FARMERS / FEELING SQUEEZED : Costly Oil, Lower Grain Prices a Double Blow to Breadbasket

Northern California farmer Topper Van Loben Sels is putting off buying another tractor this year. Instead, he will repair the old one and hope it lasts through the spring planting.

Van Loben Sels, who works his family’s 3,000-acre farm south of Sacramento with his brother, expects the Persian Gulf crisis to force him to scrounge up an extra $50,000 to cover diesel fuel costs for this year’s harvest.

He is one of thousands of farmers across the nation who will soak up much of an estimated $1.7 billion per year in higher farm production expenses if oil prices remain around $30 a barrel--up from the $20 range--as a result of the cutoff of oil exports from Iraq and Kuwait.

Some farmers will be hit doubly hard: The trade sanctions imposed against Iraq and unusually competitive European Community grain markets are reducing demand for U.S. grain exports, causing prices to plummet.

HIGHER SHELF PRICES: American consumers can expect to pay part of the fuel bill in the form of increased food prices, a recent projection by the U.S. Department of Agriculture says.

Higher transportation costs are expected to boost retail food prices about 2% next year, the agency said. And that will be on top of an estimated 5% increase caused by general inflation.

This year, food prices are increasing 5% to 7%, reflecting factors largely unrelated to the Middle East crisis, such as sharply higher prices for beef, pork, dairy and fresh fruit, the agency says. Last year’s 5.8% increase was the biggest food price climb since 1981.

ANOTHER BAD BREAK: For farmers, the Persian Gulf situation has become one more complication among the usual array of unforeseen natural phenomena and unpredictable supply and demand fluctuations.

For example, in southern Illinois, corn crops were planted late in the season because of heavy rainfall, so the corn must be artificially dried by propane gas heaters before it can be stored for the winter.

For Dick Lathrop, the gulf crisis will add $250 each day to his average $500-a-day propane bill.

EXPORTS SUFFERING: Montana’s grain farmers are getting whipsawed by the Iraq embargo. Not only are their costs for fuel and fertilizers rising as a result of the disruption of crude oil shipments, but demand for wheat is unusually low and worldwide production is high.

Because of extremely low European grain prices, the U.S. subsidy program offered the highest bonus levels in years last week, paying more than $50 a ton contrasted with an average $28 a ton in the last few years, an Agriculture Department official said.

The Export Enhancement Program distributes surplus, government-owned commodities, called “bonuses,” to exporters to compensate for U.S. exports sold at world-market prices.

At the same time that export prices are dropping, importers are buying less U.S. wheat.

Iraq imports more than 75% of its food, and the loss of 1.4 million tons of Iraqi wheat purchases is hurting U.S. farmers. Iraq also has been the largest market for U.S. rice exports.

POOR OUTLOOK: In California, a summer drought stunted crop production. The Van Loben Sels are now harvesting their 500 acres of tomatoes, and low production coupled with a preset contract price with Campbell’s Soup Co. are tilting the economics against the family.

“We can all take Mother Nature, because you expect ups and downs, so you put that in your budget,” Topper Van Loben Sels said. “But fuel, well, you pretty much figure on it varying only a penny or two. Now, the fuel hike is just one more thing to deal with.”