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Kittson County Enterprise

27 May 1998

Editor's note: The following article was reprinted withpermission of THE WALL STREET JOURNAL Copyright 1998 Dow Jones & Company,Inc. All rights reserved.

Off the Land

On the Northern Plains

Free-Market Farming

Yields Pain, Upheaval
After Deregulation, Drop In

Wheat Prices Compels
Many Growers to Quit

The Effect Spreads South

By Scott Kilman
Staff Reporter of The Wall Street Journal

Kennedy, Minn. - Cheap wheat and bad weather are doingto Nathan Johnson what they couldn't do to three preceding generations ofhis farming family.

They are defeating him.

Last year, a disease called scab wiped out half the wheathe planted on the land around his family's 1887 homestead near the Canadianborder. And now, a glut of foreign wheat is pushing down the grain's priceat the local elevator to an unprofitable $3 a bushel. These days, Mr. Johnsonis trying to rent out his land and looking for work in the city.

Ignoring the plate of homemade cookies on the dining table,the lanky 33 year old blond listens to the spring rain pelt the kitchenwindows and contemplates moving his wife and two daughters out of the tidyfarmhouse where he grew up. "We can't afford to lose any more money,and we know farming is only going to get riskier." Mr. Johnson says."It's a heck of a deal."

Across the Northern Plains, the long migration away fromagriculture is turning into a stampede. From Montana to Minnesota, thousandswho made their living growing wheat are quitting the bald prairie. A blizzardof barnyard auctions is sending chills down the Main Streets of the townsthat live off farmers.

"We're doing a sale every day," says Brad Olstadof Steffes Auctioneers, Inc. in Fargo, N.D. "Wheat is a dying crop."

Bad years are nothing new around here. Wheat prices werelower in 1990, when a similar coincidence of bumper harvests around theglobe swamped the market. The drought of 1988 destroyed wheat fields, butnone of that was a deadly to farmers as what is happening now: deregulation.

Two years ago, Uncle Sam began withdrawing from the decades-oldbusiness of protecting farmers against the vagaries of weather and markets.Grain and cotton farmers no longer receive "deficiency" paymentswhen prices are below target levels. Shelved, too, was the disaster-aidprogram that pumped $18 million into Kennedy and the rest of Kittson Countyafter the 1988 drought.

Farming still has its perks. About 1.4 million growersare receiving federal checks to ease their transition to a free market -in fixed amounts, declining each year until the payments end in 2002. Thepayments will total $5.5 billion this year.

But the federal dollars now coming to Kittson County's350 farm operations amount to far less than in bad times past. They areto get $6.4 million this year, 25% less than in 1996, when wheat priceswere 33% higher and harvests were bigger.

The bottom line: Many of Kittson County's farmers are sufferingtheir biggest financial losses ever. "Deregulation is turning intoa desaster for us," says Duane A. Lyberg, President of the NorthwesternState Bank in Hallock, the county seat.

So much land and used farm equipment are flooding ontothe local market that prices are sinking. The number of acres Kittson Countyfarmers plant this month to wheat, long the staple of the local economy,could fall to the lowest lever since World War II. Some fields might gofallow for the first time in generations.

For lack of wheat, one grain elevator was sold. For wantof cash, growers are far behind on paying their bills from Main Street merchants.The merchants worry that the 40 or so farmers who are quitting might bejoined next fall by scores more. It is a crushing loss for a county alreadyso sparsely populated - mostly with descendants of Scandinavian immigrants- that the county atlas makes room for family pictures.

A Spreading Malaise

In North Dakota, so many are throwing in the towel thatstate officials got a federal grant last month to retrain hundreds of growersfor other jobs. "I've never seen it as bad as this," says RogerJohnson, North Dakota Commissioner of Agriculture.

In the early stages of deregulation, the Northern Plainswere the hole in the doughnut. Most everywhere else, the changes were aboon for growers. The Republican-controlled Congress repealed crop subsidies- along with controls on what and how much farmers could plant - at a timewhen soaring exports to the growing economies of Asia had lifted crop pricesabove Washington's old targets.

With prices higher and the freedom to plant without restrictions,growers in the Midwest and the Mississippi Delta have been furiously switchingamong crops, chasing the hot commodities. Corn has stormed the South. Soybeanacreage has swelled by an area equal to all the farms in Michigan. Flushwith cash, these farmers have been on a shopping spree. Sales of row-croptractors jumped 12.9% last year. The average price of Midwest farm landclimbed 9%.

But now, the inevitable is happening. U.S. stockpiles ofgrain are ballooning just as the currency crisis in Asia is strangling demandfor American goods. Crop prices are sinking back to earth. The price ofsoybeans is 27% lower than a year ago. Corn is down 16%. And on top of this,the transition checks are beginning to shrink. Agriculture Department economistsare slicing their forecast of this year's net farm income by $2.6 billionto $43 billion. Down 17.6% from the 1996 record.

Deregulation is facing its first big political test. Acrossthe Plains, wheat growers are crowding into town halls, co-op meetings roomsand high school gymnasiums to listen to sympathetic legislators. AgricultureSecretary Dan Glickman, stumping in Aberdeen, S.D., in April for a farmer"safety net," addressed a standing-room crowd of 1,600 growers,twice what organizers had expected.

Sen. Richard Lugar, chairman of the Senate AgricultureCommittee and an architect of deregulation, is busy swatting down proposalsto roll back the "Freedom To Farm" law. But food executives, whosecompanies benefit from unrestricted planting, are nervous. "We're reallyworried about a polical backlash," says Mike Anderson, president ofa Maumee, Ohio, a grain-processing company that bears his family name.

No Fight Left

The situation in Kittson County suggests that deregulationis staying, and for a grim reason: Farmers are giving up. Nobody is organizingthe type of protests that attracted national attention the last time somany farmers here were in trouble. That was the mid-1980s debt crisis, whenRandy Swenson would travel from his Kittson County farm to Fargo and Bismarckto join demonstrators demanding a federal bailout. Now, the 46 year oldgrower is just quitting.

"It's hard to make it here without government help."Mr. Swenson says. "But I'm tired of farming the government. I'm washingmy hands of it," he says of what was a 1,100 acre wheat farm.

Indeed, farmers aren't as attached to their land as theywere a decade ago. They learned a hard lesson from neighbors who hung onto their farms too long, losing their financial security for the trouble.The survivors of the 1980s are quicker to cut their losses and protect thefamily balance sheet.

After all, farming is becoming more a business and lessa way of life. To keep up, growers today have to understand everything fromgenetically engineered crops and satellite mapping of soil types to hedgingon the futures exchanges. The typical grain farm has assets of roughly $800,000.

Mr. Swenson's math is simple. The government subsidy thatgenerates about a quarter of his wheat income is evaporating. Growing somethingmore profitable is difficult this far north. So he has taken a job in aneighboring county at a bus manufacturing plant where the starting wageis $12.50 an hour.

"I'm glad we got the chance to raise our kids in thecountry," Mr. Swenson says as his teenage sons chatter in the livingroom. " But they're almost grown up . . . Now I've got to protect whatwe have."

Local bankers say they have never seen so many farmersquit on their own. While that is bad news for the local economy generally,it is limiting the fallout. With former farmers finding other ways to makea living, bad debts aren't snowballing as they did a decade ago; most farmbanks on the Northern Plains are still healthy.

So Little Time

"Unless the bankers get worried, nothing will getchanged in Congress," says Bob Bergland, Agriculture Secretary duringthe Carter administration, who lives in nearby Roseau, where his familygrows wheat. "The hourglass is running out for a lot of farmers aroundhere."

Wheat prices will surely rise again. But the long termoutlook is gloomy for places such as Kittson County, which was built onwheat and now seems handcuffed to it. The short summers stunt most othercrops so farmers here can't navigate the markets as well as growers in theMidwest and the Delta.

And wheat prices are only going to get more volatile underderegulation. It grows here because it is so hardy. That also makes it apopular crop in a lot of other countries, so U.S. wheat faces the most foreigncompetition of any major crop competition that many farmers can no longermeet.

Up the road in Kennedy, population 337, so many farmersare quitting that power-boat dealer, farm-chemical dealer and City CouncilmanJay E. Larson has stopped posting farm auction notices on the walls of hisbusiness. "It got too damn depressing," Mr. Larson says, seatedat his desk beneath brightly colored fishing lures that dangle from theceiling.

Farmers have yet to pay him $380,000 for the field chemicalsthey applied last year. So this spring, he is doing business on a cash-onlybasis. "It's never been this rough," says Mr. Larson, 38.

With farmland coming fast onto the market, real estateprices in the county are slipping for the first time in a decade. Good qualityfarmland that last year fetched $1,000 an acre now goes for $850. And whilemany farmers are quitting on their own, some are being turned away by theirbanker.

Difficult Refusals

"I've had to cutt off a handful of guys, guys I'veknown forever, guys who are my friends," says Wayne Gjervold, managerof the Hallock branch office of local lender Farm Credit Services. "Ithurts."

In the courthouse basement, the federal Farm Service Agencyoffice is so swamped with requests for emergency loans that a copy machineroom and junk room were cleared out for space to take applications. "Alot of these farmers were your blue-chippers."

Jim Tunheim, the state legislator here, sits at his diningroom table pointing all round him, in the direction of farmers he knowswho are quitting. "Arnold, Lamar, Troy," he says. He stops ateight. "They should have called it 'Freedom to go broke.' We're doingto disappear at this rate."

While most merchants are turning against deregulation,one exception is Steve Holmgren, manager of the Harvest States elevator,which buys farmer's grain and also sells farming supplies such as fertilizer.Mr. Holmgren expects half his customers to quit over the next several years.But he also figures that the farmers who pick up that land will be so bigthey probably will want help throughout the season, applying seed and fertilizerand pesticides. And they will need lots of advice.

"Farming used to be a no-brainer. You grew wheat,and if you couldn't sell it, the government bought it," Mr. Holmgrensays, puffing on his pipe as wheat futures prices flicker on the computerscreen on his desk. "Deregulation is going to swallow the farmers whowon't change."

He is sending employees to marketing workshops, settingup a Web site for customers and experimenting with crops such as canola,an oilseed popular north of the border. He is arranging for 35 farmers togrow a genetically engineered version under contract with Monsanto Co.,the St. Louis biotechnology company that designed the crop as a healthiersubstitute for cocoa butter.

Among those farms is one owned by the Rynning brothers,Robert and Timothy, fourth-generation wheat growers. About one-third oftheir 3,000 acre farm now grows canola.

"If we planted everything to wheat like we used to,we'd surely have lost the farm by now," says Robert Rynning, 34.

A Signature Scent

Changing crops has been hard. It requires different gearand knowledge of different diseases and bugs. The first time Robert plantedcanola, he left bare spots in the field; he hadn't properly adjusted theequipment for the tiny seed. Other surprises: The yellow flower smells likea wet diaper, aned the bees attract bears.

The Rynnings made money on canola last year. But they can'tplant much more; field must be rotated to prevent disease. "We're stillpretty much stuck with wheat," says Timothy Rynning, "and thatmakes us vulnerable."

A warm spring is letting farmers get into their fieldsearlier than normal, raising hopes for a good growing season. Standing intheir barnyard, the Rynnings spot sandhill cranes flying toward the fadingsun. They laugh as their black Labrador leaps at frogs croaking from insidea pothole.

Eventually the conversation turns to buddies and neighborswho are leaving farming. Timothy Rynning worries about his wife, a teacher.School attendance is certain to shrink. "Even if we make it,"Timothy Rynning says in the gathering darkness, "it's probably nevergoing to be as much fun."

uddies and neighborswho are leaving farming. Timothy Rynning worries about his wife, a teacher.School attendance is certain to shrink. "Even if we make it,"Timothy Rynning says in the gathering darkness, "it's probably nevergoing to be as much fun."