The agricultural sector is beset with stagnant or falling exports, lower farm prices and rising costs due to high interest rates and increased debt. Many farms have been pushed to serious debt-to-asset positions. Farm numbers are beginning to drop again after stabilizing between 1978 and 1982, and the drop could accelerate. Meanwhile, there is a group of profitable farms that earn most of the farm income and produce most of the crops. In this dichotomous environment, target prices have promoted high production capacity; loan rates have inhibited price competitiveness; and acreage reduction programs have encouraged foreign area expansion. Further, program costs have soared while the Federal deficit has approximated a quarter of Federal outlays. The 1985 Farm Bill must address the weaknesses of policy tools and the farm financial situation, under strong budget constraints.