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California Wheat Commission

1240 Commerce Ave. Suite A, Woodland CA 95776-2267* (530) 661-1292* FAX: (530) 661-1332* E-Mail: info@californiawheat.org

California Association of Wheat Growers (CAWG)

July 15, 2007

HOUSE FARM BILL MARK-UP SCHEDULED TO START TUESDAY. 2007 Farm Bill action in the full House Committee on Agriculture is scheduled to begin Tuesday, a week and a half after Chairman Collin Peterson (D-Minn.) released his draft mark and after a full week of discussions on the Hill.

On Tuesday, NAWG released a statement from President John Thaemert regarding the Chairman’s mark. It said:

“We are extremely appreciative of the work Chairman Peterson and his staff have done on farm bill language, especially their efforts to rebalance target prices and loan rates among the commodities.

“While we are disappointed that an effective increase in direct payments has not been possible, our members fully understand the current budget constraints the Chairman is facing. We commend and support his efforts to bring a more equitable safety net to wheat growers despite the budget climate.

“NAWG members and leadership remain committed to helping wheat growers receive a better safety net than in 2002 and look forward to working with Chairman Peterson and other members of the House and Senate ag committees as this process moves forward.”

The House Committee’s Chairman’s mark included a $4.15 target price for wheat and maintained the $0.52/bushel direct payment rate set in the 2002 Farm Bill.

The House Committee will also consider an alternative bill providing more funding for nutrition and conservation programs that could be brought to the floor if offsets are found and Members can tap into a $20 billion so-called “reserve fund”.

On the Senate site, there remains no firm date on which action is scheduled to begin, though Senate Agriculture Committee Chairman Tom Harkin (D-Iowa) said this week he is looking at a six or seven-year bill to ease funding issues.

USDA FORECASTS TIGHTER SUPPLIES IN MAJOR EXPORTERS, U.S. SALES TO CLIMB 15 PERCENT by Joe Sowers, USW Market Analyst. The USDA World Agricultural Supply and Demand Estimates (WASDE) report released yesterday confirms what the world wheat market already knows: exportable supplies are extremely tight.

Poor weather is creating production concerns in every major Northern Hemisphere exporting country and multiplying the impact of an already strong shift away from wheat to crops feeding biofuel demand. The WASDE report lowered production forecasts for the U.S., EU-27, Canada and the Black Sea region. With the Southern Hemisphere harvest still several months away, exportable supplies will remain scarce in the near term, and probably keep prices firm. As a result, USDA estimated U.S. farm gate prices will average 20 percent higher this year compared to last year.

The Canadian production forecast is 29 percent (3 MMT) below last year with a wet planting season diverting acreage to shorter season crops. The Canadian export forecast is down 4 MMT from last year. EU-27 production is forecast down 38 percent (9 MMT) while harsh drought in the Ukraine will cause production to fall slightly from last year, despite much higher planted area, leading its government to restrict exports. Southern Hemisphere exporters Argentina and Australia have their own issues, at least until they harvest their new crops. Argentina is restricting exports and Australia is working with a wheat pool down 69 percent (7 MMT) from the previous year.

World prices have soared in response. Because importers have delayed purchases as long as possible, hoping for lower prices with the harvest in the Northern Hemisphere, import demand is actually strengthening. Despite wheat prices at 11-year highs and freight rates at all-time highs, the U.S. sold nearly 1.2 MMT of wheat for export last week and is currently exceeding last year’s sales pace by 39 percent. The current forecast calls for total U.S. wheat exports to climb to 28.6 MMT, nearly 4 MMT over last year. USDA expects U.S. world wheat market share to grow from 23 percent last year to 27 percent in 2007/08.

This report included the first by-class production forecast for U.S. wheat. For SRW, production is down slightly because of freeze damage even though planted area was up. HRW production is expected to increase by 41 percent (8 MMT), although extremely persistent rains are causing some yield and quality concerns including lower test weights and thousand kernel weights, and higher shrunken and broken kernel percentages as a result of under-developed kernels in samples from the Southern Plains. On the other hand, HRS planted area is down, but beneficial weather in the Northern Plains is forecast to help increase production by 9 percent (1 MMT). The SW production forecast is up slightly while the durum production forecast is up by 49 percent (710,000 MT).

FARM BILL: WHEAT GETS THE CHAFF—AGAIN from “Mulch: A blog on agriculture farm policy and food safety” by Ken Cook, President, Environmental Working Group. For the second farm bill in a row, wheat producers look as if they'll be treated as second-class members of the subsidy fraternity. And yet they'll be expected to add their wagon to the circle 'round the status quo--the better to help cotton and rice come away with billions, it would seem. The National Association of Wheat Growers started off this farm bill cycle with an impassioned demand for 'balance' in 2007 and ambitious goals for reform. All that passion and ambition seem to have given way to acquiescence.

NAWG wanted their fixed direct payment more than doubled, from 52 cents a bushel to $1.15. The Peterson draft gives them nada penny more. They also wanted their target price raised from $3.92 to $5.29. The Peterson mark gives them $4.15. To me, the wheat growers have the most compelling case among commodity crops for special consideration in this farm bill. They've been hammered more than anyone by drought (a major reason why EWG supported weather-related disaster aid legislation over the past two years--though not the 30 percent energy cost 'bonus' to direct payments). In big parts of wheat country, growers are not able to participate directly in the ethanol boom because it's just too dry to grow corn. But as Capital Press reporter Scott Yates pointed out a few weeks back: “It hasn't been a particularly auspicious farm bill debate for the National Association of Wheat Growers so far. First, they were told their $5.29-per-bushel target price idea coupled with a $1.19 direct payment (base acres/historic yield) was dead on arrival. They protested the numbers that were analyzed by the Food and Agriculture Policy Research Institute of the University of Missouri and Iowa State University. The lobbyists and congressional aides said it didn't matter, and it didn't.”

A letter NAWG President John Thaemert wrote Rep. Collin Peterson, D-Minn., expressed his concern over the effort to reduce the decoupled payment to provide increases in target prices and loan rates.” So the wheat DP did stay the same in the Chairman's mark, but the target price increase is minimal--and too far below the market to trigger countercyclicals anytime soon in all likelihood. Which is why that target price increase doesn't cost much. It's not worth much. The wonder is that this offer is enough to get the wheat growers behind a bill that brings home a multi-billion dollar subsidy harvest for everyone else.