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Stock Plunge Could Bring Some Benefits For Farmers

November 25, 1987

WASHINGTON (AP) _ The stock market plunge on Black Monday, Oct. 19, has thrown many financial analysts into a tizzy over what may lie ahead, but an Agriculture Department analyst says it could mean some benefits for farmers.

Some analysts have suggested a recession is likely in 1988, although it is too early to make an accurate assessment, according to Ralph Monaco of the department’s Economic Research Service.

″It is likely that economic growth (nationally) will be lower in 1988 than expected a few months ago,″ he said. ″Somewhat surprisingly, however, agriculture may find itself facing better credit terms and stronger export demand in 1988, even if these are accompanied by slightly weaker domestic demand.″

Monaco said the farm economy ″may improve because the earliest effects of the stock market decline have included a sharp drop in interest rates and in the value of the dollar.″

Whether the economy will sag into a recession next year depends on consumer spending, he said. The decline in stock market wealth probably will mean some reduction in 1988 consumer spending, but that alone probably would not cause a recession.

″A consumer slowdown, however, could reduce business confidence, bringing down capital spending and further reducing overall activity,″ Monaco said. ″The confidence factor is intangible and hard to assess, but if enough confidence is lost, a recession is more likely.″

Monaco said lower interest rates could offset an erosion of confidence, noting that in the wake of the Oct. 19 plunge the Federal Reserve increased the liquidity of the financial system to avoid a more general crash. Interest rates dropped by almost a full percentage point.

″If lower interest rates continue, they ought to prop up interest- sensitive sectors of the economy - housing, consumer durables, and business plant and equipment,″ he said. ″On balance, it is hard to predict how much the expansion effects of falling interest rates will offset the contraction effects of lower consumer wealth.″

Monaco, in a new outlook report, said the decline in the value of the dollar against foreign currencies has also added uncertainty.

Lower interest rates in the United States ″could cause capital to leave the country in search of a higher return elsewhere, leading to a drastically lower dollar,″ he said.

″When capital leaves, domestic interest rates are forced up - unless the Federal Reserve supplies more credit,″ Monaco said. ″If too much credit is supplied, however, inflation could be rekindled.″

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WASHINGTON (AP) - The Soviet Union has bought an additional 707,000 metric tons of U.S. wheat at subsidized prices for delivery in 1987-88, the fifth and final year of a long-term grain supply agreement, according to Agriculture Department trade officials.

The sales, equal to about 25.9 million bushels, were handled by five companies: Louis Dreyfus Corp., 350,000 tons; Cargill Inc., 82,000; Union Equity Cooperative Exchange, 50,000; Artfer Inc., 200,000; and Peavey Co., 25,000.

Melvin E. Sims, general sales manager for the department’s Foreign Agricultural Service, said Tuesday the sales were part of an authorized 2.4 million tons of wheat announced Nov. 9 for the Soviet Union under the Export Enhancement Program, or EEP.

Although no selling prices or other details were announced, recent prices of wheat at farm points have averaged around $2.50 per bushel, indicating a sale value of about $72 million.

Earlier this year the Soviets bought 4 million tons of wheat under EEP, which allows exporters to sell commodities at reduced prices in order to meet foreign competition and then collect free government surpluses of grain or other commodities as bonuses, or subsidies.

Sims said the bonuses for the wheat sales averaged $33.57 per ton, or about 91 cents per bushel. A metric ton is about 2,205 pounds and is equal to 36.7 bushels of wheat or soybeans.

Before exporters began the current round of selling subsidized wheat, the Soviet Union had bought only 65,000 tons for delivery in 1987-88. The new sale raised the total to more than 1.7 million tons. An additional 743,000 tons still remain available to the Soviets under the current EEP program.

In addition, the Soviets have bought 1.6 million tons of corn for 1987-88 delivery, plus 800,000 tons of soybeans and 600,000 tons of soybean meal.

The Soviets are committed under the agreement to purchase at least 9 million tons of U.S. grain annually, including a minimum of 4 million tons each of wheat and corn.

But they have the option of buying the remaining 1 million tons as wheat, corn or beans, with every ton of soybeans or meal counting as two tons of grain - up to a maximum of 1 million tons.

According to the formula used in the agreement, the orders for soybeans and soybean meal - a total of 1.4 million tons - more than substitutes for the 1 million tons of grain specified by the pact. The Soviets still must meet the other terms calling for 4 million tons each of wheat and corn, however.

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