Going Against the Grain

By Susan Tifft

To cut surpluses, farmers agree to idle 82.3 million acres

For American farmers, more has become less. Record harvests of corn and wheat in 1981 and 1982 have created a glut of grain. The unsold carryover of last year's corn surplus alone is an estimated 3.4 billion bu. Even as supply ballooned, however, markets shrank. In 1982, a strong dollar and world recession caused a major decline in farm exports for the first time in 13 years. Farm debt has burgeoned, from $140.8 billion in 1979 to about $215 billion at the start of 1983, while net income fell from $32.4 billion in 1979 to $19.5 billion in 1982. "The farm sector," sums up W.D. Wilier, executive vice president of the Decorah (Iowa) State Bank and chairman of the American Banking Association's agriculture task force, "is in a Depression-type state."

Now, in effect, less may become more for farmers. Last December the Administration proposed a novel corrective: a self-imposed grain drain called payment in kind (PIK) that rewards farmers in Government-owned grain for idling large tracts of productive land. The program, hastily cobbled together to prop up the flagging farm economy, has prompted a response that was, said Agriculture Secretary John Block, "beyond my wildest expectations." Figures announced last week show that farmers will remove 82.3 million acres of wheat, corn, sorghum, cotton, barley, oats and rice land from production in 1983. This amounts to roughly one-third of the land eligible for the program, an area equivalent in square miles to Iowa, Illinois and half of Indiana.

The PIK program is an attempt to reduce surpluses, drive up depressed grain prices, cut Government costs both for price supports and for grain storage, and slash farmer production expenses. To qualify for price supports and cash subsidies, farmers were already required by the Government to take 20% of their land out of production. Under PIK, farmers must idle an additional 10% to 30% of their acreage and can bid to idle all of it. In exchange, they receive crops from Government storage and are free to sell them on the open market or use them as livestock feed. The crops will equal 80% to 95% of what the farmers would normally produce on these plots.

According to the U.S. Department of Agriculture, 1.2 million of the 2.3 million farms eligible have enrolled in the acreage-reduction program. This overwhelming response means that, of a total of 230.4 million eligible acres, farmers this year will not harvest 32.1 million acres of wheat (35% of eligible land), 39.5 million acres of corn and sorghum (39%), 1.7 million acres of rice (43%), 6.8 million acres of cotton (44%) and 2.3 million acres of barley and oats (12%). As a result, surpluses will begin to shrink. This year's corn crop, predicts the USDA, will be only 5.6 billion bu., far below last year's record 8.4 billion and low enough to draw down stocks a year from now to 1.9 billion bu.

For the farmer, PIK provides a free crop to sell and allows him to save on seed, fertilizer and chemical costs. It also gives him a chance to improve idled acreage by planting nitrogen-fixing cover crops of alfalfa or clover. "I tried to figure out a way that PIK wouldn't pay," says Illinois Farmer Stubby Peterson, "and I couldn't." Says Iowa Farm Bureau President Dean Kleckner: "Some bankers are making farm loans conditional on PIK participation."

Not everyone is happy. "It goes against the grain not to plant 'full out,' " explains Iowa Corn Farmer Tom Buck. Says Agriculture Secretary Block: "It seems almost unAmerican, against manhood or something." And PIK will temporarily punish those who sell to farmers: seed, fertilizer and chemical suppliers, farm-machinery makers, grain handlers and crop-insurance salesmen. "We'll see a cutback in earnings this year," predicts Gordon McCleary, director of public affairs at Pioneer Hi-Bred International Inc. in Des Moines, "but in the long run if farmers don't prosper, we don't prosper."

Government, however, has something to smile about. It will save money on grain storage, and it will have taken itself, in large part, out of the price-support business. And while farmers are not required to pay income taxes on the free crops until they are actually sold, resulting in a projected 1984 loss to the Treasury of $500 million, the Government expects to recoup in fiscal 1985 as farmers pay taxes on their sales of gratis grain.

The program's punch almost immediately lifted prices. Less than 24 hours after the PIK participation figures were announced, the Chicago Board of Trade registered higher futures prices for wheat, corn and oats. According to USDA forecasts, corn prices this season will average between $2.70 and $3.10 per bu., vs. $2.55 in 1982 and $2.50 in 1981. Eventually, these prices will affect feed costs for livestock and translate into higher meat prices at the supermarket. But even if commodity prices rise for corn and wheat, PIK should have a modest effect on the consumer. Explains Gary Ellis, chief commodities analyst for the Illinois Farm Bureau: "There is only a nickel's worth of wheat in a loaf of bread and a nickel's worth of corn in a box of cornflakes."

Critics charged that PIK, authorized only as a one-year program, was simply a fast fix; because farmers usually idle their worst land, those in opposition argued, production will probably not diminish enough to bring supply into line with demand. But most seemed content to give the program a chance. "Agriculture has been a victim of its own success," sums up Larry Werries, director of the Illinois agriculture department. "Now, through PIK, it is showing the courage it needs to cut back and cope with carry overs. That makes the future look a little brighter." -- By Susan Tifft. Reported by Gisela Bolte/Washington and Lee Griggs/Chicago

With reporting by Gisela Bolte/Washington, Lee Griggs/Chicago This file is automatically generated by a robot program, so viewer discretion is required.