The MacNeil/Lehrer Report; Midwest Drought

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Rep. JIM LEACH, (R) Iowa: -- that this drought appears to be the worst natural disaster of our generation, and in some respects perhaps of this century.

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ROBERT MacNEIL: Good evening. In Moscow today Agriculture Secretary John Block signed an agreement for large Soviet purchases of American grain. Meanwhile, in Bloom-field, Iowa, officials from the agriculture department met some 2,000 farmers whose crops have been severely reduced by the current drought. Two sides to a story with consequences for food prices in coming months. Today's crop situation is a drastic reversal of the scene only a few months ago when America had record grain surpluses after several years of good weather and slack foreign sales. Now the surpluses have been greatly reduced, forcing a surge in commodity prices, and, for the first time in many years, worries of an actual grain shortage. The drought is one factor; another is the controversial PIK or payment-in-kind program in which farmers reduced the acreage they planted this year in exchange for federal grain. Tonight, what does all this mean for American farmers, consumers and taxpayers? Jim?

JIM LEHRER: Robin, heat waves hit city and country people alike, of course. In fact, most of the 16 deaths caused by the lethal heat of the last few days were in cities and towns. So were most of the schools which had to be closed and the all-night cooling centers which were opened for the poor and elderly. But it's the farmer who suffers the most economically when the high temperatures come and the rain does not. In the southeastern part of the country crops are wilting, animals are dying: three million chickens in the last four days alone. In the three "I" states of the midwest -- Indiana, Illinois and Iowa -- corn crops have been devastated, so have soybeans. In Kentucky they're having the worst barley crop in 47 years. In west Texas 18 months of drought have begun taking its toll on cattle herds. That havoc list grows every day, and if weather forecasters are right, it will continue to do so for awhile. Tracking the weather and its effect on agriculture nationally is what Carol Brookins does for a living as president of World Perspectives, a private analysis service based in Washington. Ms. Brookins, is it the worst drought of this century, as the Congressman said at the beginning?

Ms. BROOKINS: I think it's one of the worst droughts in the century; it is certainly the biggest drought of this magnitude since 1947 drought, and also since the the 1936 drought. It started, really, in the midwest and in the central states in July and then spread down into the southern states, the Delta and the southeastern region in August. And it virtually blankets the central, southern and southeastern part of the country and occasionally there has even been some hot weather and very dry conditions in the northern tier of states -- the Dakotas, Minnesota, Wisconsin, Michigan and even down into Ohio.

LEHRER: Well, an area, whether it's Iowa or Georgia or wherever it is, to be hit hard by this drought, what are the implications? I mean, what happens?

Ms. BROOKINS: What happens? The crop is very much stressed. It needs moisture and it needs reasonable temperatures in order to grow and to flourish. And what happens, especially now since we've had the PIK, where you had crop planted very tightly in the acreage that is being planted, it draws the moisture more quickly from the soil, even though we had abundant moisture supplies last spring, and it also creates almost a heat vacuum in some cases surrounding the crop, which makes the crop wither and does not produce the yields that it would normally produce.

LEHRER: What are the crops that have been the worst hit nationally?

Ms. BROOKINS: The corn and the soybean crops. And the corn crop is down roughly, we believe today, about 45% from last year, but that's from last year's record crop of around 8.4 billion bushels. The soybean crop is down by about a third, and conditions do not look like they're going to be improving over the next several weeks, so you could have some further deterioration.

LEHRER: You say -- you mean the weather isn't going to improve?

Ms. BROOKINS: That's right. The weather is not expected to improve.

LEHRER: So, I mean, how long could this go on?

Ms. BROOKINS: Well, it could go on ad infinitum. It could go on well into the fall, and if that develops it would be a very severe problem because it would affect our planting of winter wheat and other winter grains as well.

LEHRER: What has this done so far and will it do in the immediate future to commodity prices that the farmer can get at the market?

Ms. BROOKINS: Well, it's obviously had an effect in terms of raising commodity prices. They've gone up substantially. Corn prices, from the lows of the market to where they are today, are almost doubled. Soybean prices are up very, very strongly, and price will have to continue to rise to ration supply, and to allocate --

LEHRER: I mean it is the ultimate supply and demand situation.

Ms. BROOKINS: That's right. This is a free market. This is our market economy that we practice in the United States in full operation, just as we had very, very low prices for commodities over the past several years because of oversupply and weak demand.

LEHRER: When are we going to start feeling it in food prices?

Ms. BROOKINS: The best guess is you'll start feeling it in food prices early into next year if not somewhat before then. We are seeing livestock slaughtering today; we're seeing breeding herds being slaughtered. I think that this will somewhat moderate the higher meat prices that we'll see later on. But as we go into the first quarter of next year we will see higher prices.

LEHRER: In what areas specifically? I mean, obviously corn and then any kind of livestock that's grain fed --

Ms. BROOKINS: Any kind of livestock prices, yes.

LEHRER: Any other areas? I mean, --

Ms. BROOKINS: Anything that is grain related. But remember one thing, that 70% of the cost of food to the consumer are non-farm costs, are non-farm costs. So this -- you have to keep this in mind in terms of energy, transportation, labor costs and other factors, which do contribute to food price inflation. And food price inflaion over the past five years has been below the overall rate of inflation in the country. In fact, food price inflation last year was only 2 1/2%.

LEHRER: Is there any way at this point to speculate on what the grain deal that Secretary Block signed today -- what effect it could have on this situation?

Ms. BROOKINS: Well, it will not have any effect in terms of triggering much higher prices at this point. The Soviets have a reasonably good crop this year. We believe it's going to be around 210 million metric tons, which is up substantially from their very poor crops over the past four years.

LEHRER: So they won't have as big a need to buy from us?

Ms. BROOKINS: No, they won't have as big a need to buy from us, and in corn, for example, if they buy the minimum amount of corn that they must purchase from us, which is four million metric tons, this is less than 10% of our exports of corn.

LEHRER: Thank you. Robin?

MacNEIL: In one of the worst-hit parts of the midwest, some 2,000 hard-pressed farmers crowded the fairground in Bloomfield, Iowa, today to ask for help. They heard Republican Congressman Jim Leach say that in many ways the drought of '83 was worse than Hurricane Alicia, which devastated southeast Texas last week.

Rep. LEACH: -- that this drought appears to be the worst natural disaster of our generation, and in some respects perhaps of this century.

MacNEIL: The meeting was also addressed by Iowa Governor Terry Branstad, himself a farmer, and one of the organizers of that meeting was Jerry Kincart, who farms 1,400 acres near Bloomfield, Iowa. They are both with us tonight in the studios of Iowa Public Television in Des Moines. Governor, how badly has the drought hit your state?

Gov. TERRY BRANSTAD: This has been a very severe blow to Iowa, especially the southern part of our state. I have already declared 21 counties as disaster counties. I'm sure we're going to be adding more counties to that list. And in those counties 97% of the farmers have lost over 50% of their corn and soybean crops.

MacNEIL: Do you agree with the percentages we just heard from Ms. Brookins that it's about 45% of the corn corp and 33% of the soybean crop, or is it worse in Iowa?

Gov. BRANSTAD: It's worse in the southern part of the state. In the northern part of the state I think the figures that she's given would be rather accurate, but in the southern part of the state, in some cases, there's virtually no corn crop, and it'll be very little bean crop. I'd say less than a third of a normal crop.

MacNEIL: Could any of that be rescued if there were some rain soon?

Gov. BRANSTAD: It's awful late at this point. The northern part of the state received some rain over the weekend, and there are some spotted areas that have gotten a little bit of rain that'll help, but to a great degree the corn crop is beyond repair, and the soybean crop, especially if you have early maturing beans, it's probably very late for that as well.

MacNEIL: Looking at the economy of your state as a whole, what impact will this have, do you think?

Gov. BRANSTAD: It's hard to really judge totally because for those farmers that do have a crop the price has gone up substantially. But in those communities that are affected severely by the drought, this is going to be a devastating blow, not just to the farmer and the farm family, but to the small-town businesses that rely on the farmer as their major customers.

MacNEIL: Let's turn to Jerry Kincart, who is there beside you. How bad is your situation, Mr. Kincart, on your 1,400 acres?

JERRY KINCART: We'll have corn that'll go from zero to 17 bushel, and soybeans between five and 10 bushel to acre.

MacNEIL: And that's compared with a normal yield of what in the acre?

Mr. KINCART: Average yield is about 32 to 35 bushel, soybeans. Corn is anywhere from 120 to 140 bushel.

MacNEIL: And what is that going to represent in losses to you?

Mr. KINCART: Considerable losses.

MacNEIL: Can you put a dollar figure on it?

Mr. KINCART: Right around $220,000.

MacNEIL: Now, are you in the PIK program? Did you hold back some acres this year?

Mr. KINCART: Yes, I did.

MacNEIL: In what crop? From what crop?

Mr. KINCART: Corn.

MacNEIL: Corn.

Mr. KINCART: Yeah, that was the only one. We had no wheat base.

MacNEIL: So you're going to get some corn back then from the federal surpluses?

Mr. KINCART: Yes, sir, we are. And you'll be able to sell that corn, presumably at a higher price? Do you have any estimate of what you'll get?

Mr. KINCART: Well, that $220,000 figure I gave you was with the expected sales of the PIK corn off.

MacNEIL: I see. So that's your net loss you figure, something like that?

Mr. KINCART: Roughly that, yes. 'Course, it's hard to tell now. It could be less and it could be greater. It wouldn't be much less than that, I wouldn't think, because of the corn. It's really hard to say until you get the combine in it and see what it is, or get some actual yield checks here in another month.

MacNEIL: Governor, what is your message to Washington? What would you like Washington to do in this situation?

Gov. BRANSTAD: Well, I'm going to be meeting with Secretary Block in Chicago next week along with a number of other governors, and I think we need a declaration of emergency from the Secretary as soon as possible. I don't think we can wait until the harvest is completed because we have many people that need help and they need it as soon as possible. So I'm hoping that we can get low-interest loans from the Farmers Home Administration and possiby other assistance, especially for some of the farmers that need to get a longer term loan to be able to continue their operation. We have many good operators, like Jerry, that have been hard hit this year through no fault of their own, and I think it would be devastating to see a lot of these farms forced into a sale or liquidation situation.

MacNEIL: What kind of aid would help you, Mr. Kincart? I mean, would a low-interest long-term loan do you any good?

Mr. KINCART: It would be one aspect of it, yes.

MacNEIL: What is a low-interest loan? What kind of interest are you talking about, Governor, that would really help?

Gov. BRANSTAD: Well, of course the days of the old 3% loan is gone. Right how the FHA rate, I think, is 8%. If we could get some break beyond that, certainly we'd like to get that as a certainty. If we can get some other benefits that the Secretary of Agriculture has the discretion to provide, this could help in addition to it. But certainly 8% is a much lower rate for farmers than they would have to pay in conventional lending situation, and many of these farmers are in a situation, they can't get conventional lending; the banks are potentially in trouble as well.

MacNEIL: How would you use a loan like that, Mr. Kincart? I mean, you'd still be $200,000 in the hole, you say. How would you do it?

Mr. KINCART: Well, farming, you don't look at a short-term return. You have to look at a long-term return. I think the loan situation should be more or less tailored to the farmer himself if that could be constructed in such a way. In our area we have a lot of livestock producers. We have beef cowherd people, we have dairy people. Their loan requirements are totally different than what mine is -- would be as a grain farmer. So I think the Governor, when he goes to Chicago in September and Secretary Block and the officials need to sit down and take a long, hard look at the individual situations that we're facing. As we heard earlier, that there's broilers by the thousands that are dying. Their situation will be different than mine.

MacNEIL: I think we're going to hear about that now, so if we could move on, we'll come back. Jim?

LEHRER: Yes, because we now want to move to another part of the country and to another farm product being hurt by the heat, and they're the chickens in the southeast. Bill Roenigk is an economist with the National Broiler Council, which represents 80% of the nation's producers and processors of chickens, including the major ones like Perdue Chickens and Holly Farm Chickens. I know it's hot, Mr. Roenigk, but why are so many chickens dying as a result of this?

BILL ROENIGK: Jim, compared to other animals, chickens have a limited natural ability to handle heat.They do not have sweat glands, and for them to, once the temperature has reached 100 degrees or more, the way they try to cool themselves is by panting, and to do that they have a lot of moisture leaving their body, and they dehydrate and their natural body systems fail, and this causes their death.

LEHRER: And there's no way to artificially keep them cool?

Mr. ROENIGK: Well, with the days being over 100 and the nights going into the 90s, they get very little relief in the night, so they don't start off with any sort of cooler bodies to work through the hotter part of the day. And with the limited natural movement of air outside a broiler house, you have to rely totally upon the forced ventilation, and we also have misting systems in the houses where they spray a fine mist of water into the air. When that evaporates it does have a cooling effect, but it takes a tremendous amount of that capacity to cool birds when you have something over 100 degrees.

LEHRER: Sure. I mentioned the three million chickens who have already died in Georgia. Put that into a perspective nationally. Where else is this a serious problem?

Mr. ROENIGK: Yes, Jim. The three million broilers actually is in three areas. Georgia was about one million, we've had the problems in Alabama --

LEHRER: So I was wrong when I said three million in Georgia?

Mr. ROENIGK: Three million would be more representative as a national picture, realizing it's primarily in the southeast. So we have Georgia, Alabama and the Carolinas as being the main problem. In addition to the death loss, we've also had the breeder hen loss, those hens that lay the eggs that become broilers. We've lost about 150,000 of the breeder hens. The value on these birds, the broilers and the breeder hens, about $6 million over this past weekend.

LEHRER: If this continues -- how many chickens are dying on a daily basis?

Mr. ROENIGK: Well, the weekend was the worst. There seems to be a bit of a relief now. If it comes back, then I would expect that we could see something in the neighborhood of a half a million to one million birds per day in the areas affected -- Alabama, Georgia, Carolinas, again -- being affected. The death loss is only one factor. The second factor is what we call reduced performance. The birds eat less feed and so they go to market at a lighter weight, perhaps 5% in some cases. The hens lay fewer eggs -- two to three percent fewer eggs. The eggs that are laid are less fertile so you get less chicks hatching from that. So it has a short-term which is the death loss, the longer term, which is your reduced performance.

LEHRER: What is the effect going to be on the consumer?

Mr. ROENIGK: As Carol mentioned earlier, the fourth quarter, we're going to see an overabundance of meat, actually, because already beforethe heat wave and the drought hit, we had about 15% more pork in the pipeline that was going to come out, regardless of what the situation was. Now, added to that, we're going to see farmers liquidating their herds, the breeding stock, so it's going to compound the oversupply of meat in the fourth quarter. That's going to mean very favorable prices for the consumer in the fourth quarter of this year. The impact on prices will be, as Carol said, more in the first and second quarter of next year.

LEHRER: When you say -- that includes chickens you're talking about as well?

Mr. ROENIGK: Yes.

LEHRER: There's not enough chickens already in the pipeline that this will not -- that the deaths these last several days is not going to be felt for a long time then?

Mr. ROENIGK: Well, chicken doesn't operate in a vacuum. We compete against pork and beef. While there'll be less chicken available, there's going to be more pork and perhaps more beef available. So the consumer is going to have a lot more meat to choose from -- fewer broilers, but more red meat.

LEHRER: Do you want federal help as the farmers in Iowa do?

Mr. ROENIGK: Our -- we haven't made a final decision as an industry on this, but I suspect our request is going to be slightly along different lines. We are probably going to ask for more help on exports during this oversupply period during the fourth quarter. Earlier we had been asking the government for some help from unfair trade competition from the European Community taking our markets away in the Middle East. We're probably going to intensify our efforts to try and get some help during this short-term oversupply condition we see coming in the fourth quarter.

LEHRER: Thank you. Robin?

MacNEIL: Governor, in Iowa, is that a pattern you see that -- what we've just heard outlined, that probably consumers should look to food prices, especially in terms of meat and so on, being a little lower in the next few months, but rising in the new year?

Gov. BRANSTAD: I think that's correct. We're going to see farmers liquidating their cattle because, in our state, they don't have any pasture. We did get the Secretary of Agriculture to turn loose the PIK acres for grazing, but so far they have turned down the right to take hay off the PIK acres. On the state level we've released state highway ditches so the farmer that has land adjoining it can take hay off of that. But we're trying to get the Secretary of Agriculture to reconsider and let the farmers take hay off the PIK acres so we don't see as many cattle liquidated as is occurring right now.

MacNEIL: Would that be a good idea, Mr. Kincart?

Mr. KINCART: Yes, it would. This would allow an individual in our situation -- we don't have any cattle; we're hogs and grain; we have a sow herd. So we could utilize this to letting our neighbors have this ground to bale, and hopefully he could keep his cow herd intact and we would be able to get them through the winter.

MacNEIL: What are you going to do with your hogs as it gets more expensive to feed them? Are you going to --

Mr. KINCART: Right now we're cutting our sow herd back by about 60% to -- so we don't have to buy the expensive supplement that is going to come from the soybean price increase.

MacNEIL: Is it possible, Ms. Brookins, that there's going to be, for the first time, a real shortage of grains coming out of all this situation -- the sort of combined situation of drought, foreign sales and PIK?

Ms. BROOKINS: I don't think there's going to be a situation of shortage this year unless some other factors occur to affect the situation, and I'd like to go into those, if I might, in a moment. But right now we have large supplies -- record supplies that we're carrying over from last year's record crops, from the past several years, when we had low demand and very, very large production. So we're in good shape right now unless some other negative variables occur, such as: since we're in the period of extreme in terms of weather, we could see a period in the fall where we have an early frost and a period of early frost possibly followed by a wet, cold fall, which means that we can't harvest our grains. The second thing that could happen is that the drought continues, as I mentioned earlier, and that we don't get our winter wheat planted or enough winter wheat planted. The third thing that could happen, again remembering that grain is a world commodity and that the supplies of grain in the United States are only -- we are only one supplier of grain, that if there were some problems for weather in the southern hemisphere and the southern hemisphere is just entering its springtime and it will be plainting its corn and soybeans very soon this fall, so it will be planting, probably, record amounts because of our higher prices today. But if they develop crop problems in Argentina and Brazil, for example, we could be moving into a period much more dangerous.

MacNEIL: Governor, I wonder whether the farm community, as hard pressed as it is, can realistically look to Washington for a lot of aid, given that this year farm support is costing the taxpayers $21 billion, not including the $12 billion that's estimated for the PIK program. What's your feeling about that? In a time of great budget deficit anyway.

Gov. BRANSTAD: First of all, the PIK program is a situation where the federal government is turning back the surpluses to the farmers rather than letting it rot. I think that makes some sense, and thank goodness this year we had the PIK program. I think we have to realize to a great degree our world trade balance is dependent upon agriculture, and it's important that -- farmers aren't asking for a handout. They're asking for the same kind of treatment and the same kind of assistance that other people receive when they're faced with a national [sic] disaster, and we have a disaster of significant proportions in the midwest, certainly in my state, and many other states and surrounding states have similar problems. So we're not asking for anything that hasn't been done before, that hasn't been done for victims of hurricanes and other -- in other disasters. And, frankly, we're going to carry the message that we received from the farmers today in Davis County and all across that area. We had people from seven states and 33 counties represented at that meeting today in Bloomfield to the Secretary of agriculture, and we're hoping that we can get some action.

MacNEIL: Mr. Roenigk, you're in Washington there. Do you think the federal government is going to be disposed, on top of all its other farm support programs, to come to your assistance now?

Mr. ROENIGK: Oh, I think Mr. Block has a job ahead of him to convince Mr. Stockman that more funds are needed. It remains to be seen if he can do that job, but I think the question that will have to be asked is, when this is all over with there'll be fewer producers, not only of corn, soybeans and chickens, but how many does the government want to survive? It's going to have to be either some assistance now or we're going to have to look at fewer producers. Larger, perhaps, but fewer. That's a decision I think we're facing.

MacNEIL: Well, thank you. And, Governor Branstand and Mr. Kincart in Des Moines, thank you very much for joining us; Ms. Brookins, Mr. Roenigk in Washington. Good night, Jim.

LEHRER: Good night, Robin.

MacNEIL: That's all for tonight. We will be back tomorrow night. I'm Robert MacNeil. Good night.