Following the 1988 drought, nine States in the Upper Midwest received 70 percent of Federal crop damage payments and 40 percent of the livestock feed disaster payments which were made through August 1989. Net farm income dropped in this region while rising in the rest of the country. However, farms in both the severe drought region and the rest of the country continued to improve their solvency position. The number of debt-free farms increased in the drought region, and the number of farms experiencing financial distress slightly decreased. Total direct Government payments (including disaster payments) and Commodity Credit Corporation (CCC) loans were lower in 1988 than in 1987. The average farm in the drought region survived financially by selling off inventories and by taking advantage of higher commodity prices to redeem CCC loans.