EXPORT SUBSIDIES LIKELY TO STAY

EXPORT SUBSIDIES LIKELY TO STAY

The United States is again expected to live up to its reputation as the world's breadbasket, despite desires by some Washington lawmakers to change America's relationship with its farmers.

Although a move was recently turned back in the House of Representatives to

cut some basic farm-support programs heretofore considered sacrosanct, farm policy still faces an uncertain future at the hands of U.S. budget-cutters.These programs distort supply and demand fundamentals and are costly to the consumer, some public officials say. Farmers argue that subsidy programs allow them to stay in business and remain competitive in export markets.

In any case, analysts say, Congress is unlikely to tamper with export incentives despite pressures to cut government spending.

Export subsidies have been the backbone of American grain sales abroad.

"The U.S. will have to subsidize grain sales abroad as long as the European Union does likewise," said Tom Earley, a partner in the Alexandria, Va., consulting firm of Abel, Daft & Earley.

Analysts expect that 1995 will be a good year for U.S. grain exports. Demand is rising and prices are firm as a result of smaller crops in the United States, China, and the former Soviet republics.

All eyes have been on the American midsection as crops there entered the final stages of maturation. In particular, Illinois and Iowa were hurt badly by drought in July and August, which reduced yields for corn and soybeans.

The U.S. Department of Agriculture's September crop report forecast a corn harvest 22.5 percent lower than last year's, at 7.83 billion bushels. The 1994 crop was a record 10.1 billion bushels.

The USDA also projected U.S. soybean production at 2.28 billion bushels, up 2 percent from last month's forecast but 11 percent below the record high of 1994.

Some fields where producers expected yields of 50 bushels an acre are more likely to produce 25 to 35 bushels, having baked in nearly 100-degree temperatures this summer with very little rain to cool things down, analysts said.

Hot weather hampered corn plants' ability to supply nourishment to fill out kernels, and stunted soybean development during the key pod-filling stage last month, traders said.

The forecast for the Illinois corn crop, the nation's largest, put the yield at an average of 126 bushels an acre, down seven bushels from the Aug. 1 forecast and 30 bushels below the 1994 average of 156. The expected drop in corn production is the result mainly of the August heat, a spokesman for the Illinois Agricultural Statistics Service said.

"Essentially, we just burned up the crop," said DeWitt Caillavet, an agricultural economist at Mississippi State University.

While U.S. grain farmers are having an off-year, other major grain producers are facing far greater problems with drought and shortages of fertilizers and other supplies.

This has made for especially tight world supply conditions, analysts said. ''Circumstances are very different in other parts of the world," said Steve Freed, a grain analyst at Chicago's ADM Trading Co., a subsidiary of Archer Daniels Midland. Mr. Freed confirmed USDA projections of tight world supplies, especially of wheat in the 1994-95 crop year (July-June) among major exporters. Prices are likely to remain higher and "highly sensitive to any unforeseen spikes in import demand," the USDA said in its September Grain World Markets and Trade report.

The current boom in U.S. farm exports is expected to be more sustainable than previous surges dominated by bulk commodities. The reason is that U.S. producers are shipping a greater variety of products to a larger number of countries. U.S. agricultural exports should eclipse the record set in 1981. The export data are for fiscal years, with the 1995 year ending Sept. 30.

Economists and trade officials predict U.S. agricultural sales will reach $51 billion this year, surpassing the $43.8 billion record set in 1981, just before farm exports crumbled and fell 40 percent in five years. Moreover, they believe that overseas sales aren't nearly as vulnerable to sudden downturns as they were in the early 1980s.

The record farm exports are expected despite at least a 12 percent drop in sales to Mexico, the United States' third-largest market, resulting from the peso's devaluation, The Journal of Commerce reported this month.

"This export expansion is much more sustainable," said August Schumacher, administrator of the U.S. Agriculture Department's Foreign Agricultural Service.

Mr. Schumacher said it is important for the United States to maintain this trade growth so that "we might not have a repeat of the 1970s when we saw a tremendous export boom, only to be followed by a shrinking U.S. market share."

U.S. farm exports are benefiting from other factors. Farmers in many foreign countries have been protected from imports for so long that they are often unable to compete in an era when tariffs are being eliminated under World Trade Organization rules.

U.S. agriculture is relying more heavily on exports almost every year. The 1994 figures for California, the top U.S. farm state, show that 32 percent of its $20 billion in agricultural production is now exported.