(FORTUNE Magazine) – The consequences of the drought of 1988 begin with the pain of individuals; eventually the effects will spread around the globe. Still, this isn't the end of the world, even for most farmers. As a group, tillers of the soil are in better shape to withstand an off year than they have been in a long time. After two years of record income, the mound of debt piled up during the early 1980s has been reduced substantially. And over the past year and a half, the value of U.S. farmland increased by nearly 10%, reversing a six-year slide. ''All told, the level of financial stress among farmers is much less than three, four, or five years ago,'' says Kansas City Federal Reserve Bank economist Mark Drabenstott. Among grain farmers, wheat growers will lose the least this year. Winter wheat, most of it harvested already, accounts for 75% of the total 2.2 billion bushels originally expected this year. The total U.S. wheat crop for the year is likely to be reduced from the initial estimate by about 15%, says Raymond Daniel of the WEFA economic forecasting firm. Wheat farmers also have large stores from previous years to sell at prices up 50% over last year. Other farmers and ranchers could be in for tougher times. Daniel expects a 30% reduction in the corn crop. Farmers with no crops to sell are in double trouble. As Drabenstott explains, ''The U.S. commodity programs were conceived to help farmers maintain income during periods when surpluses drive market prices down.'' Market prices soared past the programs' target prices in mid-June, eliminating government payments. Because of the shortage and high cost of feed, ranchers are slaughtering livestock instead of starting to rebuild herds from the low levels of the past year or two. So cattle and hog prices are falling. The drought will have repercussions beyond the farm economy, which by itself accounts for less than 2% of personal income or GNP. The rate at which food prices increase should be at least 5% for the rest of 1988. So far, meat prices have offset some of the increases in other foods. By 1989, though, the meat surplus will turn into a shortage, sparking a faster advance in overall food prices. Higher commodity and food prices, by themselves, cause only limited, short- lived inflation damage according to economists at the St. Louis consulting firm Laurence H. Meyer & Associates. They calculate that the direct price effects of the drought will reduce next year's consumer spending growth by some 0.3 of a percentage point and raise general inflation by 0.2 of a point. But concern about food budgets could exacerbate an already worrisome push for higher pay next year. The drought knocked suppliers of farm equipment back a step -- the weak dollar had rescued the industry after a disastrous six years. Farther afield, food exporters such as Brazil and Argentina will gain from high prices while importers of food such as Egypt and South Korea will be big losers. The drought may also have a salubrious effect on the U.S. budget deficit, which could be reduced by about $10 billion because of lower payments to farmers and smaller grain storage costs. But don't count on it. In this election year, Congress is likely to come through with relief enough to eat up a good part of any prospective savings.