THE CARTER ADMINISTRATION has decided to cut back American production of wheat and is now trying to decide how much.But large cuts - the kind that the Agriculture Department evidently wants - are a risky business. Grain markets tend to run, roughly speaking, in cycles triggered by the weather.
Remember the summer of 1972? That was when the Nixon administration, without quite intending it, sold most of the nation's grain reserves to the Russians. The following year, unfortunately, was one of bad harvest around the world, and the United States found itself exporting grain at an unprecedented rate.
Something close to panic developed in the American grain markets, and the price of wheat shot up to more than three times its previous level. The meaning of all these developments suddenly became a great deal clearer to consumers when the price of food at the grocery store suddenly rose by a resounding 14 per cent from mid-1973 to mid-1974. But at least the government no longer had to pay grain price supports, and the Agriculture Department budget fell by several billion dollars a year.
Since then, wheat has been on the other side of the cycle. Harvests have improved. The price has drifted down, slowly at first and then, with the past two huge harvests, much faster. Now it's less than half the 1974 peak. Wheat farmers have been making their views known, loudly and explicitly, and Congress is now in the final stages of passing a farm bill with substantially increased support prices for grain. That leaves the administration with an interesting choice.
If the weather is good next year, surpluses of wheat will rise and prices will stay low. At the new support levels, that would mean farm payments running to billions of dollars - but President Carter has committed himself to balancing the budget by the end of his term. Those payments would constitute a tremendous subsidy to consumers, including the foreign governments that buy American grain.
To avoid that prospect, the Agriculture Department proposes to require farmers to leave large acreages of their land unplowed. But then another range of risks would arise. If there should be poor harvests worldwide, present stocks could be run down very rapidly. When American stocks are low, any rise in foreign demand has a sharply inflationary effect on American prices.
The rational answer is a worldwide system of grain reserves, built up in the years of big harvests and drawn down in the years of storms and droughts. Reserves protect the farmer from the kind of severe drops in price that have followed the past two harvests. But they also protect consumers from disruptive price increases in the bad years.
The United States is currently trying to negotiate a worldwide system, but the idea is not getting much support. All governments, including the United States, are reluctant to take on the costs of buying and storing grain. It's always easier to take a chance that next year will be another good one. Other countries would rather leave it to the United States to be the granary of last resort. The United States, it turns out, would rather cut production than risk another big surplus of wheat. Taking wheat land out of production means, of couses, gambling on the weather, not only in Kansas but in all of the wheat-growing regions around the world. Let's hope that the coming year is a good one for wheat in Siberia.