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California Association of Wheat Growers (CAWG)

January 16, 2006

FUEL EXCISE TAX LEGISLATION MOVING IN CALIFORNIA LEGISLATURE. CAWG was recently contacted by Board of Equalization member Claude Parrish urging us to oppose AB 674 by Assemblymember Klehs. The bill, which is sponsored by the California Independent Oil Marketers Association (CIOMA), will shift the burden of paying excise taxes on clear diesel from the marketer to the buyer/grower/rancher. This would have the effect of raising the diesel price of clear diesel used for exempt off-road purposes by 18 cents; the buyer could later apply for a refund of that excise tax. Today, the marketer of the fuel pays the tax based on a percentage of estimated use provided by the buyer. The basis of this legislation is a change in federal law signed by the President in October which now requires the farmer to pay the 24 cent federal excise tax upfront and apply for a refund from IRS. CIOMA states that the IRS pursued the change in federal law to increase the use of dyed diesel fuel and to make it more difficult for growers to avoid paying taxes for non-exempt uses (i.e. highway use) of clear diesel. BOE Member Parrish is taking an aggressive position in opposition to this change. Last week, CAWG joined more than 20 other agricultural groups on a letter of opposition, which was sent to the Appropriations Committee in advance of its hearing this week. The bill was already approved unanimously by the Assembly policy committee.

 ASSESSMENT PROCESS MOVES ANOTHER STEP FORWARD. Under legislation passed by Congress last year, each state requesting USDA to collect assessments on commodities going under loan was required to obtain a formal letter from the state Attorney General verifying that state law is in compliance. With the help of the Marketing Branch at CDFA, that letter was delivered to the State Director of the Farm Services Agency of USDA earlier this month. This clears the way for the California Wheat Commission to get a new Memorandum of Understanding in place before this year’s harvest.

 GOVERNOR SUPPORTS MINIMUM WAGE INCREASE. In his annual State of the State speech on January 6^th, the Governor announced his support for an immediate increase in the minimum wage. On Tuesday, Republican Senator Abel Maldonado introduced the Governor’s proposal in SB 1167. It increases the minimum wage from $6.75 to $7.25 effective September 1, 2006. A second increase to $7.75 would become effective on July 1, 2007. The bill is an urgency measure requiring a two thirds vote in the Legislature, which means that bipartisan support will be needed for passage. The Governor’s proposal may be viewed by agriculture and business sectors as preferable to a possible ballot measure that would include both a higher increase and an indexing provision.

NAWG CALLS FOR EARLY CONSERVATION SECURITY PROGRAM SIGN-UP. In a letter to Secretary of Agriculture Mike Johanns, NAWG joined with several other agricultural organizations urging the Secretary to move quickly in beginning a 2006 sign-up for the Conservation Security Program. In part, the letter stated "We, the undersigned organizations, urge you to issue the 2006 Sign-up Notice for the Conservation Security Program (CSP) and start the 2006 enrollment period by the end of this month. It is critical to the ultimate success of the program for enrollment to be open during the winter months when many farmers and ranchers have more time to work through the planning process." Many producers feel they had been disadvantaged because CSP sign-ups usually occur during planting or harvest when they were to busy to work through the self-assessments and complete the necessary paperwork.

The Secretary was also urged to devote all resources possible to the program. "Our groups are also in agreement that you should use the maximum available funding amounts for 2006 and 2007 for the CSP. It is important to the upcoming policy deliberations about this program in the next farm bill to have had a good and fair test of the program going into that debate. We therefore urge you to move forward with a strong sign-up this year and next." The CSP has been restricted in recent years by budget reductions and spending caps.

2006 WASDE SUPPLY AND DEMAND CROP PRODUCTION REPORT. (Excerpt from USDA Website) Projected U.S. 2005/06 wheat ending stocks are 542 million bushels, 12 million bushels more than last month. Estimated total wheat production is 2,105 million bushels, up 7 million bushels based on increased harvested area. Total domestic use and exports are unchanged but changes are made in use and stocks by class. Hard Red Spring wheat stocks are up 20 million bushels and Soft Red Winter wheat stocks are down 14 million bushels from last month. There are smaller changes in the stocks of the other wheat classes. The projected 2005/06-price range is $3.25 to $3.50 per bushel, unchanged from last month.

Global wheat production in 2005/06 is up slightly, consumption is down fractionally, exports and imports increase fractionally, and ending stocks rise slightly. Foreign production is up nearly 1 million tons due primarily to larger crops in China and EU-25, partially offset by smaller crops in Kazakhstan and Russia.

Projected foreign exports are up because of larger exports by Paraguay and Bulgaria. Foreign consumption is down, with the largest month-to- month decrease occurring in Russia. Forecast foreign ending stocks are up 1 million tons due to larger stocks in China, EU-25, Croatia, and Bulgaria, partially offset by smaller stocks in Kazakhstan and Paraguay.

PERU FTA PROVIDES DUTY-FREE ACCESS FOR WHEAT. (News from WETEC) The U.S.-Peru Free Trade Agreement, concluded in December, gives the U.S. increasing market access for a variety of sensitive products in Peru.

Wheat enjoys immediate duty-free access (zero percent tariffs and no quota) to the Peruvian market upon implementation of the trade agreement. Currently, Peru has a 17 percent tariff on both durum wheat and non-durum wheat with a WTO bound rate of 68 percent. During the 2004-2005 marketing year the U.S. exported close to 700 thousand metric tons of wheat to Peru making the country the America's 12th largest export market. The California Wheat Commission sponsored a successful buyers mission from Peru to California last summer in which representatives from the major mills were introduced to growers and brokers. Much interest was expressed in expanding purchases from California, especially with the information available from the CWC lab.

Sensitive products rice, poultry, and corn will see quota limits expand annually over a 17-year period. Peru had tried to preserve permanent protection on some sensitive products but in the end agreed to full market liberalization over a period of 17 years. Also the agreement extends the Andean Trade Promotion and Drug Eradication Act (ATPDEA) to Peru, granting Peru permanent duty-free access for Peruvian products.

COUNTY LOAN RATES FOR CY 2006 POSTED. County loan rates for the 2006 crop year have been announced, and are now posted on the Farm Service Agency’s (FSA) website.  According to an FSA press release, “The 2006 county loan rates for wheat have been updated and remain differentiated by each of the five major classes of wheat (durum, hard red spring, hard red winter, soft red winter and soft white), continuing the precedent established with the 2002 rates. The varying supplies and changing demand patterns of these different wheat classes produce widely variable market prices. By moving to the class-based system for wheat, the Commodity Credit Corporation (CCC) now provides marketing assistance loans and loan deficiency payments (LDPs) reflecting market prices for each class. Loan rate premiums will again be available for all durum wheat that grades as amber durum or hard amber durum.”

 For more information please visit, http://www.fsa.usda.gov/dafp/psd/LoanRate.htm, or to view the loan rates for all classes of wheat, please visit http://www.fsa.usda.gov/dafp/psd/2005WheatByClassLR.pdf.