FARMERS FACE MURKY CONDITIONS; FARM LEADERS SAY MISSOURI CROP YEAR UNSETTLING

JEFFERSON CITY -- Missouri's largest, single industry -- agriculture -- is entering the 1996 season ready to plant nearly $3 billion in crops. But farmers are still uncertain how their products will be treated under pending federal legislation.

State farm leaders say this crop year is under the most unsettled conditions in memory.

Two of the three largest factors in Missouri's $5 billion agricultural industry -- weather and federal programs -- provide a tense climate as owners and operators of Missouri's 108,000 farms try to assess both what and when to plant.

The third component -- market and export demand -- appears to be at record heights, say economists at the Federal Reserve Bank of Kansas City. A farm economist with the regional bank, Mark Drabenstott, said Missouri farmers, after two years of weak income, appear to be entering a period with "better prospects."

Drabenstott bases his optimistic view on two factors: growing world demand for grown-in-Missouri crops and a supply of grain stocks that is at the lowest level in the past four decades.

"Crop prices start 1996 at high levels," the economist said, "and where prices go throughout the rest of the year will depend on the size of the 1996 crop.

"If production is normal, prices will probably decline somewhat; but with another year of small crops, grain prices could test all-time record highs," Drabenstott predicted. The downside to higher prices for Missouri grain farmers is the squeeze it places on the state's livestock producers. He said several farm economists have predicted that the recent two-year losses for the livestock market are ending.

"Overall, farm income may rise modestly in 1996, if the livestock industry can move back toward sustained profits, setting the stage for even better profits in 1997," he believes.

Clouding the industry's overall general health, however, is the uncertainty of the pending farm bill in Washington. Another economist, Dr. Harold Breimyer, emeritus professor of agricultural economics at the University of Missouri-Columbia, doesn't mince words about the pending legislation: He terms it "the worst farm bill ever."

One of the authors of landmark farm programs in the 1930s and 1940s, Breimyer said he is astonished that "within one decade, six years in fact, the legislative mill of the United States Congress would deliver the best farm law of the century (the Food, Agriculture, conservation and Trade Act of 1990) and the worst."

The path of new legislation at this moment is torturous. Even if a conference report reconciles differences in the House and Senate bills, it is unknown whether President Bill Clinton will sign the compromise measure. In fact, Breimyer and some of his assenting economists already have recommended to the White House that it reject the bill and keep the 1990 law on the books for another year or two.

One of the difficulties to overcome, the economist said, is the evolution of several interests within revised farm laws: soil conservation, clean water and food reserves, which sometimes overshadow crop-program objectives.

Breimyer said the worst effect of pending legislation is the payment of huge sums regardless of the level of market prices and without necessarily requiring performance on the farmer's part. "As though to make the whole scene more indefensible, and invite ridicule, payments would begin at a time when prices and incomes for program crops are the most favorable they have been in years."

Despite the temporary unknowns, Federal Reserve economists are generally bullish about the long-term prospects for Missouri agriculture. While crop farmers could see near-record prices and livestock producers may regain some of their recent losses, overall the picture shows improvement.

Farmers' balance sheets should show improvement, and farm equity may be steady or edge higher in 1996, with only a gradual increase in farm debt predicted. Much of this debt increase will be incurred by livestock producers who are expected to increase herd sizes as a result of recent reductions.

Federal Reserve officials say farm credit conditions should be generally favorable this year. Interest rates for farm loans in Missouri were about 20 basis points higher at the end of the third quarter of 1995 compared with year-end 1994. The decline in money market rates since suggests that agricultural rates could decline throughout early 1996, Federal Reserve officials in Kansas City believe.

Agricultural credit remains widely available, although banks operating in major farm areas have the highest loan-deposit ratios in many years.