The day before, Jack Martin of Ashby, Neb., had signed a $1 million, 30-day note at 23.5 percent interest. Now he was standing in the back of the stands at the Sioux City, Iowa, stockyard watching his cattle sell at a loss.

"Normally I would keep something like that for cows," he said, nodding at the yellowish Hereford heifers crowding the auction ring. "But I can't pay 23.5 percent interest on them and keep them for cows [to breed]. It's too expensive."

All over the country, valves are spinning shut, cutting off the flow of products and services in parts of the economy vulnerable to high interest rates and tight money.

In agriculture, where farmers are looking for money for spring planting or replacement livestock, and where prices are low, the same thing is happening, according to farmers, bankers and the proprietors of small businesses in the Midwest.

The telling decisions are these: to sell breeding stock, to cut back on fertilizer and the amount of work going into underpriced crops, and to postpone any purchases that can be put off. In turn, those decisions have created losses for merchants who sell farm supplies, and prompted layoffs by manufacturers.

In two days, Martin had sold off about 500 head of cattle from a remaining herd of about 4,000 without buying stock to replace them.

"When we're out, we're out," he said. "If we lose the money we think we'll lose this year, I think I'll get out."

Across the state of Iowa in Nebraska, North and South Dakota, Minnesota and Montana, the administration's inflation-fighting strategies are taking a toll and causing farmers and ranchers to rethink their futures and alter their operations.

Banks, finding themselves short of money to lend, or measuring farmers' chances of balancing high costs against low prices, are saying "No" to more customers.

When bankers make loans, the tendency is to make them for shorter periods of time -- sometimes as short as two weeks -- in order not to be caught by rapidly changing interest rates. After two weeks or 30 days, the borrower rolls over the note and pays whatever the prevailing interest rate is.

"The reason most of them are so scared is that it all happened so fast, all within the last six months," Rep. Berkley Bedell (R-Iowa) said of the farmers, merchants and bankers in his district, which includes Sioux City. "They're scared to death of what may happen in the next six months."

Administration analysts conceded that these are hard times down on the farm -- hard times that reflect tight money, high interest, low prices, heavy debt and a host of other problems.

But they also contend the farm panic will subside as prices go up, interest rates go down and farmers realize that the crisis is temporary and not a fundamental change in agriculture. Although pork and beef production are expected to be curtailed, agriculture analysts don't foresee a dramatic reduction in crops.

Official signs of what the future holds are mixed.

Reports on acreage intentions show no general reduction in planting -- in fact they show a slight increase over expectations in January. But a report released by the U.S. Department of Agriculture on Friday shows that farmers intend to use significantly less fertilizer on crops they plant.

"I'm cutting back on fertilizer," said Tony Kriegel, who farms near Grinnell, Iowa. "That's something I'm falling back on -- what I put into the ground." Kriegel said he believes he can cut back on the use of phosphates and potash for a year without affecting yield. Fertilizer dealers in the Midwest said numbers of farmers are following the same strategy, trying to cut costs.

Between their own desire to control the amount of money they are spending and the banks' reluctance to lend for nonessential expenditures, other items also are left sitting on the shelf.

Ron Clayton raises corn, soybeans and hogs. At current prices, "I'm losing, just with out-of-pocket expenses -- I'm losing $15 easy on each hog I sell," Clayton said. "This is my year to trade combines. I trade every three years, but I'm not trading this year."

Clayton said he recognized that his decision meant "somebody down at the John Deere works is going to get fired, and that's too bad." So reluctant is he to borrow more money at today's high rates that Clayton takes a truckload of corn to town to sell at depressed prices when he needs grocery money.

Although both farmers are trying to hold down the costs of their operations, they also are expanding.

Kriegel said he was leasing additional land to help spread the cost of expensive machinery over more acres. Kriegel completed negotiations to buy a new $40,000 tractor the night before the embargo on grain sales to the Soviet Union was announced.

"I'm building another hog building," said Clayton. "I had the sows bred. I either sell the sows off or build the building. I'm going to lose either way."

Farm losses are nothing new, but farmers said there is a difference in what is happening this year. For one thing, the losses are striking at more products at one time than usual, they said. Cattle, hogs, corn and soybeans all have been selling at below the cost of production, although the prices of corn and cattle recently started back up.

In addition, the losses have been exacerbated by the cost of money.

"Some years you make money and some years you don't. You can live with that at 8 to 9 percent interest," said Martin. "You can't live with it at 23.5 percent. Every four years it eats your cattle up."

Last week, the Federal Reserve Board acted to alleviate some of the credit problems in rural areas by making additional money available at the 13 percent federal discount rate to small banks with heavy seasonal borrowing needs.

Underlying all other fears is one that agricultural land prices may soften. Most farmers and ranchers have used their equity in constantly more valuable land to expand, taking on increasing debt tied to the value of that asset.

A recent survey by the Federal Reserve Bank of Chicago found that the increase in the value of farmland in Iowa, Illinois, Indiana, Michigan and Wisconsin had slowed in the last quarter of 1979. In addition, cash rent for farmland in some parts of Iowa has fallen recently.

"This is how we borrow," said Glenn Gregg, a cattleman from Haward, Iowa. "Our dad or our grandad gave us this quarter-section and we borrow against that up to 75 percent of its net worth. Now we're up to that limit, and now we're thinking -- gosh sakes, is our land still worth that much."

"We've got at least half dozen there who are not going to make it the way things are going," said Larry Clausen, senior vice president of a Schleswig, Iowa bank. "They're going to have to sell out. They're going to have to sell their land and machinery and quit farming," he said. CAPTION: Picture, The day after Iowa farmer Tony Kriegal bought his $40,000 tractor, grain sales to the Soviet Union were halted. By Margaret Thomas -- The Washington Post