthiness turns into a freefall, said Terry Francl, senior economist at the American Farm Bureau Federation.
“We could go that direction rather quickly,” he says. “So much is tied to the weather and what’s happening at competitors around the world.”
Farmers, too, seem well aware that the pressure will grow if the slump stretches on.
“We’re not in good shape here on the farm. The future looks pretty dim,” says Mark Chenoweth, who farms about 1,200 rented acres of corn and soybeans near Decatur. “I just hope I can hang on.”
For his part, Werner remains philosophical. Even if it’s a long haul, he says, “You have to just ride it out.”
