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Agriculture


Industry Outlook -- Basic Industries: AGRICULTURE

AGRICULTURE

The nation's farmers are looking forward to a repeat of last year's near-record income. And new bioengineered seeds could change how farmers do business

For farmer Michael J. Kenyon of South Elgin, Ill., everything could have gone wrong last year--but didn't. A cold, wet spring delayed planting six weeks. But with fine weather to follow, even corn sown in June produced a decent yield by November. "We were pretty lucky," Kenyon says.

The same goes for many Midwest crop farmers. Commodity prices were steep for the first half of the year. Export demand remained fairly robust, and corn, soybean, and spring-wheat crops came in better than expected. Farmers also profited from a $9 billion payment from Uncle Sam, the first installment of a generous seven-year program to wean farmers off price supports. Even livestock producers, hurt by feed shortages this spring, enjoyed sharply higher hog and cattle prices later in the year. The Agriculture Dept. estimates that cash income for U.S. farmers soared to a near record of $58 billion in '96, up from $49 billion the previous year.

BAD SEED? Farm income could be just as high in 1997, and it's getting off to a strong start. Demand continues to grow, especially as rising incomes in Asia increase the appetite for U.S. beef and produce. That should keep farm commodity prices high. Fairly tight global grain supplies will support higher prices, too. "It should be another good year for farmers," predicts analyst David C. Nelson of NatWest Securities Corp.

Farmers can afford to invest in technology, and they're loading up on new, genetically engineered hybrid seed. Last year, for the first time, they planted commercial-scale quantities of soybeans that tolerate the common herbicide Roundup, and cotton resistant to insects. In 1997, farmers will be plant-ing a new variety of bioengineered corn that resists borers--the bane of America's top cash crop. Farmers and analysts believe the new seed will reduce pesticide costs and increase yields.

Not everyone supports the gene revolution. The new seeds are so genetically similar that resulting crops may not adapt to environmental changes. Researchers worry that as more U.S. farmers plant the high-tech seeds, crops could become increasingly vulnerable to an epidemic. And environmental activists in the European Union are opposing gene-altered imports from the U.S.

Trade competition is heating up. The EU, also enjoying a better-than-expected grain crop, started subsidizing wheat exports again this past fall--the same practice that sparked a trade war with the U.S. a decade ago. But another prickly trade issue, grain embargoes, is effectively moot. Agriculture Secretary Daniel R. Glickman says the government learned its lesson after the last embargo damaged the country's reputation and market share. That's another break for farmers who, for now, have little to worry about.By Greg Burns in ChicagoReturn to top

TABLE

Prognosis 1997

POSITIVES

-- Robust global demand will support higher prices for farm commodities

-- Rising incomes in East Asia hold special promise

-- Souped-up seed hybrids and other new technologies are boosting yields

NEGATIVES

-- Supplies of grain and oilseeds are more abundant than a year ago, which will restrain price rallies

-- A European backlash against genetically engineered farm products could spreadReturn to top

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