AGRICULTURAL OUTLOOK                                        April 22, 1998
May 1998, AO-251
               Approved by the World Agricultural Outlook Board
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AGRICULTURAL OUTLOOK is published ten times a year by the Economic Research
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note that this release contains only the text of AGRICULTURAL OUTLOOK -- tables
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MAY SUMMARY- AGRICULTURAL OUTLOOK                                                

FARMERS SIGNAL RECORD SOYBEAN ACREAGE

Soybean & Corn Planting Intentions Up...Again

U.S. farmers intend to plant a record 72 million acres of soybeans in 1998 and
the most corn acreage since 1985, while reducing wheat plantings to the lowest
level in 10 years, according to USDA's March 1998 Prospective Plantings report. 
These planting intentions and trend yields suggest large U.S. soybean and corn
crops in 1998, while wheat output will decline.  Both corn and soybean plantings
have increased each year since implementation of the 1996 Farm Act, which allows
farmers more planting flexibility to respond to market prices.  Intended corn
plantings for 1998 are higher in almost all of the Southeastern and Delta
States, as acreage shifts from cotton.  Most Corn Belt States show a decrease in
corn planting intentions as farmers switch to soybeans despite a drop in soybean
prices relative to corn.  In the 1990's, growth in average soybean yields has
outpaced corn, which increases relative returns to soybeans and encourages the
switch.  Mark Simone (202) 694-5312; msimone@econ.ag.gov 

Squeezing Grain Through the Panama Canal

Ships passing through the Panama Canal--a critical link between the Atlantic and
Pacific Oceans for U.S. agricultural exports to Asia--would be scraping bottom
if not for restrictions on vessel draft.  Panama has suffered the driest rainy
season in the 83-year history of the country's canal, with rainfall 35 percent
below normal in 1997.  Water levels are now too low for large vessels to transit
the canal fully loaded.  Bulk U.S. agricultural exports transported through the
canal (primarily corn, soybean, wheat, sorghum, and meals) are now being
transported in smaller volumes, which normally raises shipping costs.  But
primarily because of excess capacity in the global charter vessel market and
reduced demand for shipping, ocean freight rates are below year-earlier levels. 
Ken A. Eriksen (202) 690-1328; Ken_A_Eriksen@usda.gov

Aquaculture's Place in the Livestock Sector

Aquaculture is now a segment of the livestock complex, contributing more to per
capita consumption than veal, mutton, and lamb combined.  In 1997, U.S.
production of processed catfish products was close to 1 pound per capita, 
imports of farm-raised shrimp were likely over 1 pound per capita, and the
combination of farm-raised salmon, trout, tilapia, crawfish, and other
aquaculture products added another pound.  

In 1998, prices for catfish, the largest segment of the U.S. aquaculture
industry, are expected to increase, especially in midyear, as inventories of
food-size fish tighten.  But large supplies of competing meats, especially pork
and chicken, may put downward pressure on prices of aquaculture products. In
addition, Asian seafood exporters should find the U.S. market more attractive
with the devaluation of their currencies versus the dollar. Dave Harvey (202)
694-5177; djharvey@econ.ag.gov

Status Reports on Minority & Women Farmers & on Small Farms 

The number of U.S. farms continues to decline, and ownership and control of
production has become increasingly concentrated despite the continued
predominance of family farms.   In 1995, approximately 6 percent of U.S. farms
operated 28 percent of the land in farms, according to USDA estimates.  About 94
percent of the Nation's farms are small, with gross sales under $250,000. 
Three-fourths are very small, with sales under $50,000.

U.S. farms operated by Blacks and by women are generally smaller than the
national average and their sales of farm products are less.  Black, Asian, and
women farmers tend to be older than the average U.S. farm operator, while
American Indian operators, on average, are slightly younger.  The number of
Black-operated farms is declining at a faster rate than U.S. farms in general,
while the number of farms operated by women and other minorities seems to be
stable or increasing.
     The information provided by USDA's Economic Research Service on economic
and demographic characteristics of minority, women, and small farm operators
contributed to the Department's efforts to address the special needs of these
groups.  In response to charges of discrimination in USDA's program delivery
system, the Secretary of Agriculture appointed, over the last year, a Civil
Rights Action Team and a National Commission on Small Farms.  Both bodies have
made recommendations to address the special needs of minority, women, and small-
scale farm operators.  Key recommendations included modernizing USDA's local
program delivery system and targeting research and program assistance to small
farms.  Minority and women farmers: Anne B. W. Effland (202) 694-5319;
aeffland@econ.ag.gov.  Small farms: Janet Perry (202) 694-5583;
jperry@econ.ag.gov

Interest Rates To Continue Stable in 1998, 1999

Rural and farm borrowers will benefit from increased credit availability and
continued relative interest rate stability in 1998 and 1999.  In the first
quarter of 1998, rates for farm non-real estate loans from commercial banks
averaged 9.1 percent, compared with  9.3 percent for 1997 and a 9-percent
average during 1990-97.  Some mild upward pressure on long-term rates is
expected in the second half of 1998 and in 1999. 

Contributing to interest rate stability are declining overall inflation,
declines in Federal deficit spending, and reduced default risk as borrowers'
profitability and balance sheets improve.  Moreover, banks have enjoyed record
profits recently, and increased competition from nonbank lenders such as finance
companies has prompted them to keep loan rates competitive.  Paul Sundell (202)
694-5333 and Ted Covey (202) 694-5344; psundell@econ.ag.gov; tcovey@econ.ag.gov

Brazil's Ag Sector Benefits From Economic Reform

Brazil's agricultural sector is expected to benefit over the next decade from
the country's ambitious reforms of the past few years. The government has made
significant progress in restructuring the economy since launching the
stabilization program know as the Real Plan in 1994.  The economy has since
grown by 10 percent in real terms, and the crippling inflation rates of the
early 1990's have been arrested.  

Brazil is among the world's leading producers of grains, oilseeds, beef, and
poultry and is a major exporter and importer of agricultural commodities.  The
soybean sector is expected to be the greatest beneficiary of the Real Plan;
USDA's 1998 baseline projects robust growth in Brazil's soybean output and in
its exports of soybeans and products through 2007/08.  While wheat acreage and
yields are projected to increase, production will fall short of domestic demand,
and annual imports of wheat are projected to be close to 7 million tons by 2007. 
Corn imports are also projected to expand.  Brazil is expected to remain a net
exporter of meats, with production and exports of beef and poultry projected to
grow steadily over the baseline period.  John Wainio (202) 694-5286;
jwainio@econ.ag.gov

The full text of the magazine will be available electronically in 3 working
days; for details, call (202) 694-5050.  


Table 1.  Key Statistical Indicators of the Food and Fiber Sector

                                1997                            1998
                        --------------------       ---------------------------
                         III     IVF   Annual      IF     IIF     IIIF  AnnualF

Prices received by 
 farmers(1990-92=100)    107     106     107       --      --      --      --
   Livestock/products     99      97      99       --      --      --      --
   Crops                 115     113     115       --      --      --      --
 
Prices paid by 
 farmers (1990-92=100)
   Production items      116     115     116       --      --      --      --
   Commodities/services, 
    interest, 
    taxes/wages          116     116     116       --      --      --      --
    

Cash receipts($ bil.)1/   49      61     201       48      42      48     198
   Livestock($ bil.)      23      23      93       23      22      23      91
   Crops($ bil.)          26      38     109       25      20      25     107

Retail prices (1982-84=100)
   All food              158     159     157      160     160     161     161
     At home             158     159     158      160     161     161     161
     Away from home      157     159     157      160     160     161     161

Ag. exports ($ bil.)2/  12.9     16.3   57.4      14.4   12.9    12.5    56.0
Ag. imports ($ bil.)2/   8.7      9.2   35.8       9.4    9.5     9.9    38.0
  
Commercial production
 Red meat (mil.lb.)   10,939  11,167  43,209   11,209  11,149  11,342  44,724    
     
 Poultry (mil. lb.)    8,398   8,383  33,258    8,275   8,690   8,705  34,295
 Eggs (mil. doz.)      1,606   1,667   6,460    1,630   1,640   1,665   6,625
 Milk (bil. lb.)        38.8    38.2   156.6     39.2    40.9    38.8   157.5

Consumption, per capita
 Red meat/
  poultry (lb.)         52.5    53.9   208.6     52.2    54.1    54.3   215.0
 
Corn beg. stock 
 (mil. bu.)3/          4,494   2,497     426      883   7,247    4,937    883
Corn use 
 (mil. bu.)3/          2,001   1,617   8,850    3,004   2,312      --   9,050

Prices 4/
  Choice steers--Neb. 
   Direct ($/cwt)      65.65   66.61   66.32    61.8    63-65   65-69   65-68
  Barrows/gilts--IA, 
   So. MN ($/cwt)      54.45   43.53   51.36    34.75   36-38   39-41   36-38
  Broilers--12-city  
   (cts./lb.)           62.0    54.0    58.8     56.4   57-59   58-62   56-59
  Eggs--NY gr. A large 
   (cts./doz.)          79.7    88.2    81.2     79.0   69-71   72-78   75-79
  Milk--all at 
   plant ($/cwt)       12.70   14.40   13.38   14.63   13.20-  12.55-  13.55-
                                                        13.60   13.25   14.05
Wheat--KC HRW 
 ordinary ($/bu.)       3.76    3.82    4.16     3.62      --      --      --
Corn--Chi. ($/bu.)      2.64    2.74    2.78     2.72      --      --      --
Soybeans--Chi. ($/bu.)  7.19    6.95    7.60     6.68      --      --      --
Cotton--Avg. spot 
 41-34 (cts./lb.)      71.40   67.64   69.89     64.48     --      --      --



                  
                        1991    1992    1993     1994    1995    1996    1997
                        -----------------------------------------------------
Farm real estate 
 values 5/,6/
   Nominal ($/acre)      703     713     736      782     832     890     945
   Real (1982 $)         521     507     511      529     550     574     598
 
1/ Quarterly data seasonally adjusted at annual rates.  2/ Annual data based 
on Oct.-Sept. fiscal years ending with year indicated.  3/ Sept.-Nov. first 
quarter;Dec.-Feb. second quarter; Mar.-May third quarter; Jun.-Aug. fourth 
quarter; Sept.-Aug. annual.  Use includes exports & domestic disappearance.  
4/ Simple averages, Jan.-Dec.  5/ 1990-94 values as of January 1.  1986-89 
values as of February 1.  6/ The 1989-94 values are revised based on the 1992 
Census of Agriculture.  F = forecast, -- = not available.




BRIEFS

Field Crops

Large U.S. Soybean & Corn Plantings Expected in 1998

U.S. farmers face a much-changed environment for spring plantings from last
year.  Both the U.S. and the rest of the world harvested large grain and
oilseeds crops in 1997/98, resulting in significantly lower prices for some
crops; the East Asian economic crisis shook up the world financial and commodity
markets, dampening commodity demand; and El Nino is expected to continue to
create uncertain weather patterns in many States. 

Total area for the eight major U.S. field crops is 257 million acres in 1998,
down 1.5 percent from last year.  Lower crop prices and returns caused some
farmers to reduce intended planting area, despite the additional land made
available from a decline in area enrolled in the Conservation Reserve Program. 
Farmers intend to plant a record 72 million acres of soybeans in 1998 and the
most corn acreage since 1985, while reducing wheat plantings to the lowest level
in 10 years.  These planting intentions and trend yields suggest large U.S.
soybean and corn crops in 1998, while wheat output will decline.

These estimates are based on farmer surveys conducted during the first two weeks
of March.  USDA's Prospective Plantings report for 1998, released on March 31,
provides the first indication of farmers' spring planting intentions for major
field crops.  Actual plantings could vary from intentions with adverse weather
or significant changes in prices of competing crops.  For example, last year's
cotton planted acreage was below its intended level because a cool, wet spring
reduced plantings and more favorable economic returns boosted competing crops. 
USDA will release acreage estimates (in contrast to preplanting intentions) in
its June 30 Acreage report, after crops have been planted or when planting
intentions are more definite.     

Both corn and soybean plantings have increased each year since implementation of
the 1996 Farm Act, which allows farmers more planting flexibility to respond to
market changes.  Unlike earlier U.S. farm legislation, producers participating
in farm programs are no longer tied to base requirements for a specific program
crop or restricted by acreage reduction programs.  As a result, corn and soybean
acreage has continued to expand into the wheat-dominated Central and Northern
Plains because of relatively higher net returns for these crops and during the
past 2 years has expanded into cotton producing regions in the Southeast.

Intended soybean acreage is 2-percent higher than last year, continuing a trend
of greater U.S. soybean acreage since 1992, although the expansion in plantings
is not as widely dispersed as last year when almost all reporting States
indicated higher soybean acres.   Soybean prices at planting are significantly
lower than 1997 because the record South American soybean crop (to be harvested
this spring) is weighing down prices.  Despite the expectation of lower soybean
prices this season, intended soybean plantings increased in the Corn Belt, where
the growth in soybean yield has outpaced corn, due in part to increased narrow-
row plantings.  (Other factors that have encouraged soybean plantings include
the widespread adoption of genetically modified herbicide-tolerant soybeans,
which reduces input costs; higher soybean prices relative to competing crops;
and farm program changes.)  In addition, acreage shows a strong shift toward
soybeans at the expense of wheat in North Dakota and of wheat and corn in
Nebraska.  But farmers in the Southeast and Mid-Atlantic States decreased their
intended plantings of soybeans after last year's spike.

Corn growers intend to plant 80.8 million acres in 1998, up 1 percent from last
year's planted acreage.  Despite abundant competitor supplies and lower demand
from East Asia reducing U.S. corn exports, corn prices in early spring were
relatively unchanged from a year ago as expanding domestic demand for feeding
and industrial use in 1997/98 more than offsets the reduction in exports.  Most
Corn Belt States--with the exception of Iowa, Missouri, and Minnesota--show a
decrease in planting intentions as farmers switch to soybeans.  However,
intended corn plantings are higher in almost all of the Southeastern and Delta
States for 1998, as acreage shifts from cotton.  In the Dakotas, corn planting
intentions are greater this year because of unfavorable agronomic and market
conditions for wheat.  Wheat prices are considerably lower in 1998 than last
year because of large U.S. and world supplies. 

Planting intentions for sorghum are down most among other feed grains--11
percent from last year's planted acreage.  Intended sorghum plantings are lower
in most major producing States, with a large drop in Texas as acreage shifts
toward corn and cotton.  Barley intentions are 2-percent lower than last year's
planted acreage.  North Dakota, the largest barley producing State, reduced its
intended plantings because of several years of scab disease outbreaks as well as
a poor barley price outlook.  Despite lower prices, planting intentions for oat
are virtually unchanged from 1997, but it would still be the second lowest
planted acreage on record.
  
Total wheat area intentions for 1998--at 67 million acres--are down 6 percent
from last year's planted area.  In 1998, farmers intend to reduce "other" spring
wheat (i.e., non-durum) plantings by 16 percent from 1997 to the lowest level in
10 years.  Unfavorable spring wheat prices and several years of widespread
disease problems have encouraged  Northern Plains producers to plant alternative
crops, including durum, soybeans, and minor oilseeds (including sunflowers). 
Prospective durum wheat intentions are 4.1 million acres, up 25 percent from
last year's planted acreage and the highest since 1982.  With durum wheat prices
currently at a strong premium, farmers in Minnesota, Montana, and North Dakota
plan to shift toward durum and away from other spring wheat.

In January, the Winter Wheat and Rye Seedings Report indicated that farmers
planted 46.6 million acres of winter wheat, the lowest since 1973.  Global wheat
production reached a record level in 1997/98, and the U.S. harvested its largest
crop in 7 years, resulting in low price expectations for winter wheat at
planting last fall.  Farmers have sought more profitable crops, and in Kansas,
producers have indicated a shift toward planting soybeans and corn or possibly
increasing fallow land. 

Cotton planting intentions are 13.2 million acres, 4-percent lower than last
year's planted acreage.  Cotton prices have fallen for the second straight year,
while alternative crops remain attractive.  Additionally, some producers are
reportedly shifting away from cotton because of higher input costs (e.g.,
pesticides) relative to other crops.  Intended cotton acreage is down in both
the Delta region and the Southeast for 1998 while corn plantings increase. 
However, Texas producers intend to seed more cotton acreage in 1998 compared
with last year, when wet conditions in south Texas hindered planting. 

Rice growers intend to plant 3.1 million acres, a 1-percent increase from 1997,
with long-grain and medium-grain plantings both indicated up 1 percent from last
year.  Planting intentions are higher or unchanged this year in five out of the
six major producing States, with only Texas indicating lower acreage.   U.S.
rice prices have been strong during the 1997/98 crop year because of robust
domestic demand and higher exports of rough rice to Latin America.
Mark Simone (202) 694-5312
msimone@econ.ag.gov 

For further information, contact: James Barnes and Mack Leath, domestic wheat;
Ed Allen, world wheat and feed grains; Allen Baker and Pete Riley, domestic feed
grains; Nathan Childs, rice; Scott Sanford and Mark Ash, oilseeds; Steve
MacDonald, world cotton; Bob Skinner and Les Meyer, domestic cotton.  All are at
(202) 694-5300.

FIELD CROPS BRIEF--BOX

Rethinking The Soybean-to-Corn Price Ratio

Analysts have long compared the soybean-corn price ratio at planting time with
the break-even price ratio (BEPR)--the ratio of soybean and corn prices that
equates the expected net returns of the two crops--to determine whether
producers would switch from one crop to the other.  But differences in yield
gains, expansion of corn and soybean acreage outside the Corn Belt, and policy
changes--particularly increased planting flexibility under the 1996 Farm Act--
have affected the relationship and, to a certain extent, made this old rule of
thumb less complete in capturing the competition for cropland use among major
field crops.  

The soybean-to-corn price ratio as used here is a simple measure of relative
returns for soybeans and corn.  If producers expect the soybean-to-corn price
ratio to exceed the BEPR, there would be a tendency to switch from corn to
soybean plantings.  Conversely, if the expected soybean-to-corn price ratio is
below the BEPR, the reverse would be true. 

The soybean-to-corn price ratio is calculated by dividing November soybean
futures prices by December corn futures prices in mid-March--the time when most
corn planting decisions are made by producers.  (The futures prices are first
adjusted to a U.S. farm-level equivalent.)  Based on new crop futures prices in
mid-March 1998, the ratio was 2.35, down from 2.4-2.6 during the last few years. 


The BEPR is calculated using expected yields of corn and soybeans, the expected
price of corn, the variable costs of corn and soybean production, the expected
program payments (used in the calculation prior to 1996 when they impacted
planting decisions), and expenses associated with maintaining conserving-use of
Acreage Reduction Program acres (also used prior to 1996).  The BEPR currently
hovers around 2.5 at the national level (e.g., $6.50 per bushel of soybeans
divided by $2.60 per bushel of corn).  This is down from 2.6 in the early 1990's
and about 3.0 in the late 1980's.  A lower BEPR offers producers a greater
incentive to switch from corn to soybean plantings. 

The BEPR has declined in the last decade for two reasons.  First, average yield
growth, which boosts net returns per acre, has been faster for soybeans in the
1990's than for corn (and increased relative to soybean yield growth in the
1980's).  Second, farm program payments (which were received for corn production
but not for soybeans) have had a diminishing influence on the break-even
calculation due to changes in farm legislation such as declining deficiency
payment rates and maximum payment acres.  Deficiency payments for corn
production were high in some years during 1986-90, which was a strong deterrent
to switching to soybeans.  Moreover, protecting corn base acreage to qualify for
future payment was an institutional barrier not reflected in the estimated
soybean-to-corn price ratio.  Under the 1996 Farm Act, farm payments are not
relevant in a break-even analysis because they are not associated with
production of any particular crop (i.e., deficiency payments were discontinued). 

The soybean-to-corn price ratio will provide only part of the explanation for
producers' acreage choices between corn and soybeans in the future.  Producers
will pay closer attention to other price ratios now that plantings are more
flexible under the 1996 Farm Act, and as corn and soybean production expands
outside the Corn Belt.  Thus, analysts who forecast future corn and soybean
plantings must be mindful of other crops competing for cropland use outside the
Corn Belt.  In the Great Plains, the prices of soybeans and corn relative to
winter wheat are likely becoming more important, as are the prices of soybeans
and other oilseeds relative to spring wheat.  In the Delta and Southeast
regions, soybean and corn prices relative to cotton are becoming important. 

The recent introduction and fast adoption of new crop technologies could also
add uncertainty to the soybean-to-corn price ratio.  At this point, these crop
technologies tend to achieve more cost savings in input use for soybeans than
for corn.  For example, Roundup Ready varieties of soybeans reportedly achieve a
cost-saving of $15 to $20 per acre in herbicide use.  If these varieties account
for 25 percent of all soybean acreage in 1998, adoption lowers the break-even
price ratio by about 0.03 (excluding any changes in yield expectations). 
Quicker adoption of the crop technology could lower it even more, assuming no
dramatic changes in corn costs. 

Similarly, the adoption of narrow-row plantings has promoted a faster yield gain
for soybeans since the early 1990's, relative to the historic yield trend. 
Yield gains in soybeans have been astounding in recent years, while the yield
pattern for corn has been more erratic and for the last 3 years, at or below
trend.  Over the last 5 years, the higher yield gain resulted in an annual
average decline of 0.04 in the break-even price ratio (holding costs of
production constant).

Corn and soybean plantings will still be affected by weather conditions even if
farmers consider all the relevant price relationships.  Persistent wet
conditions in spring can delay corn plantings, for example, and cause a switch
from corn to soybeans regardless of the price ratio.  Also, persistent plant
disease (e.g., for spring wheat in the Northern Plains) can alter crop choices.

William Lin (202) 694-5303 and Peter A. Riley (202) 694-5308
wwlin@econ.ag.gov
pariley@econ.ag.gov

Note:  A more detailed analysis of the soybean-to-corn price ratio is available
in the 1998 Feed Situation and Outlook Yearbook.  Call 1(800) 999-6779 to order
a copy, or visit http://usda.mannlib.cornell.edu/reports/erssor/field/fds-bby.

BRIEFS
Livestock, Dairy & Poultry
Record U.S. Meat Supplies 
Hammer Prices

Record red meat and poultry production, along with clouded export prospects due
to economic problems in Asia, have pressured livestock prices downward in 1998.
In January-March 1998, pork production was up 12 percent from a year earlier,
broiler production was up 3 percent, and beef production was up 2 percent. 
During the same period, hog prices sank to a 26-year low, while prices of fed
cattle, broilers, and turkeys were below a year earlier.  

With export demand sluggish, most of the additional beef production was forced
into the domestic market.  For broilers, however, exports remain relatively
strong, which has moderated price declines.  Measures of production (inventories
of market hogs, cattle-on-feed, eggs set, poults placed) indicate that the large
meat output will continue until midyear, resulting in lower prices for hogs, fed
cattle, broilers, and turkeys in April-June, compared with a year earlier.
 
Although meat supplies were abundant and farm prices down considerably, retail
meat prices declined only about 2 percent in the first quarter from a year
earlier.  In the second quarter, primary market prices are expected to rebound a
little, and retail prices are expected to remain down 1-2 percent from a year
earlier.  Retail prices are usually "sticky," lagging changes in farm prices
(AO, December 1997 ).  For the year, retail meat prices are expected to average
about 2 percent below 1997. 

Hog prices in the first quarter averaged about a third below a year ago as pork
production surged 12 percent above year-earlier levels and competing meat
production rose 3 percent. The surge in pork production was larger than
projected in late 1997 due to the under-reporting of the June-August pig crop
and to the sharp increase in Canadian slaughter hogs shipped to the U.S.
following the now-resolved labor problems in the Canadian packing industry.  The
March Hogs and Pigs report indicated that the June-August pig crop was revised
upward by 578,000 head (up 2.3 percent). 

Although second-quarter 1998 U.S. pork production is expected to remain 12
percent above year-earlier levels, hog prices are expected to be up $2-$3 per
cwt from the first quarter as production follows its typical seasonal decline. 
Retailers are expected to maintain minimal inventories, given continuing large
pork supplies and implied low prices indicated by the March Hogs and Pigs
report.    

As of March 1, the hog breeding inventory was only 2 percent above a year ago. 
The modest rise in the breeding inventory indicates that pork production gains
will slow in the second half of 1998 and in early 1999, but not enough to
prevent average hog prices for 1998 from sinking to a 24-year low.  Feed costs
are declining, however, which softens the price impact on producers' returns.
USDA's Prospective Planting report indicates large planted area for corn and
soybeans in 1998, which could further reduce feed costs in the coming months. 

Although pork exports in January-March 1998 are estimated up nearly 30 percent
from last year's depressed level, the result of Japanese import limits, overall
hog prices were relatively unaffected by the export surge.  Much of the increase
was likely due to sales of low-value products to countries looking for
inexpensive protein products.

While the stage is set for tighter beef supplies and stronger prices (AO,
December 1997), the sector must first hurdle excess total meat supplies and
sluggish demand, which will continue until domestic demand strengthens
seasonally with the onset of barbeque season.

Weak international demand for high-quality beef  led to minimal growth in U.S.
exports in January-March 1998.  On the other side of the trade ledger, beef
imports in the first quarter likely rose to the highest level since 1994, as
other exporters sought alternative markets for their processing beef and as the
U.S. cow slaughter declined 12 percent from a year earlier.  Imported processed
beef and lean cow beef are blended with fed beef trimmings to produce hamburger
for the domestic market.

The April Cattle On Feed report points to reduced beef supplies by late summer. 
Monthly feedlot placements in the seven reporting States have been below year-
earlier levels since October, which continues to pull down cattle-on-feed
inventories.  Feedlot placements in March were down 16 percent from a year
earlier, with first-quarter placements also down 16 percent.  Feeder cattle
supplies outside feedlots continued to decline, with supplies down less than 1
percent from April 1997.  Fed cattle marketings during the first quarter were up
only about 1 percent, suggesting more cattle at heavier weights were carried
over into the spring quarter.  Federally inspected slaughter weights for steers
and heifers in March were 30 and 26 pounds above  a year earlier. 

Fed cattle prices remain under pressure from large supplies of heavy cattle and
burdensome supplies of competing meats.  Fed steer prices averaged in the mid-
$60's per cwt during the first half of April, up from the low 60's in the first
quarter.  Prices will likely remain in the mid-$60's through summer, then rise
to the upper $60's this fall as supplies decline.  In comparison, 1997 prices
averaged nearly $66 per cwt in every quarter.  Since break-even prices continue
to average in the upper $60's, feedlot losses remain large.  While above a year
earlier, prices for feeder cattle are in the mid-$70's and under pressure from
large fed cattle supplies.  In contrast, prices for utility cows (cows sold for
processing) remain strong as cow slaughter declines.    

Relatively slow production gains and continued growth in exports are supporting
broiler prices.  Wholesale prices in March were about 10 percent above the
December 1997 lows and are approaching year-earlier levels.  Increases in
broilers placed have continued small through February and March and will limit
the April-June production increase to only 2-3 percent from a year earlier. 
Larger increases in broiler production can be expected in the last half of 1998
if relatively strong increases in egg sets continue.  Despite abundant supplies
of competing meats, wholesale broiler prices are likely to decline by only 1
cent per pound.  

Wholesale turkey prices averaged 55 cents per pound in January-March 1998, the
lowest since 1988.  Contributing factors include a 5-percent production
increase, weakness in the export market, and large supplies of pork.  Production
has increased as higher average weights per bird more than offset declines in
bird numbers.  If larger bird weights continue, production for the year may be
larger than in 1997, even though poult (young turkey) placement numbers indicate
that fewer turkeys will be available during most of 1998.  Turkey production is
expected to be below a year earlier for the remainder of the year, registering
only a 1-percent gain for the year.   The dropoff in production should boost
prices into the mid-60 cents per pound range this fall.

For further information, contact:  Leland Southard coordinator; Ron Gustafson,
cattle; Leland Southard, hogs; Mildred Haley, world pork; Jim Miller, domestic
dairy; Richard Stillman, world dairy; Milton Madison, domestic poultry and eggs;
David Harvey, poultry and egg trade, aquaculture.  All are at (202) 694-5180.

COMMODITY SPOTLIGHT

Aquaculture's Place in the Livestock Sector

Over the last decade, U.S. average per capita seafood consumption has remained
relatively flat, at around 15 pounds, roughly 2-3 pounds less than turkey
consumption.  The source of supply, however, has begun to shift away from wild
harvest towards aquaculture.  In 1997,  U.S. production of processed catfish
products was close to 1 pound per capita,  imports of farm-raised shrimp were
likely over 1 pound per capita, and the combination of farm-raised salmon,
trout, tilapia, crawfish, and other aquaculture products probably added another
pound.  Aquaculture, at over 3 pounds per capita, is now a segment of the
livestock complex, contributing more per capita to consumption than veal,
mutton, and lamb combined.

Aquaculture has several advantages over wild harvest or catch.  In particular,
the quantity available and the quality of supplies are more reliable, an
increasingly important issue as fishing rights in certain waters have become an
international issue.  

In 1998, prices for catfish, the largest segment of the domestic aquaculture
industry, are expected to increase, especially in midyear, as lower inventories
of food-size fish tighten available supplies.  Second, with the devaluation of
their currencies versus the dollar, Asian seafood exporters should find the U.S.
market more attractive.  Finally, large supplies of competing meats, especially
pork and chicken, may put downward pressure on prices of aquaculture products.

Some Catfish Inventories Down

The catfish industry has been the most successful segment of the U.S.
aquaculture.  Over the last decade, production has increased 87 percent, from
280 million to 525 million pounds.  Production is concentrated in Mississippi,
Alabama, Arkansas, and Louisiana, primarily due to their combination of warm
climates, heavy soils for pond construction, and good water availability.  These
States produced 97 percent of total U.S. catfish output in 1997, with
Mississippi alone accounting for 64 percent of production.  In 1997, about 93
percent of all production was sold to catfish processors.  The remainder was
sold direct to retailers or consumers.

Growers reported starting 1998 with 8 percent fewer food-size catfish, as
falling farm-level prices in 1997 led growers to cut inventories.  Grower-held
inventories were down for most categories of food-size fish, although small
food-size fish (0.75 pound to 1.5 pounds) were up fractionally.  Grower reports
of the number of fish in inventory below food size were mixed--stockers (0.06
pound to 0.75 pound) were down 19 percent, but fingerlings (below 0.06 pound)
were 18 percent higher than the previous year.

When the current food-size fish were being stocked in 1997, farm prices for
catfish began to drop, and prices for soybean meal (50 percent of the catfish
feed ration) were at a record high.  The pressure these two conditions placed on
producers' returns likely caused them to reduce stocking rates.  However,
soybean meal prices, after reaching their record in May 1997, declined sharply,
reducing feed costs about enough to offset the decline in farm prices of
catfish.  Expectations are that soybean meal prices will decline even further in
1998, removing feed-price pressures on stocker inventories.

As of January 1, 1998, catfish growers indicated that their broodfish (breeding)
stock inventories increased to 1.19 million fish, up 2 percent from 1997.  The
estimated weight of these broodfish, however, increased less than 1 percent. 
Since total egg production is a function of body weight, the less-than-1-percent
increase in body mass of the broodfish will probably be more significant to
production than the 2-percent increase in the broodfish inventory.  Production
of fingerlings and stockers in 1998 is expected to be roughly the same as in
1997.

Growers anticipated, as of January 1, 1998, that 173,010 acres of ponds will be
in use during first-half 1998, down about 3,500 acres from 1997, which saw a
large increase in acreage.  Growers also reported plans to renovate or construct
about 8,300 acres of ponds, only about a third of the estimate for the first
half of 1997, reflecting falling farm-level catfish prices during 1997.  Most of
the acreage decline was in the four largest producing States--Mississippi,
Arkansas, Alabama, and Louisiana.  The number of growers in these States also
declined, and the trend toward smaller numbers of larger farms is expected to
continue as growers seek to lower their average production costs by spreading
the costs of specialized equipment over larger operations.

Total Farm Sales Declined Slightly in 1997

Total sales by catfish farmers in 1997 fell 1 percent to $422 million, with
lower revenues from sales of all categories of fish--food-size, stockers, and
fingerlings.  The poundage of food-size fish increased strongly (up 7 percent
from 1996)--farmers reported total sales of food-size fish were a record 563
million pounds--but the higher poundage was offset by an 8-percent decrease in
prices, from 77 to 71 cents a pound.  Poundage sold of stocker and fingerling
fish were both down, but the lower poundage of  sales helped to hold up their
prices.  Average unit prices for both size classes showed no change between 1996
and 1997.

Grower sales of food-size fish to processors accounted for 525 million pounds of
total sales.  The remaining 38 million pounds were sold through other channels,
such as directly to consumers or restaurants, or to brokers or wholesalers.  

Processor sales rose in 1997 for the third consecutive year.  After increasing 5
percent in 1996, sales were up an additional 10 percent to 262 million pounds in
1997.  Sales of both fresh and frozen product were at record levels overall,
posting double-digit increases in 1997.  The only category of processor sales
that declined in 1997 were frozen whole fish, which accounted for only 5 percent
of processor sales.  The increase in processor sales was enough to offset a 4-
percent decrease in overall processor prices, the second year in a row that
overall processor prices have declined.  Gross processor revenues in 1997
increased by just over $30 million to $591 million.  Processor prices were lower
throughout 1997 compared with a year earlier and were lowest during the summer
months, when sales volumes posted their strongest gains.   In 1998, gross
processor revenues are again expected to increase, this time as a result of a
small increase in sales volume combined with slightly higher prices.

Much of the future growth in catfish sales is expected to come from fillets and
other prepared products.  Many chain restaurants and food services now use
portion-controlled ready-to-cook products, and with increasing time pressures,
many U.S. consumers are also looking for fully prepared products.  Processor
sales are expected to expand in 1998, but prices are expected to be under
competitive pressure from other seafood products and meat products.

Slower Growth in Catfish Output 
To Strengthen Prices in 1998

Based on grower inventories reported for January 1, catfish sales by growers to
processors in 1998 are forecast to expand to 535-545 million pounds, up only 2-4
percent, after increasing 11 percent in 1997.  The smaller inventories of food-
size fish are expected to reduce the supplies of fish for consumption in early
1998.  Processors' inventories of catfish products were also down slightly from
the same time the previous year, compounding the tight supplies resulting from
lower grower inventories. At the same time, strong demand for catfish is
anticipated from the restaurant and foodservice sectors, estimated by the U.S.
Department of Commerce's National Marine Fisheries Service in 1995 to account
for over two-thirds of all seafood sales.

The much smaller increase in production expected in 1998, combined with the
demand fueled by a strong domestic economy, is expected to exert some upward
pressure on both farm and processor prices.  As prices for food-size fish move
slowly upward, prices for stockers and fingerlings should also show some upward
strength.  If corn and soybean prices move lower and these declines result in
reduced feed costs, prices for smaller fish (stockers and fingerlings) could see
additional upward pressure, as growers may increase feeding rates to attempt to
get their smaller fish to market size sooner.  The impact of lower supplies of
all food-size fish, however, may not be felt until the second quarter.

The expected lower prices for pork and chicken products in the first half of
1998 may tend to blunt any strengthening in catfish farm prices.  Prices for
hogs are expected to average over a third lower in first-half 1998 compared with
a year earlier, and wholesale chicken prices are expected to decline about 7
percent.  Competition for catfish may also arise from lower priced imported
seafood items from Asia, such as tilapia and shrimp products.  The currencies of
Thailand and Indonesia, both major seafood exporters to the U.S., have fallen
considerably versus the dollar since third-quarter 1997.  

Sales to processors in January 1998 were 47 million pounds, up 10 percent
despite the lower inventories of food-size fish at the start of the year.  Sales
through the first quarter of 1998 are expected to average about 5 percent above
the 136 million pounds of a year earlier, normally the strongest sales period. 
Prices are expected to average around 70 to 71 cents a pound, down from 73 cents
in first-quarter 1997, but are expected to strengthen in the second and third
quarters as supplies of food-size fish decline.  

In the second and third quarters, the 19-percent decrease at the start of the
year in reported inventories for stockers is expected to lead to tightened
supplies.  As a result, prices to farmers should strengthen.  While many of the
stockers currently in inventory will likely achieve market size during first-
half 1998, most of the fingerlings in inventory will not be ready for market
until the latter part of the year.  If processor demand remains strong during
the second and third quarters, there could be periods of reduced supplies of
food-size fish before the fingerlings achieve market weight.

Tilapia Imports 
Continue Upward

Tilapia is a commonly grown species in many Asian countries, and U.S. sales have
benefited from a growing Asian population in the U.S.  While more grocery chains
and seafood stores are carrying tilapia products, restaurants are still the
primary sales outlet.  The value of tilapia imports in 1997 increased 15 percent
to $49 million, following a 26-percent increase in 1996.  The volume of tilapia
imports in 1997 increased 28 percent to 53.9 million pounds, with 42.2 million
pounds imported as frozen whole fish and the remainder as fresh or frozen
fillets.  On a liveweight basis, U.S. imports of tilapia in 1997 were the
equivalent of 82 million pounds of foreign production. 

Imports of  tilapia were higher in 1997 for all of the import classes.  On a
quantity basis, frozen whole fish imports make up 78 percent of total imports,
but growth in imports of fresh and frozen fillets has pushed their percentage of
the market, on a value basis, to over 50 percent.  Prices for frozen fish
averaged only 57 cents per pound in 1997, down markedly from 71 cents a pound
the previous year.  Imports of fresh fillets come chiefly from Central and South
America, regions close enough for quick transport to the U.S., while frozen
fillets are from Southeast Asia and Taiwan.  Frozen whole fish come mostly from
Taiwan.

The value of imported tilapia increased as a drop in average price, from $1.03
to 92 cents per pound, resulted in an increased quantity of tilapia entering the
country.  Larger shipments and declining prices for frozen whole fish were
primarily responsible for the falling average import price.  The average price
for fresh fillets--at $2.25 per pound, much higher than that for frozen whole
fish--declined only slightly, and the average price for frozen fillets  ($2.05)
increased by 5 cents per pound. 

U.S. imports of tilapia are forecast to expand in 1998.  The rapid increases in
tilapia imports over the last several years have fueled expectations that
further reductions in price will increase demand.  If that is true, imports
could increase markedly in 1998 as the currency devaluations in some of the
major Asian supplying nations (Thailand and Indonesia) reduce prices.  Tilapia
demand may also be increasing as more U.S. consumers have become familiar with
the relatively new product.  Domestic production is expected to increase, but
will be limited by the extent of growth in the live market, the biggest outlet
for domestic producers.  Live fish and frozen whole fish go mostly to Asian
markets and Asian restaurants in the U.S., where many dishes call for whole
fish.  

U.S. Imports 
At Record Level for Salmon . . .

Final figures for U.S. farm-raised salmon production in 1997 are expected to
show little or no growth from the 1996 output of 33 million pounds.  The picture
for domestic growers in 1998 looks much the same, with little or no growth in
production and with strong competition from wild salmon harvests in Alaska and
from producers in Chile and Canada.  With no great increase in new site
approvals expected, any increase in production would have to come from higher
yields at present production sites.  

Atlantic salmon imports to the U.S., both farm-raised and wild-catch, reached
165 million pounds in 1997, up 30 percent from 1996.  The 78-percent increase in
imports of fillets, to 58 million pounds, accounted for a large part of the
overall increase, although shipments rose in all three categories--fillets and
fresh or frozen whole fish.  With an increase of almost 26 million pounds
between 1996 and 1997, fillets now account for over one-third of all Atlantic
salmon imports, up from only 19 percent in 1995. 

Most of the increase in imports came from the Canadian and Chilean salmon
industries, which combined to supply 93 percent of all Atlantic salmon imports. 
Chile is the dominant supplier of imported salmon fillets, but imports of fresh
whole salmon from Canada rose by 23 million pounds, and Canada was again the
largest supplier by product weight and value. Benefiting from a strong domestic
economy and a lower domestic wild salmon harvest, average prices for Atlantic
salmon imports rose 6 percent, even as supply rose 30 percent.

Farmed production accounts for almost all of the increased imports of Atlantic
salmon products.  Atlantic salmon are not native to Chile--100 percent of their
production is farm-raised.  Canada has some wild Atlantic salmon runs, but
almost all of its commercial exports come from farm operations.  Over the last
several years,  a slowdown in U.S. salmon exports and a rapid increase in
Atlantic salmon imports has started to change the U.S. salmon industry. 
Preliminary trade data show the U.S. was a net importer of fresh and frozen
salmon for the first time in 1997.  The U.S. remains a net exporter of salmon
overall because it ships large amounts of canned salmon overseas.  

The transformation of the U.S. from a net exporter to a net importer of fresh
and frozen salmon has been caused by several factors.  The wild salmon harvest
was lower in 1997, especially for sockeye salmon, the largest U.S. salmon export
product.  Also, exports to Japan, by far the largest U.S. market, have been weak
as a result of slowing economic growth and strong competition from Chilean and
Norwegian producers.  At the same time, the strong U.S. economy has helped boost
restaurant sales and kept domestic wild harvest salmon supplies in the U.S. 

. . . & for Shrimp

After declining the previous 2 years, total shrimp imports, both farm-raised and
wild-catch, in 1997 were a record $2.95 billion.  The increase stems from both a
higher volume of imports--648 million pounds, up 11 percent from 1996--and a 
34-cent increase in the  average unit price of imported shrimp--from $4.22 to
$4.56 per pound.  Imports of frozen shrimp (shell-on or peeled) and prepared
shrimp (e.g. breaded, canned, pre-cooked) rose substantially in 1997.

While the total quantity of imported shrimp products has stayed within a fairly
narrow band--582 million to 648 million pounds since 1992--there has been a
steady growth in imports of prepared shrimp products.  Shrimp imports are still
dominated by frozen shell-on or peeled products, but the value of prepared
products has more than tripled between 1992 and 1997.  At almost $375 million,
prepared shrimp products now account for about 13 percent of the value of all
shrimp imports.  

This steady growth in imports of prepared shrimp is likely to continue for a
number of reasons.  First, almost all seafood exporters are looking for ways to
add value to their products.  At the same time, as farming accounts for a larger
percentage of total shrimp production, the full-year capacity of these
operations, in contrast to the seasonality of wild harvest, makes it profitable
for companies to establish processing plants.  Finally, most major shrimp
farming countries have a significant wage rate advantage over the U.S.,
increasing the cost-effectiveness of processing shrimp outside the U.S.

Over the last decade, imported shrimp became a much greater component of total
U.S. shrimp supply.  Data from the National Marine Fisheries Service indicate
that domestic landings of shrimp have been steady or declining slightly while
shrimp imports are rising, increasingly supplied by the growth in farmed
production.  In 1988, imports of shrimp products were 2.6 times greater than
domestic landings.  By 1996, the ratio of imported shrimp to domestic landings
had risen to 3.7.  

The U.S. shrimp farming industry has remained small, with an annual production
of only several million pounds, the result of a combination of economic,
climatic, and technological constraints.  Unlike all but a few areas of the
U.S., most shrimp farming regions have tropical climates that allow year-round
shrimp farming.  In addition, shrimp farming requires a coastal location, and in
the U.S., the cost of most coastal property makes shrimp farming economically
unfeasible.  Intensive water recirculating systems would theoretically make
shrimp farming possible in many areas of the U.S., but the technology has not
yet proved economical.

In 1998, shrimp imports are expected to continue to expand as a strong U.S.
economy creates increased demand and the devaluation of several Southeast Asian
currencies is expected to reduce the relative price of imported farmed shrimp
products.  In addition, the problems in the economies of many Southeast Asian
countries are expected to reduce their domestic consumption.  Coupled with a
slowdown in the Japanese economy--Japan has traditionally been the world's
largest market for shrimp--this decline will lead many shrimp exporters to more
heavily target the U.S. market. 

There are a number of potential downsides to the current economic problems in
Asia for shrimp exporters.  Currency devaluations may sharply increase the cost
of imported supplies critical to shrimp farming, causing a decline in
production.  And if the economic crisis becomes too severe, it could hamper the
ability of firms to conduct normal business operations and thus interfere with
exports.  Any declines in Asian production, however, would create opportunities
for producers in such countries as Mexico and Ecuador, and would not necessarily
reduce supplies of imported shrimp to the U.S. 
David J. Harvey 202-694-5177
djharvey@econ.ag.gov

COMMODITY SPOT BOX
Catfish Sales and Prices Outpace Early Expectations

Based on inventories reported by growers at the start of 1998, catfish
production was expected to grow only modestly in 1998.  Grower prices were
anticipated to increase in the second and third quarters as supplies of food-
size fish tightened.  However, sales have been much stronger and prices have
increased much faster than expected.  During the first quarter of 1998, sales of
catfish to processors have been at record levels and prices have risen from 69
cents per pound in January to a reported 80 cents per pound in March.  The
expected result will be very tight supplies of food-size fish into at least the
third quarter, with prices at or very close to record levels.

WORLD AG & TRADE

Squeezing Grain 
Through the Panama Canal

El Nino continues to leave its mark on U.S. agriculture, this time on the
transport of commodities through the Panama Canal, a critical link between the
Atlantic and Pacific Oceans for U.S. agricultural exports to Asia.  Panama has
suffered the driest rainy season (May-December) in the 83-year history of the
canal, with rainfall 35 percent below normal in 1997.  The Gatun and Madden
Lakes, which provide fresh water to the canal, are 60 percent below normal. 
Water levels are now too low for large vessels to transit the canal fully
loaded.  

To maintain water flows in the three sets of locks that raise and lower vessels
across the isthmus, the Panama Canal Commission (PCC)--the joint U.S.-Panamanian
agency that runs the canal--is implementing water conservation measures and
restricting vessel draft (the depth a ship is immersed in the water), which
effectively limits the amount of cargo loaded on some ships passing through the
canal.  Forty oceangoing vessels transit the 51-mile Panama Canal lock system
every day (taking about 8 hours per transit through the locks).  A vessel
requires about 52 million gallons of water for passage through the locks. 

Bulk U.S. agricultural exports transported through the canal (primarily corn,
soybean, wheat, sorghum, and meals) are now being transported in smaller
volumes, which normally raises shipping costs.  But because of excess capacity
in the global charter vessel market and reduced demand for shipping, ocean
freight rates are below year-earlier levels.  The major effect is on the ability
of U.S. exporters to supply full loads to foreign buyers.  If draft restrictions
continue through the spring and into summer as scheduled, shipping grain and
other commodities will become more challenging for U.S. exporters, vessel
operators, and importers of U.S. goods.

An emergency water conservation plan was put in place for the canal in October
1997 to help delay draft restrictions.  Foremost, hydroelectric power generation
was suspended at the Gatun plant and the Madden Dam plant.  Other water-saving
measures include using tandem ship and short-chamber lockages (reduces effective
chamber size), minimizing hydraulic assists (used to pull ships out of the
chamber), and cross-spilling from opposite chambers (water from one chamber is
used to raise a ship in an adjacent chamber).

The actions resulted in water savings equivalent to 60 lockages (i.e., full
passage through all 3 sets of locks) per month or over 3 billion gallons per
month.  However, the drought persisted into 1998 and forced PCC to implement
draft restrictions on March 12, 1998, the first time in 14 years.  PCC expects
the restrictions to continue through October 1998.  Fortunately, these draft
restrictions are occurring during the canal's slow season, April to September.  

Under normal operating conditions, the maximum allowable draft is 39.5 feet. 
Beginning March 12, vessels were limited to a 39-foot draft.  It announces each
new restriction (in 6-inch increments) at least 2-3 weeks in advance of the
effective date to give shipping companies ample time to alter vessel loadings. 

Panamax vessels, which carry most U.S. grain, are affected first, since they are
the largest vessels capable of transiting the canal at a draft of 39.5 feet. 
Even though 30 percent of the vessels transiting the canal in fiscal year 1997
(beginning October) were this size, only about 8 percent of the ships transited
the canal with drafts exceeding 39 feet.  The PCC estimates that 17 percent of
the 8,850 vessels expected to transit throughout the draft restriction period
will be affected by the restrictions.

Each 6-inch draft restriction displaces approximately 1,000 metric tons of cargo
per Panamax, which has a length of approximately 740 feet, or about 2 percent of
the ship's capacity (55,000 tons).  The PCC estimated that the first draft
restriction of 39 feet displaced 700 tons of cargo per ship. A second
restriction of 38.5 feet (implemented on March 18) displaced an additional 1,030
tons per ship.  When the draft restrictions reach 34 feet in mid-May (expected
to be the final restriction), total displacement will be approximately 20
percent of the ship's capacity.

To meet draft restrictions and still maximize carrying capacity, vessel
operators have a number of options.  Many dry bulk vessels have design
characteristics that give the vessels more buoyancy for better draft
flexibility.  For those vessels, the operator can apply with the PCC for a 
6-inch deeper draft through the canal.  If such a waiver is not possible, the
vessel operator can maximize the use of cargo capacity by sailing through the
canal with less fuel.  Once through the canal, the ship can top off its fuel and
complete the voyage.  

Other options include adjusting ballast--tanks that hold seawater, used mainly
to stabilize a vessel carrying little or no cargo--to lower the bow and raise
the stern or vice-versa during transit through the canal, sailing with less
cargo through the canal and topping off at a port on the other side of the
canal, or using smaller charter vessels that are less affected by draft
restrictions.  Depending on the severity and length of the drought, vessel
operators have the option to sail around the Cape of Good Hope in South Africa
and through the Indian Ocean.  This lengthens the normal 30-day trip between the
Gulf of Mexico to Asian ports to about 50 days.

In fiscal 1997, more than 13,500 vessels transported 189 million tons of cargo
through the canal.  Vessel transits going from the Pacific Ocean to the Atlantic
Ocean (northbound movements) made up 49 percent of total transits and 39 percent
of the cargo weight, while transits from the Atlantic to the Pacific (southbound
movements) made up 51 percent of total transits and 61 percent of the cargo
weight.  U.S. agricultural exports transiting the canal totaled 38 million tons
in 1996.  Corn was 57 percent of the total, with soybeans, wheat, and sorghum
accounting for another 36 percent. 

U.S. grain continues to pass through the canal, but the volume per ship is less. 
Normally, shipping costs are redistributed across the loaded volume.  For
example, the 35.5-foot draft restriction effective April 19 roughly translates
into $2.50 per ton (assuming a rate of $17.50 per ton from the U.S. Gulf to
Japan) for a typical Panamax ship carrying grain. 

Bulk Shipping

Bulk vessels transport numerous liquid and dry bulk commodities and products. 
Dry bulk is divided into two groups:  major bulks (iron ore, metallurgical coal,
steam coal, bauxite and alumina, phosphate rock, and grain, including soybeans
but not rice) and minor bulks (steel products, forest products, cement,
fertilizers, manganese, scrap, coke, pig iron, sugar, soybean meal, and rice). 
In 1995, major agriculture-related products accounted for 13 percent of the 3.7
billion tons transported in the world's seaborne trade lanes.  Bulk vessels are
not necessarily dedicated to specific commodities and can be cleaned between
uses.

Transport of bulk products occurs through a bulk vessel charter arrangement to
haul a specific commodity from a specific origin to a specific destination at an
agreed-upon rate and time.  Many contracts for a charter vessel, or "fixtures"
as they are called, are arranged to maximize vessel capacity at all times.  In
some instances, vessel operators will pick up cargo from more than one port to
maximize carrying capacity.  Once the cargo is loaded, it is transported to its
destination and unloaded.  The operator will then pick up another shipment from
the same port or one nearby and transport to another destination to repeat the
cycle.  If a cargo is not available for immediate pickup, the ship may sail
empty until a shipment can be secured. 

Vessels transporting bulk commodities are identified by their size within three
categories measured in deadweight tonnage (dwt): Handy (10,000-50,000 dwt),
Panamax (50,000-70,000 dwt), and Capesize (70,000-300,000 dwt, often subdivided
into three further categories depending on the trade route).  Bulk grain
products, particularly corn and soybeans, move predominantly in Panamax vessels. 
The Panamax transports a significant volume of product, keeping costs per unit
down, while requiring a draft that is universal in major world ports.  It also
offers excellent flexibility to charter backhaul cargo to minimize repositioning
costs and avoid layup.

Charter Vessel Rates
Sink

In 1996, the bulk charter carrier fleet consisted of more than 5,000 vessels
worldwide with total deadweight tonnage of 230.1 million.  Today, the vessel
supply has reportedly climbed to 263 million tons.  Two economic factors have
led to the supply buildup.  First, prior to the Asian financial situation in
late 1997 and early 1998, vessel owners responded to low ship prices by
purchasing new ships to meet growing Asian demand for cargo movements.  Second,
scrap value for older vessels has plummeted to such low levels that vessel
operators are idling vessels rather than scrapping them.

Meanwhile, the Asian financial situation has cooled demand in that region for
bulk commodities, including U.S. grain.  In Japan, for example, steel production
is reportedly forecast down 5 percent in 1998 from a year earlier, which
subsequently decreases imports of coal and ore (inputs used for steel
production) and reduces automobile exports.  As a result, charter vessel
contracts in Japan, both origination and destination, were down 30 percent in
March 1998 from a year earlier.  
For agricultural commodities, U.S. exports have been lackluster in 1997/98,
reflecting overall world demand.  U.S. bulk commodity exports were $9 billion in
January 1998, down 9 percent from a year earlier.  From October 1997-January
1998, U.S. corn exports were 12.6 million tons, down 34 percent from a year
earlier.  U.S. corn exports face strong competition from China, Eastern Europe,
and Argentina, as well as dampened demand in Asia.  However, not all U.S. grain
exports have decreased in 1998--wheat and soybean exports are running ahead of
year-earlier levels.  

According to the trade publication Lloyd's List, world demand for bulk products
is forecast to fall to 240 million tons in 1998, or about 9 percent below the
capacity of the world fleet.  The net result is too many ships chasing too
little cargo.  

Ocean freight rates for the movement of grain from the U.S. to Japan, a key
route used to evaluate global ocean freight rates, have plummeted during the
first few months of 1998 and are not expected to increase significantly through
spring and summer 1998.  Rates from the U.S. Gulf to Japan during the first
quarter of 1998 averaged $18.84 per ton, 25 percent below a year earlier.  Some
rates have since fallen to $15.50 per ton.  Ocean rates during 1995-97 (first
quarters only) averaged $27.41 per ton.  Rates from the Pacific Northwest to
Japan, another key route, have also decreased.  During the first quarter of
1998, ocean rates averaged $10.84 per ton, nearly $5 below the first-quarter
average of 1995-97. 

Ocean freight rates are critical in the movement of bulk grains.  The selection
of a port is based on the location of the importing country, the proximity of
stored grain to a specific port region, interior transportation rates, and ocean
rates.  U.S. exports of corn and soybeans depart largely from the U.S. Gulf,
while Pacific Northwest ports move a significant volume of Asian-bound corn and
wheat.  The Gulf handles about 70 percent of grain and soybean exports. These
two port regions offer exporters excellent access to the global market. 

About 50 percent of U.S. grain and soybean exports are shipped to Asia,
particularly for satisfying feed demand for expanding livestock production. 
Most import operations coordinate their grain arrivals to receive full loads of
grain (i.e., 50,000-55,000 tons) in order to minimize per-unit transport and
unloading costs and to maintain buffer stocks.  Importers who are unable to
receive desired quantities at attractive freight rates from one source will seek
others that can meet their demand.  However, many Asian importers have found
that it is much easier to finance a smaller cargo, due to the current financial
crisis, and are seeking cargoes from countries using smaller boats, so smaller
loads are not an issue in most cases. 
  
When draft restrictions limit the amount of grain that can be loaded and shipped
through the Panama Canal, shippers incur an "opportunity cost" from foregone
revenue of the displaced cargo.  To make up for the loss, shippers attempt to
pass along the additional cost to the grain exporter by raising ocean freight
rates.  But this is unlikely, given the current excess supply in the charter
vessel market and reduced demand for shipping grain and other bulk commodities.  

With strong competition among vessels to obtain loads, transport rates are lower
than year earlier levels.  In fact, ocean freight rates are the lowest in recent
history, which implies that draft restrictions at the Panama Canal are having
little impact on ocean rates or on the ability of U.S. shippers to export grain. 

Without these mitigating factors, the implications of the continued draft
restrictions could be serious.  Importers in general want a consistent volume of
grain, and any alterations in the U.S. capacity to supply at desired volumes
reduces U.S. competitiveness in Asian markets. 

An impact is possible if the El Nino-related drought in Panama lingers longer
than expected (weather forecasts predict rain to return in May when the rainy
season usually begins), further intensifying draft restrictions than currently
planned.  Also, an impact from the restrictions would surface in the unlikely
events that the reduced demand for bulk shipping or demand for smaller loads is
short-lived.

If ocean rates through the Panama Canal suddenly increase to a level that
diverts proportionately more grain shipments through the Pacific Northwest,
domestic grain shippers and exporters will be challenged to reposition grain
from domestic supply sources to export positions over a congested rail system
(AO March 1998), and vessel operators would be challenged to strategically
position their vessels at U.S. ports for commodity pickup and delivery.

A return to normal weather will recharge the canal system, particularly the
lakes that feed it.  Full draft in the canal is not expected before October.
Ken A. Eriksen (202) 690-1328, Agricultural Marketing Service, USDA
Ken_A_Eriksen@usda.gov

NOTE:
For more information on the Panama Canal and its operations, point your Internet
browser to http://www.pancanal.com.

FARM & RURAL COMMUNITIES

Status Report
Minority & Women
Farmers in the U.S.

Minority and women farmers show a wide range of characteristics.  Farms operated
by Blacks and by women are generally smaller, by acreage and sales, than the
national average, while Asian farms average more than double the sales of the
average for all U.S. farms.  American Indian-operated farms tend to specialize
in livestock, especially beef cattle, as do Black farmers.  Asians, however,
specialize more frequently in fruits, vegetables, and horticultural products. 
Hispanic operators are concentrated in Florida and the Southwest, while most
American Indians farm west of the Mississippi.  Black farmers are mostly in the
South, while Asians are concentrated on the Pacific Coast.  And the number of
Black-operated farms is declining at a faster rate than U.S. farms in general,
while the number of farms operated by women and other minorities seems to be
stable or increasing.

Information on the economic and demographic characteristics of minority and
female farmers was provided by USDA's Economic Research Service (ERS) as part of
the Department's effort to address the special needs of these farmers.  Minority
farmers in 1996 had charged that USDA's program delivery system had
discriminated against minority and women farmers and contributed to the loss of
minority-owned farms.  The Secretary of Agriculture responded to these charges
within weeks by appointing a Civil Rights Action Team (CRAT) to investigate
long-standing civil rights complaints against the Department.  

Much of the criticism at listening sessions held around the country targeted the
extensive, and relatively autonomous, delivery system of State and county field
offices and locally elected farmer committees and the failure of USDA programs
to address the special needs of minority and women farmers.  A key CRAT
recommendation called for investigating and modernizing the local delivery
system to make it more directly accountable to USDA.  Other recommendations
addressed complaints about the appeals process for farmers who believe they have
been treated unfairly in USDA program decisions.  CRAT also recommended efforts
to assure that farm programs take account of the differing circumstances of
minority and women farmers, such as targeting research and funding to small-
scale and limited-resource farms and disseminating information through
alternative media and in languages other than English.  

Behind the recent charges of discrimination against USDA has been concern over
the severe decline in the number and percentage of U.S. farms operated by
minorities, particularly Blacks.  The number of all U.S. farms declined 70
percent over 72 years---from 6,454,000 in 1920 to 1,925,300 in 1992--and the
decline in farms run by non-Whites has been even more dramatic--from 954,300 to
43,500, a 95-percent decline.  Put another way, the proportion of non-White
farms among all farms in the U.S. has fallen from 15 percent in 1920 to 2
percent in 1992.   

The decline in non-White farmers was not evenly distributed; Black farmers
declined most rapidly.  The number of Black farmers fell dramatically from
925,700 in 1920 (1 in 7 farms) to only 18,800 in 1992 (1 in 100 farms).  In
recent years (1982-92) the number of Black farmers has continued to decline.  In
contrast, the numbers of other minority farmers, including women and Hispanics,
have stabilized or increased.  Whereas Black farmers accounted for 97 percent of
non-White farmers in 1920, by 1992 they accounted for only 43 percent.  

Some of the conditions that have led to the long-term decline in the number of
Black farmers are common to the loss of U.S. farms in general.  Agriculture's
shift from a labor-intensive to a capital-intensive enterprise hastened the exit
of both Black and White farm operators, most often those with operations not
able to support investments in new machinery and chemical inputs.  Since World
War II, better paid nonfarm jobs in industry have drawn both Black and White
farmers from the land.  

However, Black farmers experienced a disproportionate effect from these
influences since their social and economic position in the South prevented many
from acquiring sufficient land to take advantage of cost-saving innovations in
agricultural production.  Blacks also often had limited access to information
that would have enabled them to protect their land from tax, credit,
inheritance, and other laws affecting landholding.  For example, Black
farmowners frequently left land to heirs without a will, resulting in the
division of a farm's ownership among a large number of children and their heirs. 
Such fragmented ownership could end in the loss of the farm if some of the heirs
wished to sell their plots.  It also made it difficult for the one or two heirs
who continued to operate the farm to secure loans, since they might not be able
to show clear title to all of the land for collateral.

Changes in the structure of cotton farming--influenced by damage caused by the
boll weevil, Federal programs in the 1930's that paid landowners not to plant
cotton, mechanization, and the shift of cotton production to the irrigated West
--further accelerated the exit of Black farmers.  Many of the farm operators
counted earlier in the century were sharecroppers or other tenants on southern
farms.  As cotton production declined in the South and required less labor,
Black tenants moved out of rural areas.  The exodus rapidly reduced the number
of Black farmers, although the Black farmers who remained were more likely to
own the land they farmed.

Moreover, many Federal agricultural programs designed to assist farmers in
adapting to a rapidly changing agricultural sector--e.g., loans, technical
assistance, commodity programs, insurance--often failed to reach Black, and
other minority farmers, for various reasons, including inadequate design, poor
outreach, insufficient funding, and discrimination.  Farmers speaking at 
USDA-sponsored listening sessions held as part of the Department's civil rights
review in January 1997 offered evidence that such programs continue to
underserve minority farmers, for most of the same reasons.  

Many of these farmers also identified deterrents to entry of young Blacks into
agriculture as a concern.  Since many remaining Black farmers are relatively
old, deterrents to entry of young Black operators--e.g., the loss of family
land, through foreclosures and estate sales and difficulty in obtaining credit
and technical assistance--make halting the decline in Black farming difficult.  

Other factors have contributed to the declining numbers of young Blacks entering
farming.  For example, desegregation in the 1960's, by closing Black schools and
ending separate extension services for Blacks, brought an end to farm clubs and
vocational agriculture programs directed specifically toward Black youths. 
These events reduced the accessibility of training for a career in agriculture,
and in part led to reduced demand for agricultural education by young Blacks. 
Combined with competition for students from newly integrated state universities,
this reduced demand also contributed to reduced support for the agriculture
programs at the historically Black land-grant universities--the 1890
institutions--which have traditionally focused research on the specific problems
of Black farmers who operate small farms with limited resources. 

Not only may Black farmers benefit from improved access to technical assistance
and other Federal agriculture programs in order to thrive.  Although their
numbers may be stable or increasing, most other minority and women farmers
operate relatively small farms and suffer from the same difficulties as small
farms in general, often with the added disadvantage of outreach and program
designs not well-suited to the needs of minority and women farmers.  

Addressing the Needs of 
Minority & Women Farmers

At the heart of the USDA's Civil Rights Action Team (CRAT) report, Civil Rights
at the U.S. Department of Agriculture, were the experiences of minority and
women farmers described at a series of listening sessions held around the
country in January 1997.  Following the report's release on February 28, 1977,
the Secretary appointed a new team, the Civil Rights Implementation Team (CRIT),
to initiate action to implement the recommendations.  The new team issued a
report, Civil Rights at the U.S. Department of Agriculture: One Year of Change,
in March 1998.

Fifty of the CRAT report's 92 recommendations applied to the areas of program
delivery and outreach to minority and women farmers.  The President's fiscal
year 1999 budget includes nearly $250 million to support civil rights
initiatives at USDA.  Of that sum, $232 million (93 percent) is dedicated to
improvement of program delivery and outreach.  

Modernizing USDA's Farm Service Agency county committee system was a priority in
the Department's efforts to respond to charges of discrimination in program
delivery.  These local, farmer-elected committees have been the focus of much of
the criticism aimed at USDA by minority farmers.  Legislative proposals
developed by CRIT and subsequently submitted to Congress provide for conversion
of the locally hired staff of these committees to Federal status.  

As Federal employees, these county office staff members would be directly
accountable to the Secretary of Agriculture and Departmental civil rights
regulations.  The legislative proposal also includes language to add new voting
members to the county committees, which have often under-represented minority
and women farmers.  The legislative proposal defines farm loan decisions as a
Federal, not a county committee, responsibility.

The Secretary has also submitted to Congress a proposal to repeal provisions in
the 1996 Farm Act that bar farmers who have received a debt write-down from
receiving further Federal farm loans.  The legislative proposal developed by
CRIT includes provisions for improved access to credit in rural housing and
conservation programs, as well.

Ending any current discriminatory treatment in USDA programs has been another
priority.  The Secretary formally halted all 4,500 pending USDA farm
foreclosures, and following review of more than 70 percent of the cases by late
February 1998, has held more than 100 for further civil rights investigation. 
CRAT also recommended settlement of all--more than 1,000--pending program
discrimination cases within 4 months.  However, many of these settlements were
delayed because investigations, some dating back to the early 1980's, had been
neglected following the 1983 disbanding of the USDA civil rights investigative
unit.

Failure to meet the recommended schedule for settling this backlog contributed
to the filing of a class action lawsuit by a group of Black farmers in August
1997.  The suit alleges USDA discriminated against all Black farmers from 1983
until the issuing of USDA's civil rights report in  February 1997.  The
Department of Justice settled four individual complaints encompassed in the
class action through mediation in October 1997, with payment of damages totaling
$1.2 million.  

The remaining farmers requested alternative dispute resolution, and at the
urging of a Federal judge, USDA agreed to a mediation process in December 1997,
to last 6 months, that will attempt to settle the complaints contained in the
class action suit.  Legal barriers, such as statute-of-limitations restrictions
on some of the older complaints, are being addressed with the assistance of the
Department of Justice and the White House and may require legislation to
resolve.  

In the face of the rapid decline of Black-owned farms, CRAT also adopted a
recommendation suggested by a minority farm advocate to establish a voluntary
register of minority farmers.  The register would help track and target programs
to address the loss of minority-owned farmland.  The register will include
minority farm operators, whether or not they own land, and minority farmland
owners, whether or not they operate a farm.  The list will include all minority,
racial, and ethnic groups who have experienced declining numbers of farmers
and/or loss of land ownership, or whose numbers are disproportionately small
among farm operators and farmland owners.  

To improve USDA's outreach to minorities and other underserved groups, the
Secretary of Agriculture established an Office of Outreach in August 1997.  The
office is developing a 5-year strategic outreach plan for USDA, working with
individual agencies and soon-to-be-formed State and national outreach councils,
as well as tribal governments and the Department of Interior, to help tailor
outreach efforts to local customer and program delivery needs.  The Office of
Outreach will maintain the register of minority farm operators and has also
assumed responsibility for the Outreach and Technical Assistance to Socially
Disadvantaged Farmers (2501) program.  

The 2501 program was established by the 1987 Agricultural Credit Act to improve
the financial viability of farms operated by minority and women farmers.  The
President's fiscal year 1999 budget requests funding for the 2501 program at the
authorized level of $10 million.  As part of the USDA civil rights initiative,
the fiscal year 1999 request also includes increases for other  targeted direct
and technical assistance programs for underserved groups, especially minority
and women farmers. 

USDA has also committed to expanding the capacities of land-grant and other
universities and colleges that have historically served minority populations. 
CRAT recommended that additional resources to support research, extension, and
technical assistance programs be targeted to the 17 historically Black 1890
land-grant colleges and universities and to Tuskegee Institute, and to the 29
tribal 1994 land-grant colleges, as well as to the more than 100 Hispanic-
serving institutions.  The Department's fiscal year 1999 budget proposal
includes $18 million targeted to minority-serving education institutions.

Finally, CRAT recommended that USDA increase its attention to the needs of
farmworkers, who are predominantly Hispanic and other minorities.  The
Department's focus will be to expand current programs and explore new
initiatives related to pesticide safety.  In the fiscal year 2000 budget
proposal, $5.5 million has been requested for Cooperative State Research,
Extension, and Education Service programs for farmworkers, as well as $3.4
million for the Natural Resources Conservation Service to be used in
environmental justice programs, which will benefit farmworkers.  The Secretary
of Agriculture has also initiated efforts to establish a closer working
partnership with the Department of Labor on farmworker issues.  
Anne B. W. Effland (202) 694-5319, Robert A. Hoppe (202) 694-5572, and 
Peggy R. Cook (202) 694-5419
aeffland@econ.ag.gov
rhoppe@econ.ag.gov
pcook@econ.ag.gov

BOX 1
Characteristics of Minority & Women Farmers

Minority and women farmers are a small proportion of U.S. farmers.  In 1992, the
most recent census of agriculture data available, 43,500 farm operators,
representing more than 2 percent of all U.S. farms, identified their race as
non-White.  Among them were 18,800 Blacks, who operated about 1 percent of all
U.S. farms.  Others included more than 8,300 American Indians and 8,100 Asians
and Pacific Islanders.  The remaining 8,200 operators identified themselves as
"other," a category largely made up of Hispanics who did not regard themselves
as White, Black, or American Indian.  About 21,000 farm operators identified
their ethnicity as Hispanic, constituting just over 1 percent of U.S. farms. 
Women operated 145,200 farms, 7.5 percent of the U.S. total.

Farm Size

Most minority and women farmers operate small farms, but generalizing about
minority farmers is difficult since characteristics of minority- and women-
operated farms differ widely from group to group.  Farms operated by Blacks in
1992 were very small, compared with the average U.S. farm or with farms run by
other minorities.   Black-operated farms averaged only 123 acres and less than
$20,000 per farm in gross sales per year, compared with the U.S. average of 491
acres and $84,500.  Only 12 percent of Black-operated farms had annual sales
greater than $25,000. 

In contrast, the average farm operated by American Indians was large, 5,791
acres, in 1992.  This average, however, included farms owned or controlled by
reservations, which have in the past been counted as a single operation.  Some
of these "farms" can be extensive, encompassing thousands of acres devoted to a
diverse mix of range and cropland.  Sales on farms run by American Indians,
however, averaged $49,300, substantially less than the national average, and 64
percent of American Indian-operated farms had sales of less than $10,000.

Farms operated by Asians and Pacific Islanders averaged only 140 acres, but
tended to be large in terms of sales.  These farms averaged $192,200 in sales,
more than double the U.S. average in 1992.  About 45 percent of farms operated
by Asians and Pacific Islanders had sales greater than $25,000, compared with 37
percent of all U.S. farms.  Three-fourths of Asians and Pacific Islanders raised
high-value, irrigated specialty crops, which helps explain the high average
sales per farm, despite the group's relatively low average acreage. 

On average, farms operated by Hispanics are larger than U.S. farms in general. 
Hispanic-run farms averaged 591 acres in 1992, 100 acres larger than the U.S.
average.  Sales from Hispanic farms averaged $115,200, or about $30,700 more
than the U.S. average.  However, the share of Hispanic-run farms with sales of
at least $25,000 was only 27 percent, compared with 37 percent for all farms. 
Thus, the high average sales for the Hispanic group reflected large sales by a
relatively small number of farms, probably the 24 percent raising high-value
specialty crops (vegetables, fruits, tree nuts, and horticultural specialties). 

Farms of female operators were smaller on average--309 acres--than the U.S.
average, although not as small as those of Blacks or Asians and Pacific
Islanders.  The average value of sales, however--$35,300--fell below all other
operator groups except Blacks.  Two-thirds of female-operated farms had sales
below $10,000, compared with half of all U.S. farms, and only 20 percent had
sales of $25,000 or more.

Regional Concentration & Specialization

Minority and women farmers operate farms all over the U.S., but most minority
groups were concentrated in particular regions, specializing in particular types
of agriculture. Approximately 93 percent of Black farmers lived in the South
(including Texas and Oklahoma). Black-owned farms specialized most frequently in
beef cattle, although 10 percent of all farms run by Blacks specialized in
tobacco.  

Most American Indian operators (81 percent) lived west of the Mississippi River,
although North Carolina was home to 600 Indian operators.  Farms run by American
Indians tended also to specialize in livestock.  About 50 percent of these farms
specialized in beef cattle in 1992, and another 21 percent specialized in other
livestock or were general farms producing primarily livestock.  Many of North
Carolina's operators, however, specialized in tobacco.  

Four Pacific States--California, Hawaii, Oregon, and Washington--accounted for
84 percent of Asian and Pacific Islander operators.  Farm operators of Japanese
descent were the largest single group among Asian and Pacific Islander
operators.  In Hawaii, 2,000 Japanese farmers operated 36 percent of all farms,
growing fruits, horticultural products, and vegetables.  

The census of agriculture does not differentiate Asians and Pacific Islanders by
national origin except in Hawaii, but by combining census of agriculture data
with data gathered from the 1990 population census and interviews with local
USDA offices, more detailed information on Asian farm operators can be reported. 
California had about 1,800 Japanese farm operators in 1990, concentrated
primarily in Fresno County, where they raised tree fruits.  The next largest
concentration of Japanese-operated farms--about 60--was in the irrigated Snake
River Plains of Malheur County, Oregon.  Some of the farms were established
following World War II by Japanese families displaced from the West Coast during
the war.  These Oregon farms specialized in irrigated row crops and dairying.   

Asian Indians formed a second concentration of Asian farmers in California.  A
population of about 1,100 in Sutter County, three-fourths of them foreign-born,
was primarily engaged in farming, largely growing tree fruits.  Another, smaller
group grew primarily grapes in Fresno County.  A small number (fewer than 200)
of Southeast Asian immigrants (including Hmong, a Laotian ethnic minority) also
were farm operators in California in 1990.  In Fresno County, recent refugees
produced berries and Asian vegetables on contract using small rented plots.  

Approximately 72 percent of Hispanic operators lived in five States in 1992--
California, Colorado, Florida, New Mexico, and Texas.  Some are descended from
the original settlers who moved into the area during the Spanish colonial
period.  The most common specialization for Hispanics, as for Blacks and
American Indians and for U.S. farms in general, was beef cattle.  About 39
percent of Hispanic-run farms specialized in beef cattle in 1992, compared with
32 percent of all U.S. farms.  The share of Hispanic-operated farms specializing
in high-value specialty crops (24 percent) was three times the U.S. average. 

Farms operated by women were distributed fairly evenly throughout the U.S. 
Female-operated farms were only about half as likely as all U.S. farms to
specialize in cash grains and were more likely than all U.S. farms to raise
livestock or high-value crops. 

Operator Age & Farm Tenure

Most minority farm operators are older than the average for U.S. farm operators. 
This is especially true for Black and Japanese farmers, for whom the entry rate
of young farmers has been low for many years.  The average age of Black
operators was 59 years, and 38 percent of all Black farmers were 65 years or
older, making Black farm operators older on average than other minority groups
and U.S. farm operators in general.  Asian and Pacific Islander operators as a
group also tended to be older than U.S. farm operators in general in 1992, an
average influenced heavily by the high average age of the Japanese.  They
averaged 55 years of age, compared with 53 years for all operators.  About 30
percent were at least 65 years of age, compared with 25 percent of all U.S.
operators.

Average age among some minorities, however, remained at or below the average for
all U.S. operators in 1992.  With only 20 percent at least 65 years old,
American Indian operators were slightly younger, on average, than U.S. farm
operators in general.  Hispanic operators' average age matched the U.S. average
for farm operators at 53, but only 22 percent were at least 65 years old,
compared with the 25-percent average for all U.S. operators.

Female operators' average age was 58 years in 1992, about 5 years older than the
U.S. average.  About 36 percent of female operators were at least 65 years old,
11 percentage points higher than the U.S. average.  This is primarily the result
of the relatively large number who inherited their operations as widows.  There
was, however, an increase in the number of early middle-aged women farmers
between 1982 and 1992. 

Fifty-five percent of all U.S. farm operators reported farming as their
principal occupation in the 1992 Census of Agriculture.  Only 44 percent of
Black farm operators reported farming as their principal occupation, which is
compatible with their specialization in beef cattle--beef cattle can have
relatively flexible labor requirements that work well with an off-farm job.
American Indian operators also reported farming as their principal occupation at
a lower rate than the U.S. average--46 percent.  About half of Hispanic
operators reported farming as their principal occupation, the same rate as women
farm operators.  Only Asian and Pacific Islander operators were more likely to
report farming as their major occupation--62 percent--than U.S. operators in
general, reflecting their more frequently large-scale operations.

The tenure pattern of minority farmers differed somewhat from the average for
all U.S. farms.  Minority farmers were slightly more likely to own all the land
they operated (ranging from 60 percent for American Indian operators to 62
percent for Blacks, Hispanics, and Asians and Pacific Islanders) than the
average for all U.S. farmers (58 percent).  All minority groups except for
Asians and Pacific Islanders ranged slightly below the U.S. average (31 percent)
for part ownership (own some land and lease some land)--from 24 to 28 percent--
and varied around the U.S. average (11 percent) for tenants--from 11 to 15
percent.  Asians and Pacific Islanders, in contrast, had a much higher tenancy
rate--24 percent--and a much lower part-ownership rate--14 percent.  Women farm
operators displayed a different tenure pattern from minority and all U.S. farm
operators--78 percent of women operators were full owners of their farms, with
only 15 percent part owners and 7 percent tenants.
Robert A. Hoppe (202) 694-5572 and Anne B. W. Effland (202) 694-5319
rhoppe@econ.ag.gov
aeffland@econ.ag.gov


BOX 2
Counting Minority & Women Farmers

Both census of agriculture and census of population data are used to examine the
characteristics of minority operators.  Although other sources of data provide
information on minority farmers, census data extend further into the past and
provide reliable statistics for very small minorities, particularly at the State
level.  Obtaining an accurate count of minority farmers can be difficult, since
some of the groups overlap in the census.  

The census of agriculture differentiates by race among Black, American Indian,
Asian or Pacific Islander, and "other."  An ethnicity designation allows for
recording Hispanic operators, but some Hispanic operators are also included in
the non-White count, since Hispanics may be of any race.  Similarly, women
farmers may be of any race, or they may be Hispanic.  Thus, some are included in
the non-White and Hispanic counts.  Note that the Census Bureau counts only one,
primary operator per farm in the census of agriculture; it does not classify
women who farm alongside their husbands as operators, unless they are the
primary operators.  Nor does it tally more than one operator in partnerships.

The census of population records data only on individuals' principal occupation. 
Therefore, it does not get a count of people who farm as a secondary job.  The
farmer count in the population census is far below that of the agriculture
census.  However, the population census may record more than one operator per
farm where spouses or grown children are partners in the work, although
information on farm characteristics is not available.  

The population census also allows for greater differentiation of ethnicity in
all parts of the U.S. than the census of agriculture.  For example, individuals
responding to the population survey could identify themselves as Japanese,
Chinese, Hmong, or Asian Indian, among others, within the larger category of
Asian and Pacific Islander.  The same holds true for other ethnic and racial
categories.  

The census of agriculture defines a farm based on average annual sales. 
Currently, any operation with sales of at least $1,000 in the census year, or
which would normally have had such sales, is counted as a farm.  Changing that
definition, as was recently considered by the U.S. Bureau of the Census, could
have a large impact on the count of minority-operated farms.  For example,
raising the sales cutoff in the farm definition to $10,000, as originally
planned by Census Bureau, would have reduced the count of all U.S. farms by 47
percent.  For Black operators, however, it would have reduced the count by 76
percent, for American Indian operators by 64 percent, for Hispanic operators by
60 percent, and for women operators by 65 percent. 

As a result of recommendations by the USDA Civil Rights Action Team, the 1997
Census of Agriculture--being administered for the first time by USDA's National
Agricultural Statistics Service (NASS)--will make additional efforts to ensure
accurate counting of minority farms.  The number of minority farm operators on
the mailing list for the census has been increased, and NASS has contacted
minority operators who reported in 1992 for assistance in identifying minority
farmers who were missed in the last census.  Moreover, to more accurately
reflect the number of American Indian farms, a newly designed procedure will
estimate the number of American Indian farm operators on each reservation,
ending the convention of counting each reservation as a single farm.

NOTE: The full reports of USDA's Civil Rights Action Team and Civil Rights
Implementation Team are available on the internet at:
http://www.usda.gov/news/civil

FARM & RURAL COMMUNITIES

Status Report
Small Farms in the U.S.

About 94 percent of the Nation's farms are small, with gross sales under
$250,000.  Three-fourths are very small, with sales under $50,000.  Despite the
continued predominance of family farms in the U.S. agricultural sector, the
number of farms continues to decline and ownership and control of production has
become increasingly concentrated.  In 1995, approximately 6 percent of U.S.
farms operated 28 percent of the land in farms.  Two percent of farms accounted
for 40 percent of sales, and 6 percent accounted for nearly 60 percent of the
value of U.S. agricultural production. 

The issue of concentration in U.S. agriculture arose during investigations by
the USDA Civil Rights Action Team (CRAT) in January 1997 (see preceding
article).  Questions about the adequacy of Federal programs and service to small
farmers led to the appointment by the Secretary of Agriculture of a commission
to investigate the needs of U.S. small farms--the National Commission on Small
Farms.  The results of the Commission's work are embodied in 146 recommendations
presented in its January 1998 report, A Time to Act.

USDA already has a number of programs targeted or accessible to small farmers. 
For example, the Office for Small-Scale Agriculture (OSSA) provides national
leadership and coordination of activities that respond to the needs of small-
scale farmers.  Ongoing initiatives in which OSSA is involved include a small
farm program at the University of California-Davis that concentrates on
alternative marketing, specialty production and enterprises, getting started in
farming, and the needs of small-scale, under-represented farm groups.

The Commission recommended a number of additional actions, including
implementing a small farm research initiative; recommitting USDA as the "lender
of last resort"; developing farmer-owned, value-added cooperatives and farm-
based businesses; investigating illegal or discriminatory practices in the
market place; and promoting and fostering local and regional food systems
featuring farmers markets, community gardens, community supported agriculture,
and direct marketing to school lunch programs.  The Commission also called for
forming of farmer networks and mentoring programs for small farmers;
establishing an interagency Beginning Farmer Initiative; developing projects for
small farms using sustainable farming practices; dedicating USDA budget
resources to strengthen the competitive position of small farms; and ensuring
just and humane working conditions for all people engaged in production
agriculture.

At the request of the Commission, USDA's Economic Research Service (ERS)
provided reports on topics ranging from the economic and demographic situation
of small farms and farm operator households to credit and insurance needs of
small farms to the effects of changes in marketing structures and government
programs on small farms.  

Well-Being of Farm Operator Households

Farm household income--cash income from all sources available to the household
before taxes, but after calculating depreciation--is on par with that of the
average U.S. household.  Estimates based on the 1995 Agricultural Resource
Management Survey (ARMS) puts average farm operator household income at $44,392,
compared with $44,938 for the average U.S. household.  However, the distribution
of income across operator households is more uneven than for all U.S.
households.

To generate cash income close to that of all U.S. households, farms need to
generate sales in the upper end of the small farm category.  Operators in this
category ($100,000-$249,999 in sales) overwhelmingly name farming as their major
occupation.  Still, households associated  with these farms received substantial
off-farm income--and generated total household income equivalent to the average
for all U.S. households. Although small farm operators who named farming as
their major occupation generated almost twice as much farm income as other small
farms, their total household income was only 80 percent of the average U.S.
household.

About 68 percent of operator households have income below the U.S. average,
compared with just over 60 percent of all U.S. households.  In part, this is due
to the nature of farming, since in any given year a household may experience
financial losses from the farming enterprise.  Most U.S. households depend on
wage earners who do not have these periodic losses.  

The health of the rural economy is reflected in the fact that farm families can
now earn off-farm income to mediate these farm losses--even on the largest
farms, the average operator household received 16 percent of its total household
income from off-farm sources.  In the past, when the rural economy did not
provide many nonfarm employment opportunities, farm families often had
substandard incomes.  Even now, in areas where nonfarm employment opportunities
are few, operator household income is lower, and households are more dependent
on the earnings of the farm.

Limited-Resource Farms

By combining their farm and off-farm endeavors, many households continue to
enjoy a farming lifestyle even though they have low farm income.  However, some
households have neither the human capital to earn a successful living outside
farming, nor the means to earn adequate incomes from farming.  These limited-
resource farm households--defined as having assets valued at less than $150,000,
sales less than $100,000, and household income from all sources less than
$20,000--accounted for 12 percent of all farms (255,000) in 1995.  The Delta and
Southeast regions had a proportionately greater number of limited-resource farms
than other regions.  

Everywhere except the Central region, average farm income for limited-resource
households is negative.  None of these households had sufficient off-farm income
to offset their farm losses and bring household income above $20,000. 

Minorities comprise approximately 7 percent of all farms, but are more likely to
be in the limited-resource category.  Approximately 13 percent of limited-
resource operators are minorities, and just under 10 percent are female.  

Operators of limited-resource farms tend to be older and have less formal
education.  While about a quarter of farm operators in all farm households are
65 or older, about half of the limited-resource farm operators are elderly--
nearly 30 percent of limited-resource farm operators consider themselves retired
but still farming.  Slightly more than half of all limited-resource farm
operators have less than a high school education, compared with only 22 percent
of the operators in all farm operator households.

Elderly operators are not likely to want either to expand an operation or to
enter the nonfarm labor force.  Since many limited-resource operators have less
formal education than other workers, they are at a disadvantage as they compete
with better educated individuals in the non-farm economy.  While farming has not
been generous to this group from a financial standpoint, alternatives may be
limited, and living on a farm may allow them non-monetary benefits such as a
farm dwelling, value of production consumed at home, and a preferred lifestyle.  


Credit Availability Varies
For Small Farms

Credit availability is key to the survival of small farms, and for helping young
and beginning farmers succeed.  The small farms definition, however, encompasses
many different kinds of farms--including such diverse groups as limited-resource
farms, retirement farms, residential/lifestyle farms, and farms where farming is
the operator's main job--and their access to credit varies.  For example, strong
off-farm incomes, combined with low debt burdens, can make some very-small farms
attractive credit risks to commercial banks, which provide over half of their
credit needs.  For these small farm operators, access to credit appears not to
be a problem.

Where credit availability is more likely to be a problem is among small and
very-small farmers with more limited resources.  Available data do not provide
information on the experiences these operators had applying for and obtaining
loans, but information on debt held by these farms indicates that most had
access to credit from a variety of sources.  About half of small farms had debt
outstanding, and most debt was supplied by banks.  Data from the early 1990's
indicate about one-fourth of small farm debt was supplied through USDA Farm
Service Agency (FSA) direct loans, with individuals supplying another 15
percent. In addition, trade credit provided by merchants and manufacturers has
become an increasingly important method of financing loans under $50,000.

The Commission was concerned that banks may have disincentives to make loans to
small farm operators, but although smaller loans are more costly to make and
service, there is no indication that regulations are biased against beginning,
young, or small farmers.  Smaller loans can be handled with a simple demand
note, and decisions may be based on credit scoring models that can be
implemented quickly.  For small farm operators who score well, credit
availability will not likely be a problem.  Commercial bank and Farm Credit
System loan data indicate that both these lenders make a substantial number of
small loans.  

Although traditional financial institutions like banks may not be a viable
source of credit for operators who are judged less creditworthy, small farm
loans are often made by input merchants and dealers.  These businesses can offer
attractive financing because they can process a loan application at a low cost
at the time of purchase.

Statutes require the independent Farm Credit System (FCS) lending programs to
address the credit needs of young, beginning, and small farmers.  Despite this
targeting mandate, data collected by USDA indicate FCS lending tends to be
concentrated among wealthier, older, and higher income operators--only 4 percent
of FCS debt was owed by farmers under 36, well below the 14-percent share of all
farm debt owed by such farmers.  

Impacts of Recent Legislation

Changes to Federal estate tax provisions made by the 1997 Taxpayer Relief Act
(AO October 1997) will make it easier to transfer the family farm business
across generations by reducing the likelihood that the farm or some of its
assets would need to be sold to pay Federal estate taxes.  About 2 percent of
estates with farms that have sales less than $100,000, and for which farm assets
are greater than nonfarm assets, owe Federal estate taxes.  The increased
unified credit, which sets the level of assets at which estate taxes become due,
will exempt most small farms from both the payment of tax and the requirement to
file an estate tax return.  Some small farms will also benefit from the new
family business exclusion and the lower interest rate on installment payments. 

Many small farmers will also pay less Federal income tax as a result of new
child tax credits, education incentives, health insurance deductions, and
reduced capital gains taxes in the Taxpayer Relief Act.  Small farmers will also
benefit from added flexibility to deal with income fluctuations by income
averaging and deferring the gain on certain weather-related livestock sales.  

The Commission considered some of the implications of changes in Federal farm
commodity programs for the health of small farms.  The 1996 Farm Act redesigned
the commodity program to move toward more market-based production in response to
commodity prices.  In 1995, 33 percent of farms participated in direct
government commodity programs, receiving an average payment of $8,225.  Not
surprisingly, because Congress had designed the program to dispense payments
based on production, larger farms received higher payments per farm--small farms
with $100,000-$249,999 in sales made up 11 percent of participating farms and
received 28 percent of payments, while large farms with $250,000 or more in
sales made up 6 percent of participating farms and received 31 percent of
payments.  Even though larger farms received the greater share of payments,
however, government payments were a larger share of gross income for the smaller
farms.  

Overall, farmers have seen and are likely to continue to see higher income under
the 1996 Act than they would have received under previous legislation. 
Producers of some commodities, such as peanuts and dairy, however, will face
lower returns under the farm act, which may mean problems for small producers.  

The 1996 law potentially shifts more of the market risk from government to
producers.  Risk management through crop and revenue insurance, options, and
other devices will become a more important part of successful farming.  Some
small farmers may lack access to information and capital required to respond to
shifting market opportunities and to deal with price and market risk (AO May
1997).  

According to data from the 1996 ARMS, of the over 2 million farms in the U.S.,
almost half a million purchased the Federal Crop Insurance Corporation's (FCIC)
basic catastrophic coverage.  Tiny farms (sales under $10,000) rarely were
insured under FCIC, and less than one-third of farms with sales of $10,000-
$49,999 indicated they purchased the insurance.  Over half of operators whose
farms had sales over $50,000 purchased the basic catastrophic coverage. 

Marketing On
Small Farms

The Commission identified effective markets and new marketing systems as key to
the strengthening of small farms.  Direct selling is often portrayed as a
marketing strategy for small farms.  Direct marketing includes farmers' markets,
pick-your-own fruit, flowers, and berry operations, cut-your-own Christmas
trees, and roadside stands.  Some farmers add recreational experiences in a
rural setting to draw consumers to their farms.  According to the 1992 Census of
Agriculture, small farms are more likely to use direct selling--direct sales
amounted to 2.1 percent of total sales for farms with under $10,000 in sales,
compared with less than 1 percent for larger farms.  Just under 6 percent of the
operators of these smallest farms reported receipts from direct sales, totaling
$65 million, an average of $1,300 per reporting farm.

Direct sales, however, mostly benefit farms in or near urban areas, where the
bulk of direct sales occur.  Farms in more remote locations need to take
advantage of the growing interest in travel, tourism, and
ecological/environmental issues to benefit from direct sales.  Mail-order sales
may also overcome the distance problem for some farmers.

Large supermarkets are trying to take advantage of consumers' growing interest
in purchasing local produce and organically grown products.  Independent
supermarkets as well as large chains, such as Kroger and Giant Foods, are
greatly expanding their programs to source and display "locally grown" produce. 
Small farmers may be able to improve their access to processors, retail stores,
and other markets by joining or forming cooperatives that serve as the initial
collection, sorting, grading, packing, shipping, and even processing points. 

Contracting has become a common marketing option on farms of all sizes (AO May
1997).  Farms with gross sales of less than $250,000 made up 80 percent of the
farms producing under marketing contracts in 1993, although they accounted for
only 33 percent of the total value of production.  

Almost half of the 225,000 farms with marketing or production contracts in 1993
were small farms with sales between $50,000 and $249,999.  This group of small
farms produced about 24 percent of the total contract value of farm products. 
Crop commodities comprising most of the value of marketing contracts for farms
with smaller contracts (less than $100,000 marketed) included field corn,
soybeans, peanuts, almonds, and wheat.  Milk, cattle, and turkeys were the most
often-reported livestock commodities for a similar marketing contract size.

Contracting is but one part of the movement of production to larger scale in
agricultural production and marketing.  The trend also includes mergers and
vertical coordination, which, along with contracting, may have a greater impact
on small farmers in some sectors than in others.  Mergers in the cereal
industry, or even in the flour milling industry, for example, probably have
little direct impact on small farmers, who typically sell their grain to the
nearest elevator.  Mergers and consolidation among elevators would have a much
greater potential impact on small farmers than mergers in the processing sector. 
As elevators consolidate, small farmers may have to haul their grain greater
distances, incurring higher costs. 

Vertical coordination in the beef industry could make it more difficult for
small farmers to find buyers.  Small farmers tend to sell their cattle or calves
to other farmers, to feedlot operators, or through auction markets. If
slaughtering firms integrate backward by acquiring feedlots, these packer-owned
feedlots may prefer to obtain large, uniform lots of cattle from larger farmers. 

In the processed fruit and vegetable industry, however, processors have for
years obtained the majority of their raw product from larger growers under
contractual arrangements.  Further consolidation in this industry would likely
have little impact on small farmers. Small fruit and vegetable farmers instead
tend to serve the fresh segment of the market or sell to small local processors
serving niche markets.

Despite some of the obstacles, small farmers can benefit from a combination of
effective marketing, better access to credit, targeted programs, as well as the
ability to take advantage of government programs, including those promoting
sustainable use of farm resources.
Janet Perry (202) 694-5583, with Bob Hoppe, Bob Green, Lee Christensen, Cathy
Greene, Chuck Handy, Steve Koenig, Charles Dodson, Ed Young, Cheryl Steele, and
Terri Raney 
jperry@econ.ag.gov

FARM & RURAL COMMUNITIES BOX 1
Characteristics of Small Farms

U.S. farms are mostly family businesses that take the form of proprietorships,
partnerships, and family corporations.  Over 98 percent of all farms are family-
operated and most farms are legally organized as sole proprietorships.  Three
percent of farms are legally organized as family corporations, which gives
families tax and inheritance advantages not available to proprietorships and
partnerships.  Almost all of the very-small farms (those with sales under
$50,000) are sole proprietorships.  

Small farms (sales of less than $250,000) accounted for 40 percent of the value
of farm production in 1995--38 percent of the value of livestock and 44 percent
of the value of crops--with most of that production concentrated on farms with
sales of $50,000-$249,999.  The commodities with the highest share produced by
small farms were tobacco (76 percent) and hay (69 percent).  Over half the very-
small farms raised cattle, but they contributed only 17 percent of the total
value of production of cattle in the U.S., since much beef is produced on large
feedlots.  Very-small dairy farms (with sales under $50,000) had an average herd
of 26 cows, while dairies with sales of $50,000-$249,999 averaged 100 cows. 
Beef cattle producers in the first group averaged 40 head of cattle, while the
second group averaged 138.  For hogs, the difference was even greater--about 50
for the first group compared with over 300 for the second.

Compared with only 11 percent of large farms, about 35 percent of all small
farms specialized in beef cattle in 1995, which often have relatively flexible
labor requirements that fit well with an off-farm job or retirement.  Among
very-small farms, the proportion raising cattle was 41 percent.  Most farms do
not produce just one or two commodities, but specialization does become more
likely as farms get larger, and also as farms get smaller.  On small farms in
general, approximately 70 percent indicated they produce more than one commodity
and 20 percent produce four or more commodities.  Among very-small farms,
however, more than 40 percent produced only one commodity and 30 percent
produced only two. 

Very-small farms are heavily concentrated in the South (Appalachia, the
Southeast, the Delta, and the Southern Plains), while small farms with sales of
$50,000-$249,999 are more concentrated in the Corn Belt, Lake States, and
particularly in the Northern Plains.  While 57 percent of farms with sales of
$50,000-$249,999 are in these three regions, 46 percent of all small farms are
located in the South.

Fixed costs are the largest group of expenses for the average small farm.  These
costs remain constant regardless of the level of production, so larger farms,
because they have higher levels of production, cover these fixed costs and
expenses with a smaller share of their gross income.  

For farms with sales of $50,000-$99,999, the ratio of net cash income to gross
cash income is 17 percent.  For farms with sales of $100,000-$249,999, it is 21
percent, and for large farms (sales of $250,000 and over), the ratio is 22
percent, indicating that, on average, they will earn about 20 cents for every
dollar of gross sales.  

Very-small farms, those with gross sales under $50,000, have negative net cash
farm income, on average--in fact, only 37 percent have positive, although low,
net cash farm income.  By necessity, these farmers depend on outside sources of
income for their well-being.  

On average in 1995, very-small farm businesses had a loss of $1,700.  Other
small farms (sales of $50,000-$249,999) had positive average net cash income of
$23,000.  Net cash income reflects the current or short-term cash earnings
available after paying all cash expenses, including interest, to distribute as
income for living expenses, principal repayment on loans, income taxes, and
reinvestment in the farm.  It does not reflect the total cash available to farm
families, because savings, farm wages paid to family members, and off-farm
earnings are not included.  

Net cash income varies across regions and commodity specialization.  Farms in
the Southeast and cattle operations--both of which have high concentrations of
very-small farms--tend to have lower net cash income than other farms.

Net farm income reflects long-term profitability of the farm business.  Over
time, it shows the farm's ability to survive as a viable business on its own. 
In 1995, the average net farm income for very-small farms was $510; on small
farms with sales of $50,000-$249,999, it averaged $14,335.  Other benefits from
the farm, such as a preferred lifestyle or capital gains on the investment in
farmland, likely compensate for the relatively poor financial performance of
many small farms.  Many operators of small farm businesses spend most of their
work time in off-farm employment, making their households less dependent on farm
income for their well-being than many households operating larger farms.

The makeup of vulnerable operations (high debt and negative income) varies by
economic size and economic conditions during the year, but is concentrated among
the larger small farms (with gross sales of $100,000 to $249,999).  These farms
accounted for 47 percent of the vulnerable operations in 1994, up from 35
percent the year before.  This group includes a greater proportion of cash
grains farms, and fertilizer costs continue to be the highest proportion of
their total expenses. 

FARM & RURAL COMMUNITIES BOX 2 
Small Farms Defined

The "small" farms definition is problematic.  A variety of small farm
definitions have been used over time.  In both 1977 and 1983, Congress
legislated definitions of small farms that reflected existing conditions.  The
1977 definition simply defined a small farm as any establishment with sales less
than $20,000.  Currently, $50,000 is more commonly used as the dividing point
between very small and larger farms, reflecting inflation and growing farm
productivity over the years.  The 1983 definition focused on farm households
with low income that depended on farming for their living.  However, farm
operator households now have an average income on a par with the U.S. average
and many rely heavily on off-farm income.

Almost all farms are "family" farms in that they are run by individuals or their
immediate families.  The Small Business Administration considers farms small
businesses when they have less than $500,000 in gross sales, except for cattle
feedlots which can be as large as $1.5 million.  If USDA followed this
definition, 98 percent of farms would be included as "small" businesses. 

Much ERS analysis defines "small" farms as those with sales under $50,000.  The
farm may be small because it is primarily a residence, or because it is being
scaled down for retirement, or it may be a limited-resource operation without
access to additional resources to grow.  Most people with this size farm have
other sources of income, but for some operators, the farm may represent a
significant portion of  household income or a significant source of employment.  

The National Commission on Small Farms expanded the definition of small farm to
include farms with gross sales of $50,000 to $250,000.  The reasoning was that
on most of these additional farms, day-to-day labor and management were provided
by the farmers and/or the farm families, who own the product and own or lease
the productive assets.  

NOTE: The report of the National Commission on Small Farms, A Time to Act, is
available on the USDA home page at:
http://www.reeusda.gov/agsys/smallfarm/ncosf.htm.

FARM FINANCE

Stable Interest Rates, Ample Credit in 1998 & 1999

Rural and farm borrowers will benefit from  increased credit availability and
continued relative interest rate stability in 1998 and 1999.  Enhanced credit
availability will allow firms to more easily fund capital investment, which will
boost rural competitiveness.  Relatively stable interest rates will encourage
farm investment by reducing the risk that capital costs will exceed expected
returns.  

In the first quarter of 1998, rates for farm nonreal estate loans from
commercial banks averaged 9.1 percent, compared with 9.3 percent for 1997.  In
the 1990's, nonreal estate loan rates for farms have averaged 9 percent.   

Interest rates that farmers and rural borrowers face are influenced by the level
of interest rates in general as well as by individual loan risk and liquidity. 
National and global factors that affect credit demand and supply will in turn
influence interest rates charged to rural borrowers.  Domestic patterns of
consumer savings and overall credit demand from businesses, home buyers, and
government all affect the general level of interest rates.  In addition, U.S.
interest rates in the 1990's have been increasingly reflected flows of foreign
capital into and out of U.S. financial markets.   

Because commercial banks are the largest single category of lenders serving
agriculture and small business, the availability and cost of bank loans to
agriculture and rural small business is a key factor in rural growth.  Surveys
of large and small banks in 1998  indicate continued efforts by banks to expand
business and farm lending--in part by maintaining low lending rate margins above
their cost of funds for business loans.  The Farm Credit System also appears
very well capitalized and is willing to lend to creditworthy farm borrowers.  

Bank Lending Rates 
Less Volatile in the 1990's

Interest rates in the 1990's have displayed less volatility than in the previous
two decades.  Nominal interest rates have been less volatile in part because
real interest rates have risen less during the current economic expansion than
is typical in such periods, while inflation--along with inflationary
expectations--has declined.  Since the end of the 1990-91 recession, real growth
in the economy has generally progressed at a moderate to moderately strong pace,
with declining overall inflation. 

Typically, interest rates rise during economic expansion as business investment
picks up in response to expected higher real returns on investment.  As existing
plant and equipment is used more intensely, businesses attempt to head off
future capital shortages by increasing capital investments.  In addition, high
rates of utilization of capital and labor typically place upward pressure on
inflation and inflationary expectations.  Nominal interest rates rise as
investors in fixed-income securities and fixed-rate loans demand higher interest
payments to compensate for the increased risk of higher inflation.  

Contrary to most expectations, annual inflation as measured by the GDP deflator
fell from 1993 to 1997--from 2.8 percent to 2 percent.  Lower inflation during
this period has reflected stronger productivity growth from high levels of
capital investment, a rising dollar since late 1995, corporate restructuring,
and smaller increases in employee benefit costs. 

Stability in bank lending rates in the current expansion has also been aided by
monetary and fiscal policy.  As a result, the Federal funds rate (the interest
rate that depository institutions charge each other for use of their overnight
bank deposits held at Federal Reserve Banks) has been much more stable in the
1990's than the 1970's and 1980's.  The greater stability of the Federal funds
rate, given its  strong influence on other short-term interest rates, has
reduced volatility in short-term rates.  Bank loan rates are often tied to the
bank's prime or directly to a measure of the bank's own cost of funds such as
the Federal funds rate.  

Also contributing to interest rate stability are declines in Federal deficit
spending and a fall in real government spending since 1993, releasing additional
funds to meet expanding private demand for credit.  Loan demand by business
firms at commercial banks has increased sharply since 1993,  generated by the
need to fund the strong growth in business investment.  But despite sharply
higher business and consumer loan demand, bank lending spreads (the difference
between the bank lending rate and the bank's cost of funds) have fallen sharply
for business loans since 1993.  

Bank business lending spreads have fallen as borrower profitability and stronger
balance sheets have reduced default risk.  Record bank profits and strong bank
capital positions have reduced the overall costs of funding new loans and have
lowered the compensation that banks require for bearing various levels of
default risk.  In addition, bank business lending faces increasing competition
from nonbank lenders, such as finance companies, and from direct financing that
occurs in the national and regional credit markets through the issuing of new
bonds and equity securities.

Outlook for Bank Rates 
In 1998 & 1999
 
While interest rates are expected to continue to be relatively stable by
historical standards in 1998 and 1999, some mild upward pressure on long-term
rates is expected in the second half of 1998 and in 1999.  Economic growth is
likely to slow significantly in the second half of 1998 to more sustainable
long-term levels under the weight of the Asian downturn, a very strong dollar, 
slower inventory accumulation, slightly slower growth in business fixed
investment, and tight labor markets.  

Moderate productivity gains, strong foreign competition, and lower oil prices
(relative to 1997) should hold inflation to low levels.  The combination of
slower economic growth and continued low inflation is likely to leave monetary
policy little changed in 1998 and 1999.  Commercial banks and the Farm Credit
System are both expected to aggressively compete for high-quality  business and
farm loans.  Therefore, bank lending spreads for high-quality business loans are
expected to remain narrow by historical standards. 

The Asian currency and economic crises resulted in an increase in net foreign
financial investment in the U.S., from $207 billion in the second quarter to
$341 billion in the fourth quarter of 1997.  As the Asian situation improves,
this investment in the U.S. should slow, placing upward pressure on U.S.
interest rates, especially longer term interest rates.  In addition, a mild
increase in inflation is expected in the second half of 1998 and more notably in
1999 from continued tight labor markets and an expected mild depreciation in the
U.S. dollar from current strong levels. 

Any upward movement in farm or rural interest rates is expected to be smaller
than any movement in general Treasury or most nonfarm lending rates.  Rural
banks are heavily dependent on consumer-type deposits, which respond sluggishly
to changes in open-market interest rates.  In addition, loan rates at rural
banks typically respond more slowly to changes in open-market interest rates due
to the greater importance of average cost-of-funds pricing in determining their
bank fund costs.  

Finally, farm balance sheets have  improved significantly since 1995, improving
the quality of farm collateral (especially farm real estate).  Lower farm debt-
to-asset ratios further lower farm default risk.  Rural business balance sheets
have also improved significantly in recent years, lowering the risk of rural
loan default overall.  

Interest Rate Stability:
Impact on the Farm Sector

Farm borrowers and lenders rely on expectations of future interest rates in
making investment and financing decisions.  The greater the degree of interest
rate instability or volatility--referred to as interest rate risk--the greater
the likelihood and magnitude of forecast error. 

Farm lenders' exposure to interest rate risk depends mainly on how they
structure their balance sheet.  As with most financial intermediaries, the
maturity of rural lenders' assets is for a longer term than that of their
liabilities--they "borrow short and lend long."  Should interest rates
unexpectedly rise sharply, lenders' cost of funds would rise while returns on
their loans would remain fixed.  Their net margins and net worth would suffer as
a consequence.  This is especially true for small farm lenders for whom net
interest revenues account for an especially large proportion of profits.

Lenders have learned to reduce their exposure to interest rate risk using
numerous techniques such as derivatives (futures, options, and swaps), 
variable-rate loans, or increasing their reliance on fee-generating services. 
But learning and applying these techniques raises the cost of lending to the
rural community.

Stable rates allow lenders to try to "ride the (normal) yield curve," borrowing
short at lower rates and lending at longer maturities with higher rates.  Should
rates remain stable over time, lenders can meet the maturity needs of both
depositors and borrowers with considerably reduced risk. This classic function
of a financial intermediary is limited when the lender tries to reduce interest
rate risk exposure by constantly restructuring the balance sheet in a rapidly
changing interest rate environment.  In addition, stable interest rates reduce
the need to learn and apply interest rate risk management techniques.  This
reduces the cost of lending to farmers and other rural borrowers and helps hold
down the "risk premium" lenders add on to a loan's interest rate.

In addition, stable rates encourages the use of fixed-rate loans.  Variable-rate
loans decrease lender interest rate risk exposure at the cost of increasing
borrower default risk.  Fixed-rate loans have fixed cash outflows that allow
borrowers greater certainty regarding their long-range interest expenses.
Recent survey data have shown increasing use of fixed-rate loans in agriculture.
Greater reliance on fixed-rate loans as a result of the stable interest rate
environment will reduce farmer and rural borrower default rates.

Stable interest rates reduce the uncertainty involved in long-range investment
decisions, such as purchases or improvements to farmland.  The interest rate
needed in order to discount the future cash flows resulting from a proposed
investment project can be predicted with more confidence in a stable rather than
volatile interest environment.  Hence, stable interest rates encourage farm
investment and adoption of new technologies, allowing farmers to produce at
lower costs and increase profit margins.

The downside is that, in the desire to increase lenders' profits by casting
overboard the costs of risk management, the farm sector ship is left exposed to
financial icebergs of sharply rising interest rates which might lie ahead.  This
was among the lessons learned by the farm financial community in the 1980's. 
Paul Sundell (202) 694-5333 and Ted Covey (202) 694-5344
psundell@econ.ag.gov
tcovey@econ.ag.gov


RESOURCES & ENVIRONMENT

Ag Productivity Continues Healthy Growth

The agricultural sector has one of the highest rates of productivity growth
among U.S. industries.  Agricultural productivity increased at an average annual
rate of 1.89 percent from 1948 to 1996.  From 1990-96, agricultural productivity
increased 2.14 percent per year on average.

Productivity in the agricultural sector over the period 1948-96 exceeds the 
1.3-percent rate for manufacturing--an industry considered to have relatively
high productivity.  Moreover, the increase in U.S. agricultural output was
entirely the result of productivity growth.  Output grew at an annual average
rate of 1.80 percent, with real expenditures on inputs declining slightly--
by about 0.1 percent.  In contrast, output increases in many sectors of the
economy were largely the result of growing expenditures on inputs.  For
manufacturing, which is second only to the services sector as an employer in
nonmetro areas, only 40 percent of the increase in output growth came from
productivity growth.   

Productivity captures the growth in output not accounted for by the growth in
production inputs.  It is most commonly expressed as total factor productivity
(TFP), a ratio of total outputs to total inputs, each measured as an index.  An
increase in the ratio of total outputs to total inputs indicates that more
outputs can be produced with a given level of inputs. 

Increased productivity improves society's standard of living by producing
products using fewer inputs.  As productivity levels in one sector of the
economy rise, resources are available for use by other sectors.  The high levels
of agricultural productivity have freed up resources such as labor that would
otherwise have been used to meet the food needs of the population.  

Increased productivity also improves the standard of living by lowering the real
prices of goods and services.  Agricultural productivity gains are passed on to
the consumer in the form of lower food prices.  Other sectors of the economy
also have a large effect on food prices-- agriculture's share of the food bill
is only about 23 percent, with the rest accounted for by processing, packaging,
and transporting and other marketing costs.  The average annual productivity
growth rate of 0.8 percent for "food and kindred products" for 1949-93 was well
below agriculture's high levels. 

As increased productivity lowers real farm prices, the international competitive
position of U.S. agriculture improves.  High productivity has been a factor in
making the U.S. the world's leading agricultural exporter and in sustaining the
trade surplus enjoyed by U.S. agriculture despite a trade deficit for the U.S.
overall.  The share of U.S. agricultural production exported is more than double
that of other major U.S. industries.

Trends in Farm Productivity, 
Input Use, & Output

The period immediately after World War II, sometimes referred to as the "second
American agricultural revolution," ushered in some key technological changes in
the sector.   This period saw completion of the transition from animal to
tractor power and the application of science to farming:  use of hybrid seeds,
adoption of improved livestock breeding, and the use of more agricultural
chemicals, both fertilizers and pesticides.  Adoption of many of the practices
required additions to the capital complement of farming as well as the
development of  specialized information systems.  Technological developments
over the period have allowed agriculture to increase production while using
inputs more efficiently.

The 1.80-percent average annual growth in farm output over 1948-96 combines a
1.66-percent average rate of growth for livestock products and a rate of 1.84
percent for crops.  While cattle and other meat animals represent the largest
component of livestock output, poultry and eggs grew the fastest (3.58 percent
vs. 1.23 percent for meat animals).  Dairy output during the entire period of
1948-96 grew less than 1 percent per year on average.  

Annual output growth rates for crops over 1948-96 have been more variable than
for livestock, largely reflecting variation in crop yields in response to
weather. The late 1940's through the 1960's, characterized by unusually mild
weather, saw unusually stable crop yields.   In contrast, weather since the
1970's has returned to the more usual, variable conditions, including the
extremes of high temperatures, drought, and early frost in 1983, drought in
1988, and extensive flooding in 1993.

Events other than weather have contributed to variation in overall output
growth.  In the 1970's, with export demand strong, the average annual rate of
growth in agricultural output was 2.3 percent per year.  As short-lived concerns
over food scarcity in the 1970's gave way to expectations of chronic surpluses
in the 1980's (and subsequent farm policy to limit field crop output), output
growth slowed to 1.68 percent annually.

Total agricultural input use has been fairly stable over much of the period. 
The highest annual growth rates in input use occurred in the late 1970's.  For
the period overall, increases in use of capital (e.g., equipment) and in
intermediate inputs (e.g., chemicals, energy, and seed) have been more than
offset by a decline in labor input.  The measures of input use in agriculture
account not only for changing quantities but also changing qualities of major
inputs.  For example, labor input considers not only the hours worked in
agriculture, but the quality of those hours as measured by such characteristics
as educational attainment of the workers. 

The fairly stable total input level over 1948-96 masks differences among
particular inputs.  For example,  intermediate inputs increased 1.25 percent per
year over the period, but energy inputs increased less than 0.9 percent, and
pesticides, the fastest growing input category, increased more than 6 percent
per year.  Synthetic pesticides were just beginning to be used in the late
1940's.  By the early 1970's, a significant share of acres in major crop
production were being treated.  Since the early 1980's, the mix of pesticides
has changed considerably.  Most notably, pesticides have changed in terms of
their ability to kill selected target pests and in their effects on the
environment and human health.  The pesticides index captures the changing
quality as well as the quantity of pesticides.  

Labor input in agriculture decreased consistently over 1948-96.  In 1948, 7.6
million people were employed in agriculture, compared with 2.9 million in 1996.  
While the number of workers employed in agriculture and the total hours worked
have declined, the quality per hour worked has increased.   For example, in
1964, only about one-third of all farmers had completed high school, compared
with more than three-quarters of farmers by 1990.  The labor input index, which
accounts for both numbers and quality of hour worked, dropped at an average rate
of 2.51 percent per year.  Adjustment for gains in labor quality lowers the rate
of decline in the labor input index.

On an annual basis, productivity growth rates were generally positive during
1948-96.  Through the mid-1950's, however, productivity growth was very slow,
and at times even negative, as capital and intermediate inputs increased at very
high rates, capturing the rapid movement toward mechanization on U.S. farms.  
Productivity growth was fairly stable through the 1960's.  During the 1970's,
demand for U.S. exports increased significantly, and many U.S. producers geared
up to meet the demand.  The average annual rate of growth in productivity during
the 1970's, however, was considerably less than in the 1960's, since nearly half
of the output growth over this period was accounted for by increased inputs. 
Growth in intermediate inputs increased 2.5 percent per year on average during
the 1970's.  

As the sector went through financial restructuring in the 1980's, capital
(equipment and land) and intermediate inputs declined, with negative growth
rates observed in all major input categories except pesticides.  Land area idled
in 1983 totaled 80 million acres as a result of acreage reduction and Payment-
in-Kind programs.  Growth in output averaged only 1.68 percent in the 1980's,
but the decline in inputs resulted in fairly high rates of growth in total
factor productivity.   The 1990's saw a continuation of above-average rates of
growth in productivity.  Output growth was above average from 1990 to 1996, with
input growth, while slightly negative, not as low as in the 1980's.

U.S. productivity growth rates mask variations across States.  Over 1960-93,
average annual TFP growth in the 48 contiguous States was approximately 2
percent.  Most States with TFP growth rates higher than 2 percent were located
in the eastern U.S.--the exceptions were the Northwestern States (Washington,
Oregon, and Idaho), Utah, and North Dakota.  

Five New England States experienced negative rates of growth in real output over
the time period.  About three-quarters of the 48 contiguous States experienced
negative growth rates in input use, the same as the aggregate U.S. trend.  
Interestingly, most of the top 10 producing States, when ranked by value of farm
marketings, did not have TFP growth rates above the U.S. level.   USDA's
Economic Research Service is currently investigating the reasons for variations
in TFP levels by State and is decomposing productivity into its component 
parts--efficiency, technological change, and scale effects.

What Affects 
Agricultural Productivity?

Productivity gains over 1948-96 are the result of an array of factors that
include weather, the economy, and public and private investment.  Weather is a
major, unpredictable external factor in year-to-year productivity.  Shocks to
the general economy, because they affect relative prices, can in turn affect
resource allocations in agriculture.  Pressures on relative prices are often
cited as an important source of technological innovation in agriculture, through
a mechanism known as the "induced innovation concept."  

For example, increases in the price of labor relative to the price of capital
may induce  farmers to substitute more capital for labor.  A change in relative
prices may also induce private firms (for example, farm machinery companies) to
develop new technologies that save on the relatively more expensive input. 
Economic research has shown that induced innovation forces are particularly
strong for inputs that are actively traded, such as fertilizer, but less so for
inputs that are less actively traded, such as land.

The social science literature has identified five factors as the key sources of
productivity change in agriculture that have implications for public policy. 
The five are research and development, extension, education, infrastructure, and
government programs.  Productivity measures provide no information about the
separate role of each of these factors.  However, an understanding of these
factors is of interest because of their potential impact on the components of
productivity, and because of the impact of productivity growth on a society's
standard of living.   

Research and development.  Agricultural research is essential not only to
increase agricultural productivity, but to keep productivity from falling.  For
example, yield gains for a particular plant variety tend to be lost over time as
pests and diseases evolve that make the variety susceptible to attack.  Thus, a
large share of agricultural research expenditures is devoted to maintenance
research.  The results of agricultural research, in addition to higher yielding
crop varieties, include better livestock breeding practices, more effective
fertilizers and pesticides, and better farm management practices. 

Farmers benefit from agricultural research in the short run because of lower
costs and higher profits.  The longrun beneficiaries of  agricultural research
are consumers, who pay lower food prices.  Agricultural research also helps the
U.S. maintain its competitiveness in world markets. 

Agricultural research is performed by both the private and public sectors. 
Private-sector research focuses mainly on farm machinery, agrichemicals, and
food processing.  Previous economic analyses have shown that both public and
private research have positive effects on agricultural productivity, with public
research having a greater impact than private research, particularly in the long
run.  A number of studies have measured the impact of public agricultural
research on productivity and the benefits of public agricultural research
relative to the costs.  Most studies have found rates of return to public
investment of 20 percent to 60 percent. 

Private research expenditures have increased dramatically during the past three
decades and now surpass those of the public sector.  By contrast, the rate of
growth in public research expenditures has slowed significantly since the
mid-1970's, although demands on agricultural research have expanded to include
environmental protection and food safety.  There is some evidence that public
investment in research increases the amount of private research.  To the extent
that public research stimulates private research, the returns to public research
are underestimated. 

Extension.  The agricultural production extension system is aimed at reducing
the time lag between the development of new technologies and their adoption.  A
particular research project may take several years to complete, and it takes
time for farmers to learn of the innovation.  Extension agents disseminate
information on crops, livestock, and management practices to farmers, and
demonstrate new techniques as well as consult with farmers on specific
production and management problems.  Extension, unlike research, can have an
immediate effect on productivity.

Public extension expenditures have grown little in real terms since 1980.  The
Federal share of public extension expenditures has fallen steadily during the
past few decades.  The bulk of extension services are now provided by State and
county governments.   In some cases, the private sector also provides
information to producers on new practices and technologies such as pest and
nutrient management practices.  Farmers may also consult farmer cooperatives or
chemical company representatives for such advice.  Empirical evidence on the
rate of return to extension is more mixed than for research, with estimates
ranging from 20 percent to over 100 percent.

Education.  Education is an investment in "human capital" analogous to a
farmer's investment in physical capital.  In contrast to the more applied focus
of extension activities, education provides individuals with general skills to
solve problems.  Farmers who have more education may be better able to assess
and successfully adapt the new technologies.  Current measures of labor input
account for the changing educational attainment of the farm workforce over time. 

Infrastructure.  The most obvious example of how public investment in
infrastructure might affect agricultural productivity is public transportation. 
An improved highway system can, for instance, reduce farmers' cost of acquiring
production inputs.  The decline in overall U.S. productivity in the 1970's was
perhaps due in part to declining rates of public capital investment (e.g.,
highways and streets, water and sewer systems, schools, hospitals, conservation
structures, mass transit, etc.).  There is evidence that a significant positive
relationship exists between infrastructure and U.S. agricultural productivity,
although little work has been done to examine the relationship.  

Government programs.  Government programs affect productivity through the
allocation of resources.  Farm programs are perhaps the best known example of
government involvement in agriculture.  Current farm programs generally allow
market forces to allocate resources (e.g., amount of land planted to certain
field crops), which economists contend is the most efficient method.  Tax policy
may encourage private firms to invest in innovations and may encourage farmers
to adopt the innovations.  Enhanced protection of intellectual property rights
may increase incentives for private firms to engage in private agricultural
research.   Regulatory policies affect the rate at which new livestock drugs and
farm chemicals reach the marketplace. 

Relatively little research has investigated the impact of government programs on
agricultural productivity, but some observe a significant positive relationship. 
For example, high farm prices can encourage substitution of improved capital
inputs for labor and increase the rate of new technology adoption.  On the other
hand, government subsidization of any one sector can have a negative impact on
other sectors in the economy.

Prospects & Uncertainties

Research, extension, education, infrastructure, and government programs will
continue to affect the productivity of U.S. agriculture.  The magnitude of their
effects is uncertain because the relationships between these factors and
productivity are still not well understood and because of the uncertainty
surrounding the level at which society will invest in these growth sources and
programs.  

Also uncertain is how the agricultural sector will adjust to the planting
flexibility provisions of the new farm law, designed to make U.S. agricultural
production more market-oriented.  While it is still too early to determine, the
experience of the 1980's may provide a clue.  In that period of economic
turbulence in the agricultural sector, U.S. farmers demonstrated a capacity to
adjust to changing economic conditions.  The question is still open whether
greater flexibility to adjust production to market signals will result in
enhanced productivity.

Mary Ahearn (202) 694-5610; mahearn@econ.ag.gov
Also contributing to this article: John Jones, Bill Lindamood, Richard Nehring,
Doris Newton, Agapi Somwaru, Jet Yee

SPECIAL ARTICLE
Future Growth in Brazil's Agriculture Sector

Brazil, the fifth largest country in area and population, is one of the world's
agricultural giants, and is among the few countries that have the potential to
significantly increase agricultural area as well as yields.  But in order to
realize its full production potential, Brazil's agricultural sector will depend
on the continuation of reforms aimed at privatizing the economy, reducing the
budget deficit, and controlling inflation.  

The Brazilian agricultural sector is both large and diverse.  Brazil is one of
the world's largest producers of grains and oilseeds.  It ranks among the top
three soybean and corn producers in 1997/98, and is the largest producer of rice
outside Asia.  It is among the world's leading producers of beef and poultry,
tobacco, bananas, and cocoa, and leads in production of coffee, sugar, and
citrus.

Brazil's economy is the largest in South America, with a gross domestic product
(GDP)  estimated at $843 billion in 1997.  Brazil is a major player in world
agricultural trade.  It is a key exporter of soybeans, soymeal and soy oil,
poultry, and beef.  Its population and income level also make it one of the
world's largest consumers and importers of agricultural commodities.  

The government has made significant progress in restructuring the economy since
launching the economic stabilization program known as the Real Plan in mid-1994
aimed at controlling rampant inflation.  Hallmarks of the plan are more market
orientation, privatization of government-owned industries, lower tariffs, tight
credit, "de-indexation" of prices, and a new, stable currency--the real.  USDA's
baseline projections of Brazil's production, consumption, and trade of major
agricultural commodities from 1998 to 2007 assume successful continuation of the
country's reform program.  

How Successful Are
Brazil's Economic Reforms?

Since the Real Plan took effect, the economy has experienced positive real GDP
growth every year.  The economy has grown by 10 percent in inflation-adjusted
terms since the Real Plan was implemented and by 4 percent in 1997 alone.    

But the most impressive outcome of the plan has been to arrest the crippling
inflation rates of the early 1990's.  The inflation rate for the month of June
1994 alone had peaked at almost 50 percent, while the rate for the entire year
of 1997 is estimated to have been only 7.5 percent--reaching single-digit levels
for the first time in decades.  This was accomplished by instituting a tight
credit policy while opening the market to foreign competition and "de-indexing"
prices.  High interest rates have succeeded in attracting the capital inflows
needed to stabilize the exchange rate while helping to rein in expanded demand
that followed the decline of inflation. 

Despite nearly 4 years of  lower inflation and an expanding economy, Brazil has
yet to make the fiscal and administrative reforms needed to lock in these
improvements.  The stabilization program itself has not been without problems. 
The trade balance went from a surplus of over $10 billion in 1994 to a deficit
of almost $9 billion in 1997, and the current account deficit grew from $1.9
billion in 1994 to an estimated $26 billion in 1997.  The deterioration of the
trade balance is largely a function of lower import tariffs and an overvalued
currency relative to the U.S. dollar.  

The growing deficit is a concern particularly because of the shadow cast by
events in Mexico and Southeast Asia, where foreign investors pulled out their
money because of lack of confidence in the economies.  While a similar run on
the national currency cannot be ruled out for Brazil, the country's high
interest rates continue to attract a large volume of foreign capital inflows,
which help support the exchange rate.  The current account deficit is being
comfortably financed by a combination of foreign direct investment and long-term
debt, and in the short term it should remain manageable.  In the long term, the
government must achieve significant fiscal and administrative reforms, including
overhauling the tax system and reducing the government's payroll and pension
obligations.

Two measures taken late last year demonstrate Brazil's political will to defend 
the value of the real, consolidate some of the gains made over the last 4 years,
and tackle the large public-sector deficits.  In November 1997, the government
implemented a new program to reduce the budget deficit, including tax hikes,
budget cuts, reductions in fiscal incentives, and public-sector job cuts.  The
new program came on the heels of an earlier decision to significantly increase
interest rates in order to stem any currency and asset outflows the Asian crisis
might trigger.  As a result, Brazil's economy is expected to grow by only about
1 percent in 1998 compared with 4.4 percent forecast earlier.

USDA's baseline projections for Brazil assume that the effect of the Asian
crisis on the Brazilian economy will be short-lived, that public sector reform
will continue, and that inflation will remain under control.  Given these
assumptions, real GDP is expected to increase by 3 percent in 1999 and grow by
about 4.8 percent annually between 2000 and 2007.  The nominal exchange rate is
expected to continue to depreciate by about 9.7 percent per year over the
projection period.  In real terms, the exchange rate is expected to be about 1
percent stronger versus the dollar by 2007. 

Agriculture Has Benefited
From Reform Measures

The impact of the Real Plan on Brazil's agricultural sector appears to have been
positive.  The Central Bank of Brazil estimates that the agricultural sector
grew by 5 percent in 1997 to US$102 billion.  Nevertheless, the Real Plan has
apparently not yet eliminated a perennial problem for the Brazilian producer
--a shortage of available credit.

While most producers welcome the end of runaway inflation, those carrying large
debts have lost the advantage of having the principal reduced by inflation. 
Moreover, because the government has reduced funding for subsidized credit,
producers are finding it harder to roll over their debt.  Interest rates, while
high, have dropped , and rates for the agricultural sector are lower than market
rates.  But banks have become more selective when making new loans. 

For most producers, future planting decisions will now be made on the basis of
market prices, whereas before the Real Plan the government was a major buyer,
distributor, and holder of many agricultural commodities (particularly in the
grain sector).  The government has gradually removed itself from direct
management of markets, no longer buying all the national production of certain
products at a minimum guaranteed price and then distributing it to millers and
other buyers.  It has also gradually eliminated its large grain stocks through
periodic open auctions.  Except under a few government loan programs, producers
no longer will be allowed to deliver commodities to the government in lieu of
cash payment.

Possibly the most significant event for farmers since implementation of the Real
Plan was the law eliminating the state sales tax (ICMS) on primary and
semimanufactured exports.  Removal of the ICMS tax in September 1996 had the
greatest impact in the soybean sector, eliminating the tax advantage enjoyed by
crushers who export soybean meal and oil over exporters of unprocessed soybeans. 
The change resulted in a significant increase in soybean exports, which reached
a record 8.3 million tons in 1996/97.  

Exports of agricultural commodities have played a critical role in stemming
Brazil's growing trade deficit.  Between 1994 and 1996, the agricultural sector
contributed $25.3 billion to the trade balance, or an average of $8.4 billion
per year.  

The government has increased the availability of credit for exports by providing
interest rate guarantees to commercial banks that finance export sales, ensuring
access to financing at rates equivalent to those available internationally. 
Exporters are also able to acquire international financing by forward-selling
commodities through the Advancement of Exchange Contract (ACC) program, as long
as the commodities are exported within a specified period, usually 180 days.  

Reforms To Boost Exports 
Of Soybeans & Products

Brazil ranks as the world's largest exporter of soymeal and the second-largest
exporter of soybeans and soy oil.  Soybeans and products account for the largest
share (26 percent) of Brazil's agricultural  exports, bringing in about $4.4
billion in 1996 alone.  Over the next 10 years, the soybean sector is projected
to be the greatest benefactor of the Real Plan, as a stable economy and low
inflation help stimulate investment in transportation and marketing
infrastructure, opening the way for expansion of production in the Brazilian
frontier.

Already, soybean producers are responding to the new opportunities.  In 1997/98,
soybean area is forecast to have grown by 9 percent, reaching a record 12.9
million hectares and surpassing corn area for the first time in history. 
Removal of the ICMS tax helped account for the increase.  The USDA baseline
projects soybean area to remain above corn area, growing about 1.7 percent per
year from the average level of 1995/96-1997/98, to over 14 million hectares by
2007.  Some analysts believe this figure could be much higher, given the
potential for expansion into the relatively undeveloped "Cerrados" or savannah
region of central Brazil. 

Soybean yields are expected to continue to rise throughout the projection period
by an average of 1.7 percent per year from the 1995/96-1997/98 average.  By
2007, annual production is expected to be almost 11 million tons greater,
reaching 38 million tons.  

Exports of soybeans in 1997/98 are expected to drop by 10 percent from the all-time
high of the previous year to 7.5 million tons, still the second highest
amount on record.  While the elimination of the ICMS taxes has resulted in more
soybean exports, crush levels have seen little decline, as production of
soybeans increased dramatically (by almost 25 percent between 1995/96 and
1997/98) and crushers have increased their imports of soybeans.  

USDA projects that the bulk of soybean sector exports during the baseline period
will continue to be in the form of products, although the processing industry is
expected to crush a slightly lower proportion of total production.  All exports
of soybeans and soy products are expected to grow during the baseline period--
soybeans to 8.1 million tons in 2007, soymeal to 14.3 million tons (from 11.1 in
1997), and soy oil to 1.6 million tons (from 1.4 in 1997). 

Imports of Grains & Cotton 
Also Expanding 

In addition to being one of the world's largest producers and exporters of
agricultural commodities, Brazil is among the world's largest importers of
grains and cotton.  Wheat is the most important grain imported, accounting for
74 percent of total grain imports during 1992/93-1996/97.  During this period,
Brazil has had to rely heavily on imports, with less than 30 percent of
consumption coming from domestic production.  This was not always the case. 
During the late 1980's, Brazil was producing most of the wheat it consumed.  In
1987/88, when wheat production in Brazil reached its peak of 6.1 million tons,
86 percent of consumption came from domestic sources.  By 1995/96, wheat
production had dropped to 1.5 million tons, as producers were consistently
having difficulty obtaining subsidized credit, and as production costs were
increasing while guaranteed purchase prices had decreased. 

The situation has improved somewhat since then, and the 1997/98 wheat harvest
has been pegged at 2.8 million tons.  Still, this is far short of the
government's announced goal of 50 percent self-sufficiency.  Projections are for
land devoted to wheat to continue to decrease, although at a much slower rate
than during the previous 10 years, as those areas not suited to the high-quality
wheat demanded by millers and as consumers shift into other crops.  Yields,
which increased by only 0.5 percent per year on average over the last 10 years,
are expected to grow at a more rapid pace (1.5 percent) due to greater use of
improved seeds.  Still, production will not be able to keep up with demand, and
Brazil is projected to be importing close to 7 million tons of wheat by 2007.  

Rice is the principal grain produced for human consumption in Brazil and is
grown in every state in the country.  It has traditionally been the primary food
grain consumed in Brazil and remains, along with beans and cassava, one of the
main staples of many Brazilians, particularly  those in the lower income groups. 
Recently, however, per capita rice consumption has dropped slightly, as those in
higher income groups switch to wheat-based products (breads and pastas) while
those in the lower income groups use their increased purchasing power to consume
more meat and less of the traditional staples.  

Given the rate of income growth assumed in the baseline, per capita consumption
of both wheat and rice is projected to increase, but wheat by more, making it
the dominant grain consumed.  Nevertheless, Brazil is expected to continue to be
a major importer of rice, and in some years the world's largest importer.

Area harvested to rice has been steadily decreasing since the peak of 6.5
million hectares in 1979/80.  Area in 1997/98 is forecast to be about 3.6
million hectares, although production, estimated at 6.5 million tons, is almost
identical to that of 1979/80.  The production levels were maintained, in part,
because the drop in area has been in dryland production, while area under
irrigation has increased, improving average yields.  Future increases in
irrigated rice may be rare, however, as investment is shifting to Argentina and
Uruguay where land costs are lower and yields higher.  As partners of Brazil
under MERCOSUR, these countries can ship their rice to Brazil duty-free and have
already dramatically increased their rice exports to Brazil.  While rice yields
will continue to increase modestly in Brazil, production is not expected to keep
up with consumption, and imports are projected to increase to 1.8 million tons
by 2007 from 1 million in 1998.     

Corn is the major  grain produced in Brazil, primarily for the poultry and pork
industries.  As with rice, it is grown in every state and has shown impressive
gains in yields in recent years.  Brazilian corn yields jumped by over 30
percent between 1990 and 1992 to 2.36 tons per hectare,   and in 1997/98 yields
were 2.62 tons. As a result, Brazil has been able to increase production and
decrease imports while area contracted slightly.  Corn has had a difficult time
competing for area due to the higher profitability of soybeans and the fact that
financing for soybeans is more readily available through the government's export
financing programs.  

Competition between corn and soybeans is expected to remain strong, keeping corn
area from expanding significantly.  Corn yields are projected to increase about
2 percent per year, surpassing 3 tons per hectare by 2005 and leading to
production of 42.6 million tons by 2007.  Growth in demand for corn by the
livestock sectors is also expected to remain strong.  As a result, imports are
projected to expand to almost 2 million tons by 2007, from 750,000 in 1997/98.

Brazil Expected To Remain 
A Net Exporter of Meats

Brazil is the world's third largest poultry exporter, shipping its product to
about 40 countries, with almost 50 percent going to two countries--Saudi Arabia
and Japan.  Poultry meat exports have been among the fastest growing of Brazil's
export commodities.  The poultry industry has expanded production every year
since 1985, and output is expected to reach 6.7 million tons by 2007, a 50-
percent increase over the 4.4 million tons produced in 1997.  Exports grew by an
impressive 34 percent in 1996 alone, exceeding 500,000 tons for the first time. 
Exports are forecast to reach 740,000 tons in 1998 and to surpass 1.1 million
tons by 2007.  

The industry is currently expanding beyond the traditional poultry regions of
the south and southeast and into the center-west region of the country, which is
the corn/soybean belt.  The states in this region are trying to encourage more
industry with tax incentives and financing, and in some cases even providing
land for processors to construct facilities.  Most of the expansion is planned
to be self-sustaining and vertically integrated from feed mill through breeding
facilities, hatcheries, and processing plants.  The additional costs of
transporting the product to consumers will be largely covered by savings on feed
costs.  Most of the production from the center-west is apparently destined for
the growing domestic market.  

If exports are to increase, the industry must keep ahead of local demand, which
grew by an impressive 10 percent per year between 1985/86-1987/88 and 1995/96-
1997/98.  Per capita consumption of poultry is expected to grow from about 23 kg
in 1997 to 30 kg in 2007.

Despite this impressive growth in poultry consumption, beef remains the meat of
choice for the Brazilian consumer (36 kg per person in 1997) with pork (9 kg) a
distant third.  Per capita beef consumption is projected to grow to 39 kg by
2007, with pork increasing to 11 kg.  By 2007, Brazil's per capita meat
consumption is expected to exceed 80 kg, very close to that of the region's
largest meat consumer in per capita terms, Argentina.

Brazil has the second largest beef herd in the world after China, and was the
third largest beef producer in 1997 after China and the U.S.  Like Argentina,
Brazil's beef is grass-fed, making the sector heavily dependent on extensive
pastures.  The practice of finishing cattle in feedlots is not widely practiced,
although it is on the rise.  Since 1980, beef production has been expanding at a
relatively steady rate of about 4 percent per year.  Future growth will depend
on structural adjustments in production and a more efficient marketing system as
competition from both poultry and pork has intensified.  Brazil is in the
process of genetically improving its beef herd through crossbreeding, while
attempting to reduce the slaughter age by improving weight gain.  Current
projections are for beef production to increase to 7.2 million tons by 2007, or
by about 2 percent per year.

Beef exports have decreased in recent years, dropping to an estimated 240,000
tons last year, the lowest since 1980.  The decline is considered to be a
combination of numerous factors, including the demand depressing effects of the
BSE outbreak in Europe (the European Union had been accounting for about 60
percent of Brazil's exports), the overvalued Brazilian currency, and strong
international competition.  Current estimates are for exports to rebound
slightly in 1998 and to once again surpass 300,000 tons by 2007.  Brazil is
anticipating that two of its southern states will obtain status by May 1998 as
areas free of foot-and-mouth disease.  The Brazilians see this as an enormous
opportunity to begin exporting unprocessed beef to Asia and to bring their
exports up to levels on par with the record 580,000 tons reached in 1988.     

The pork sector has also experienced steady growth, and the long-term prospects
for pork production in Brazil are assumed good.  Like the poultry industry, the
pork industry is highly integrated and is expanding into the center-west region
due to the combination of state incentives and proximity to grain and soybean
production.  Pork production is expected to increase by 3.3 percent per year
over the projection period, reaching 2.1 million tons by 2007, while exports are
projected to expand to 125,000 tons, more than double last year's level.

The Tasks Ahead

The overall effects of Brazil's reforms on the agricultural sector are mixed. 
Growth in production and exports have been strong, but the sector remains highly
indebted and credit is tight.  In order to be more competitive in an open-market
economy and realize its full production potential, the Brazilian agricultural
sector will have to depend on further macroeconomic reforms to bring down high
domestic interest rates.  In addition, Brazil's expensive inland transportation
system, where most products move by truck and not rail or barge, will have to be
improved, as will its ports, which currently levy excessive charges on exports.

The Brazilian government and private sector are currently undertaking a number
of infrastructural projects to improve the transportation and port systems. 
With recent completion of the Northwest Corridor project, soybeans grown in part
of the Cerrados region can be trucked to a port on the Madeira River and then
barged to the Amazon River for loading on an oceangoing vessel.  Transport costs
savings are estimated as much as $30 per ton via this route, compared with
trucking the beans to ports in the center-south region.  A host of other
transportation improvements are underway to link the Cerrados region via road,
river, or rail to river and ocean ports.  Such improvements will also lower the
costs of imported goods like lime and fertilizers.

The hyperinflation that plagued Brazil in the recent past has been controlled,
and the economy has been significantly opened to market forces.  However, the
stabilization program is still incomplete and problems remain, particularly in
Brazil's external accounts.  Further reforms may be necessary to avoid a
financial crisis that precipitates a run on the Brazilian currency and repeats
the recent experience of Southeast Asia.  

For many years, Brazil was viewed by economists as a country where enormous
risks were outweighed by tremendous opportunities.  In recent years, Brazil has
made huge strides toward eliminating many of those risks.  
John Wainio (202) 694-5286
jwainio@econ.ag.gov

BOX 1
Brazil's Agricultural Potential

Brazil's agricultural sector is the country's largest employer.  Most of the
growth in agricultural output during the last 10 years has come in the form of
productivity gains, as farmers adopted new technologies and lowered costs in
order to deal with the competitive pressures caused by real exchange rate
appreciation, the opening of markets to international or regional competition,
and rising real wages.  Higher yields have been the product of improved seed and
pest control management and increased use of fertilizer and irrigation.  There
has been a trend toward greater mechanization in order to reduce labor needs.
The share of the labor force in agriculture has dropped from 37 percent in 1980
to an estimated 25 percent in 1996.

The land in agricultural use is approximately 230 million hectares, or about 27
percent of the country's total land area of 845 million hectares.  Of this,
pasture accounts for the bulk, about 170 million hectares.  Of the remaining 60
million hectares of arable agricultural land, about 52 million hectares are
planted to annual crops, of which grains and oilseeds make up about 60 percent,
or 32 million hectares.  

There is potential for more land being drawn into use for agriculture in the
undeveloped Cerrados or savannah region of central Brazil.  The loosely defined
Cerrados accounts for between 180 and 207 million hectares, of which only about
10 million is currently planted to field crops, primarily soybeans.  Pasture
accounts for between 35 and 45 million hectares, with another 2 million in
permanent crops (e.g., citrus).  

The land in the Cerrados is fairly flat with sparse cover, mostly grasses and
brush.  The topography makes it easy to clear and suitable to heavy machinery,
but the soil needs heavy applications of fertilizers and lime due to its low
fertility and high acidity.  Nevertheless, yields in the Cerrados are above the
national average.  Rainfall during the soybean growing months is considered more
than adequate and consistent, and drought is rare.  Land is plentiful and, at
the moment, fairly affordable. 

But it will take a significant expansion in the transportation infrastructure
and remunerative prices for the Cerrados to be fully exploited.  Most of the
unexploited land is far from the ports and consumption centers, which means
prohibitively high transportation and marketing costs.  Should the
infrastructure be built, however, some analysts believe that area to crops could
increase between 5 and 12 million hectares in the medium term (5 to 10 years)
with long-term potential for expanding crops onto an additional 60 million
hectares--an area equivalent to the total land currently planted to corn and
soybeans in the U.S.

Future growth in Brazil's food consumption will be driven mainly by increased
income, as population growth has slowed dramatically over the last 30 years. 
Brazil's population is expected to grow annually by less than 1 percent over the
next 10 years, reaching 180 million by 2007.  The continued migration from the
countryside to the cities, coupled with strong income growth in the future, will
cause major changes in the consumption patterns of the average Brazilian, some
of which are already in evidence.  

BOX 2

USDA's baseline projections are not intended to forecast the future, but rather
to construct a picture of Brazil's agricultural sector under a set of specific
assumptions and outcomes.  The results are the product of many approaches,
including modeling and expert analysis, and are predicated on the assumption
that Brazil's current macroeconomic and agricultural policies continue through
the projection period.  This assumes that the government can continue to support
the Brazilian currency and to continue its commitment to the reform program. 

END_OF_FILE