The massive rush of farmers to enlist in the federal government's crop-swap program brought a bullish reaction in Chicago grain prices yesterday, but in central Ohio it gave Don Humphrey something between headache and heartburn.
Humphrey, one of the biggest fertilizer and pesticide retailers in his part of the state, looked at the massive sign-up in the payment-in-kind program (PIK) and pronounced it "devastating."
"In the long run, if we survive, the PIK will help us," Humphrey said from his office in Kingston. "But with all the sign-up in corn around here, which is where your fertilizer goes, it's going to be devastating for a couple years."
Humphrey was talking about the flip side of PIK--economic ripples that will be felt across rural America as farmers drastically cut back on purchases of seeds, fertilizers, pesticides and implements they might otherwise need.
Throughout those important farm-supply industries, with annual sales in the billions of dollars, the reaction to PIK is much like Humphrey's: The huge cut in planting will hurt in the short run but the higher prices that it is expected to bring will help in the longer term.
Typical was the reaction from the country's largest farm-equipment manufacturer, Deere & Co., of Moline, Ill., which has laid off about 12,500 of its 50,000 employes because of lagging sales. "The PIK sign-up was a little higher than we expected," a spokesman said, "but our reaction has been that while it might be a negative factor for this year, it will be good in the long run."
An official of Cargill Inc., the Minneapolis grain trading firm that also sells seeds and fertilizer throughout the Midwest, said the big sign-up will affect sales this year, but "we feel the program is necessary, although it's going to have an impact on us now."
But in Chicago, Emmett Barker, president of the Farm and Industrial Equipment Institute, with 400 manufacturing and supplier members, said anything beyond an 80 million-acre crop reduction "would be disastrous to many, many businesses that constitute the supply infrastructure that is so necessary to keep our agricultural plants operative in the future."
Barker said "the one ray of hope" may be that "farmers will use their PIK certificates as collateral to go ahead and make equipment purchases this spring and summer while the tremendously good bargains and low-cost credit are still available."
Secretary of Agriculture John R. Block reported Tuesday that farmers had agreed to remove 82 million acres of wheat, corn and sorghum, rice, cotton, barley and oats from production this year. In return, they will be given equivalent amounts of surplus commodities from federal stocks.
Block said some farmers might opt out of the program, but the enormity of the figure he announced was underlined by this comparison: 82 million acres is one of every five acres devoted to all crop production in the United States.
The idea is to reduce the overflowing surpluses, bring supply in line with demand, cut federal farm-support expenses, push commodity prices higher and get some cash into farmers' pockets by giving them surplus products they can sell.
In the farm belt, the jingle of cash-in-pocket lights up suppliers' eyes. To an implement dealer like Frank B. Brooks, it means he now may have a chance of selling the two spanking new International Harvester tractors ($56,000 per) sitting outside his shop in Water Valley, Miss.
Brooks recently noted that for every month the tractors sit unsold, he has to pay $4,000 in interest charges. Even offering to sell them at cost, he's had no takers. Cash-pressed farmers in northern Mississippi just can't take the plunge, he said. Now, with PIK certificates in hand, jingling may be heard.
As expected, the Chicago Board of Trade registered sharply higher futures prices on wheat, corn, oats and soybeans yesterday on the heels of the big PIK sign-up. And USDA predicted that farm prices this year will hit their highest level in three years.
But David Murray, head of the National Fertilizer Solutions Association in Peoria, Ill., wondered about that. "We feel intensive farming will go on, with farmers using fertilizers, but with prices going up, we wonder how many farmers will switch from soybeans, say, to corn to take advantage. There are all kinds of factors at work in this."