July 26, 1999
THE DEEPENING ECONOMIC CRISIS
IN RURAL AMERICA
"In the midst of unprecedented prosperity and economic growth in
this great nation, farm families and rural communities are in the worst
economic crisis of at least a decade, and perhaps since the Great Depression."
| — Senator Tom Harkin (D-IA), Ranking
Democrat |
| Senate Committee on Agriculture, Nutrition,
and Forestry |
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For the 1999 crop year, the United States Department of Agriculture estimates
that net farm income for the principal field crops will be nearly $7 billion
below the average for the five-year period 1993-97. That is a 29 percent
drop. Net income for 1998 was also down substantially. These comparisons
are not to a selected high year, but to a five-year average.
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Because of world economic problems in combination with several years of
high global commodity production, the value of U.S. agricultural exports
is down very significantly in recent years, and the prospects for the future
are dismal. According to USDA, U.S. farm exports for FY99 are projected
to fall to $49 billion, a 19 percent decline from the level of 1996.
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The high in the soybean price for North Central Iowa in the fall of 1997
was $7.00 a bushel on November 2, 1997. The low thus far was $3.75 a bushel
on July 8, 1999. That decline was 46 percent from the high in the fall
of 1997 to the low thus far in 1999.
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Similarly for corn, the North Central Iowa high price for the fall of 1997
was $2.52 a bushel on October 23, 1997. The low thus far this year was
$1.38 a bushel on July 16, 1999. That decline was 45 percent from the high
in the fall of 1997 to the low point thus far in 1999.
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The latest crop report from USDA shows continuing surplus production and
low prices. Accordingly, USDA again lowered its price projections for corn
and soybeans. The midpoint of the projected corn price range is $1.85,
the lowest since 1986, in the midst of the last farm crisis. The midpoint
of the projected soybean price range is $4.30, the lowest price since 1972
-- 27 years ago.
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Wheat prices are expected to continue at low prices, with the midpoint
of USDA estimates at $2.70 a bushel for this crop year. Earlier this month,
the wheat futures price hit the lowest level in 22 years. The current indications
are that cotton prices will be at their lowest level since 1971.
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The livestock sector also is expected to remain in a slump. Hog prices
are still well below the cost of production and are expected to remain
far in the red on into next year. USDA data suggests pork producers may
very well see a repeat later this year of the debacle in the hog market
that occurred last December, which forced hog prices as low as $8 a hundredweight,
compared to a minimum cost of production of $35 a hundredweight or more.
Cattle prices have been depressed for a number of years, and are still
at low levels.
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The impacts of these low commodity prices are now affecting land prices.
Federal Reserve data indicates that Central Iowa farmland prices were down
11 percent from April 1, 1998 to April 1, 1999, with further declines becoming
evident.
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The red ink in the farm economy is also affecting related industries. Sales
of tractors, combines and other farm equipment have fallen dramatically.
As a result there have been massive layoffs in the farm equipment manufacturing
sector.
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