In the 1970s, changing diets worldwide, bad weather in Russia, and U.S. government policies combined to create a boom in rural America.
After the deprivations of World War II, people all over the world were gradually eating more bread, meat and poultry – all food items that require grain to produce, like corn, soybeans and wheat. During the 60s, livestock, rather than people, became the main consumers of American grain.
That was true in the Soviet Union, as well. During his leadership from 1964 to 1982, Premier Leonid Brezhnev made it official Soviet policy to maintain steady growth in the livestock industry. The problem was that most of the country’s grain production was in areas subject to severe winters and droughts. Harvest failures came repeatedly and were usually severe.
In the summer of 1972, the Soviets shook up the grain market when it hid from the world the fact that their grain harvest was in trouble. Then they made secret deals with the five biggest American grain companies for 24.2 million tons of grain worth almost $1.5 billion in 1972 dollars – $7.6 billion in 2009 dollars.
The deal came at the same time as the Nixon administration was trying to ease tensions between the world’s two super powers (at that time) and to bolster U.S. farm income to help win that year’s presidential election. Nixon’s Agriculture Secretary Earl Butz favored increased agricultural exports, and allowed the grain trading companies to continue to receive subsidies on the price and transportation of the Russian grain stocks to seaports.
There was some question whether or not Butz realized that the Soviets were buying up one quarter of the entire U.S. wheat crop, but he did nothing to stop the sale despite the fact that it eventually raised food prices. He said, “I make no apology for my desire to raise farm prices.”
As the supply of grain dried up and U.S. stockpiles were depleted, Butz advocated increasing production. In 1973, he reduced the number of acres “set aside” – or taken out of grain production – from 25 million acres in 1972 to 7.4 million acres in ’73. He went on a speaking tour and encouraged farmers to “plant fence row to fence row” to meet global demand. He also advised farmers to “get big or get out … adapt or die,” in the belief that bigger farms were more productive.
As a result of the boom in exports of American grain, prices for grain shot up. In the chart below, it looks like there was an unprecedented spike in corn prices in 2008. But, if you hit the button that adjusts prices for inflation, there is was a huge spike in corn prices after the Russian grain purchase. In terms of 2009 dollars, corn reached the equivalent of over $15 in 1973.Overall farm income jumped along with grain prices, from $2.3 billion in 1972 to $19.6 billion in ’73. Farm income stayed high for most of the decade. Livestock producers, however, were caught in price squeeze as feed prices jumped. Millions of hogs, cattle and chicken were sold for slaughter as producers reduced their inventories.
In addition, consumer food prices jumped.
In order to “plant fence row to fence row,” farmers tore out shelter belts and other conservation land uses. They went heavily into debt to finance their expanded operations. For a few years, those actions seemed like a good business decision.
Earl Butz stayed on as Secretary of Agriculture after Nixon was impeached and engineered legislation sharply reducing federal subsidies for farmers. He believed that a free, global market would bring higher prices, and for the few years that Russian agriculture struggled, he was right. Then, during President Ford’s election campaign of 1976, Butz told a racially offensive joke, and he was forced to resign.
At that time, the Russian grain purchase of 1972 was the largest grain deal between two nations in history, and it set in motion a host of changes that would dominate agricultural history for at least the next two decades.