By William Claiborne
Washington Post Staff Writer
Sunday, July 16, 2000; Page A03

CHICAGO –– If ever there was a season that demonstrated the fickleness of farming, this is it.

In May, Agriculture Secretary Dan Glickman and National Weather Service officials predicted that severe drought could cripple the farm economy in much of the Midwest and Deep South. Glickman warned that the lack of rain could be "catastrophic" to farmers, and Weather Service Director Jack Kelly gloomily observed that the Midwest drought was the worst since 1955.

Farmers in the agricultural heartland took heed of the warning. Many who were still storing their 1999 yields held off putting their crops on the market, reckoning that a drought-induced falloff in production this year would drive up prices.

What happened was just the opposite. Timely rains and cooler-than-predicted temperatures have offered promise of bumper crops in much of the Midwest and other parts of the nation this fall, ensuring that grain and soybean prices will go down for the third straight year because of continuing oversupply, according to farm economists.

The U.S. Agriculture Department last week lowered its price projections for corn, soybeans and wheat because of bountiful crops and sagging markets in the United States and overseas. The USDA said farmers should get an average of $1.70 per bushel for corn this year, 15 cents less than a projection issued last month and 10 cents below what growers got for last year's crop. The projection for soybeans is down 10 cents from June's estimate and 25 cents less than last year's average. The estimate for wheat is $2.50 a bushel, down 15 cents from the June forecast.

The forecast for soybeans is the lowest since 1972, and for corn it is the lowest price since the mid-1980s, when farmers rebelled and descended on Washington in tractor motorcades to protest farm policies.

Agriculture experts said the already abundant stores of commodities are likely to aggravate the price declines.

Keith Collins, the USDA's chief economist, said the turnaround in the weather pattern and the new commodity price estimates were "disturbing" to him because he had had reservations about holding the joint USDA-Weather Service news conference on May 17 and about the Weather Service's first spring drought forecast, which he said was based on new and unproven long-range predicting technology.

"I felt there was not necessarily an implication for the size of the crop because timely rain could be opportune and you could have normal crops," Collins said. "But fairly strong signals were sent from the federal government that could have influenced some farmers' marketing decisions."

Exacerbating the situation were warm soil conditions resulting from the mild winter, which prompted farmers to plant their crops early and expand their tilled acreage, Collins said. The result is likely to be a near-record 10 billion-bushel corn crop and a record 3 billion-bushel soybean crop. Corn and soybeans account for half of U.S. crop production.

Farmers are expected to harvest 73.1 million acres of corn this year, up 2.6 million from 1999, and 73.5 million acres of soybeans, up 1 million from last year, according to the USDA.

Because the cost of raw commodities accounts for only a small portion of retail food prices, fluctuating prices for grain and soybeans usually have little impact on consumers. The biggest impact will be on taxpayers because of subsidies that farmers receive when commodity prices fall below government support levels.

Collins said that generally a 10-cent decline in corn prices alone translates into an extra $1 billion in higher price-support subsidies, meaning that subsidies on this year's crops could reach $9 billion if prices continue to decline. Growers are expected to get $7.5 billion to $8 billion in subsidies for last year's crops.

In addition to crop subsidies, the government gave farmers $15 billion in emergency aid in each of the last two years and is handing out an additional $7.2 billion in emergency payments this year.

Collins said the USDA is forecasting spending $32.3 billion for all farm aid programs this year, compared with the $26 billion spent in 1986--a year that he said stimulated vast changes in farm policy because of rising aid costs. In 1996, when the market-oriented Freedom to Farm Act was adopted, government agricultural experts were predicting $9 billion in total spending for this year because of the reforms.

Collins noted that the impact of this year's "bin-busting" crops and the sharp drop in prices--along with the rise in subsidy payments--will be most noticeable at harvest time in October, at a crucial point in the presidential campaign. However, he acknowledged that agricultural policy is not usually a major issue in presidential campaigns.

From 1933 to 1996, a system of government regulations that guaranteed farm income through cash subsidies and price supports in exchange for a measure of control over production sought to even out supply fluctuations and the corresponding price declines in bumper crop years.

When the Republican Congress overhauled that agricultural policy with the 1996 Freedom to Farm Act, it introduced the risk of higher highs and lower lows in commodity prices but with shorter recovery times at the bottom end of the cycles.

But some farmers say that what has happened is that the new export markets that the government was supposed to develop as a cushion in big supply years have not materialized, and existing export markets are shrinking because of increased foreign competition. For that reason, some farmers contend, it is time to scrap the market-oriented Freedom to Farm Act and reintroduce the rigid price floors that existed before 1996.

Seeing little chance that commodity prices will rise any time soon, the leaders of several farm groups told a House Agriculture Committee hearing on farm policy last week that Congress should create a new income support program that would do away with emergency aid packages.

George Naylor, who raises 560 acres of corn and soybeans in Churdon, Iowa, and represents the National Family Farm Coalition, said cheap grain prices were fueling the expansion of corporate farms and livestock "factories" at the expense of family farms.

Naylor, in a telephone interview, said, "What cheaper grain is going to portend is cheaper livestock, because when grains are cheap the factories are going to increase their production." When that happens, ranchers will suffer and will buy less grain, and a "vicious circle" will be perpetuated.

Naylor accused government economists of "brainwashing" the public into believing that "bumper crops are bad because they drive down [commodity] prices."

He said that if a price floor was established for the basic storable commodities like corn and soybeans through the use of nonrecourse loans, the stability brought to feed grains would indirectly establish a floor under livestock prices. Under a nonrecourse loan, if a farmer becomes eligible for a government loan by setting aside land, he can sell his crop at the market price or store it and be guaranteed a fixed bushel rate when he decides to sell.