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Increased Farmland Values Seen as Turnaround in Farm Sector

December 4, 1987

WASHINGTON (AP) _ Farmland values are rebounding after six years of decline, but Agriculture Department economists say no major boom is in sight.

Only a small fraction of the $300 billion plummet in land values has been recouped so far, and next year’s gains could be even less. Even so, USDA experts say the turnaround in land rices is significant.

″Farm investors have regained sufficient confidence to bid up land prices from 8 percent to 10 percent during 1987 in states such as Illinois, Iowa, Kansas and Nebraska,″ the department’s annual Agricultural Outlook Conference was told Thursday.

″While the return of rapid land value inflation is not foreseen, a stable or moderately strengthening land market in the remainder of the 1980s represents the single most critical indicator that the agricultural economy has turned the corner of its financial crisis,″ analysts said. ″The stabilization of the real estate asset base is an indicator that investors have renewed confidence in the long-run profitability of agriculture.″

In their report to the conference’s closing session, the USDA team of economists said that while the situation generally is improving and will continue to do so in 1988, there are still thousands of farmers who are burdened severely by large debts.

″The outlook for farm finances is one of guarded optimism,″ the report said. ″In late 1987 the agricultural economy is characterized by income recovery, a lower debt burden and asset stabilization.″

Current returns on farm equity and assets are in the range of 3 percent to 5 percent, higher than in most years during the 1960s and 1970s, the report said. However, the economists warned that ″persistent financial stress will continue″ next year, particularly for highly leveraged grain farms with substantial interest or rent expenses.

″Our estimate, which may prove conservative, is that farm real estate asset values will have risen $15 billion to $25 billion nationwide in 1987, and could rise an additional $5 billion to $10 billion in 1988,″ the report said.

The 1987 rise in farmland values - which includes buildings - compares with an average annual decline of $80 billion in 1984-86.

Beginning in 1981, the market value of U.S. farmland dropped almost $300 billion, including a drop of 48 percent to 64 percent in the Corn Belt and Northern Plains states stretching from Ohio to Nebraska.

″Land deflation made collateral supporting many farm loans insufficient to protect the lender,″ the report said. ″Farms with positive cash flow suddenly were perceived as not credit worthy because of low or negative equity positions (of net worth).″

The early 1980s brought a wave of ″widespread financial stress″ to farmers, the report said. Using several economic measures, analysts said that between 9 percent and 16 percent of the nation’s commercial farmers suffered ″some degree of financial stress″ by the end of last year.

″These farms held from 20 to 25 percent of commercial farm debt,″ the report said. ″It is also apparent that recent financial progress has occurred, since both the percent of farms and farm debt in stress declined between 1984-86.″

Earlier in the conference, USDA officials forecast net farm cash income this year at a record level of around $57 billion, the difference between gross cash income and cash expenses. It is expected to decline in 1988 to between $50 billion and $55 billion.

One reason for the climb in net cash income has been a sharp downturn in expenses, a decline of $25 billion since 1984, reflecting the easing of inflation and reductions in the use of manufactured ″inputs″ such as fertilizer and pesticides.

But 1988 will see farm expenses stabilize, largely the result of higher costs for feed, seed, fertilizer, machinery repair and labor.

″This incremental increase in cash expenses likely signals the end of a period of dramatically improving cost structure,″ the report said. ″Large additional declines in fuel, chemical, pesticide and interest expense are unlikely to occur in the next few years.″

Government payments are playing a major role in the farm income picture and will be at record-high levels this year for wheat, rice, corn, barley, oats and cotton, the report said.

Those commodity payments are expected to be nearly $14 billion. Additionally, the report said, more than $3 billion will be provided for storage, dairy herd buyouts, conservation, disaster, wool and other programs.

Overall, total government direct payments to farmers and other spending by the department’s Commodity Credit Corp. ″are likely to stabilize in 1988,″ the report said. The 1987-88 payments PM-US-Soviet Arms, 2nd Ld-Writethru, a0578,780 Ex-Pentagon Official ‘Horrified’ By Administration’s Arms Concession Eds: Top seven grafs are new; 8th graf revised for transition; picks up 4th graf, ‘That’s exactly...’ By BARRY SCHWEID AP Diplomatic Writer

WASHINGTON (AP) - The Pentagon’s former top arms control specialist today said he was ″horrified″ by a signal from the Reagan administration that it may no longer insist on a ceiling on Soviet land-based intercontinental ballistic missile warheads.

Frank Gaffney Jr., who was ousted two weeks ago in a policy dispute, said ″it is a serious mistake and it’s unprofessional.″

Gaffney told reporters the administration was playing into the Soviets’ hands. ″One of the oldest tricks in the book is to pocket the concession without giving anything at all,″ he said.

Referring to the concession proffered by Kenneth L. Adelman, the U.S. arms control director, Gaffney said ″I’m horrified to read that in the papers.″

On Thursday, Adelman said a ceiling on land-based ICBM warheads was ″not essential″ to a treaty to slash strategic nuclear weapons. The agreement would contain a number of other limitations, however.

Gaffney was ousted by Frank C. Carlucci, the new defense secretary, in a dispute over another arms control accord - the one President Reagan and General Secretary Mikhail S. Gorbachev will sign next week to ban intermediate-range missiles.

He contended the administration erred by setting a summit deadline to complete the accord and was making mistakes on verification procedures in a rush to meet it.

The conciliatory U.S. stance signaled by Adelman, who is stepping down after the summit, suggested the administration wants to follow that INF treaty with a quick agreement on strategic, or long-range, weapons. And in an appearance today on CBS’ ″This Morning″ program, chief arms control adviser Paul H. Nitze said discussions of long-range weapons were high on the agenda.

″That’s exactly what I hope they will focus on,″ he said.

Talking to a group of reporters, Adelman said the ceiling of 3,300 land- based warheads proposed by the administration for a year was ″not essential″ if other issues in a treaty on long-range weapons could be resolved. The Soviets currently have about 6,400 such warheads.

But Adelman said the United States still would insist on an overall ceiling for ballistic missile warheads. Some are deployed on land and the others at sea.

American negotiators have proposed 4,800 as a ceiling. The Soviets have not responded formally in Geneva with a counteroffer, but Gen. Sergei Akhromeyev, the military chief of staff, has suggested 5,100.

Earlier this week, Max M. Kampelman, the chief U.S. negotiator, said if the Soviets put that figure on the table it could be a basis for settling the issue.

Adelman said a ceiling between 4,800 and 5,100 would be acceptable.

Adelman said dropping any sub-ceiling on ICBM warheads would give the two sides more freedom to choose the kind of weapons they would retain under a Strategic Arms Reduction Treaty.

Reagan and Gorbachev agreed last year at the Reykjavik, Iceland, summit to limit their strategic warheads to 6,000. But the Soviets have not accepted U.S. proposals for sub-ceilings on various categories of weapons.

Adelman said the talks would be ″a raging success″ if the Soviets accepted U.S. proposals for an overall limit of 4,800 to 5,100 on ballistic missile warheads, restraints on heavy missiles and a formula for counting the weapons under the treaty.

But, he said, the 3,300-warhead ceiling on ICBMs sought by U.S. negotiators since the Iceland meeting could be dropped in order to get an agreement.

″I’m saying to me it is preferable to have an ICBM sub-sub limit,″ Adelman said. ″I’m not convinced it’s essential.″

The Soviets also have proposed a similar ceiling, and Adelman said they might want to include it in the treaty Reagan hopes to sign next June in Moscow.

The accord would cover American and Soviet long-range nuclear bombers, missiles and submarines. Reagan has presented it as a 50 percent reduction in the two sides’ arsenals, but some analysts estimate the cutbacks would be 30 percent to 35 percent.

Adelman said the principal unresolved issue is how to guard against violations. A second issue, the U.S. arms control director said, is whether to ban mobile ICBMS.

The United States wants to outlaw the weapons. The Soviets do not.

Differences over the various ceilings also must be settled before a treaty can be completed.

And yet, Adelman said, both sides want an agreement.

″I tell you what the Soviets want worst of all,″ the U.S. official said. ″They want Ronald Reagan to come to Moscow. They keep talking about it, insisting on it, in a way that is far more exaggerated than I would ever have expected, and more pronounced than I would ever have expected.″

The U.S. arms control director said the most likely outcome of next week’s summit is directions by Reagan and Gorbachev to their negotiators ″to put this stuff into a treaty text.″

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