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California Association of Wheat Growers (CAWG)

March 17, 2008

SHORT TERM EXTENSION PASSES BEFORE CONGRESS TAKES RECESS. 

The House and Senate passed a short-term extension of some parts of the 2002 Farm Bill last week, allowing negotiators an extra month to complete a new version of federal farm policy.

Though the extension will run until April 18, it won’t provide much additional time since Congress will be out of session on Easter Recess for the next two weeks. Discussions are expected to continue through the break on funding, jurisdiction and title allocations.

Discussions focused on funding offsets, though no agreement was reached between the Senate Finance Committee and the House Ways and Means Committee due in part to Ways and Means Chairman Charlie Rangel (D-N.Y.) being hospitalized with flu-like symptoms.

Despite the fact that funding offsets weren’t finalized, the $10 billion over baseline figure was agreed to by the four principals and Congressional leadership, and title allocation work resumed Friday.

Early in the week, agriculture leaders in the House said they were considering putting a proposal forward that would fund a new farm bill with current baseline spending projections, but that idea was reportedly scrapped on Friday in favor of using $10 billion above baseline.

President Bush indicated in a statement he would sign the short-term extension but would call for a one-year extension if the short-term extension isn’t long enough. An extension of current law would almost certainly amount to a less effective safety net for farmers than either the House- or Senate-passed bills due to a lack of funding.

The 2002 Farm Bill officially expired on Sept. 30, 2007. Wheat growers have been working without a safety net since that time, with some producers likely to be in harvest before a farm bill is done.

GROWER GROUPS ASSERT IMPORTANCE OF OPEN MARKETS.  NAWG and U.S. Wheat Associates issued a statement this week reiterating their organizations’ opposition to any government interference in wheat exports and to early releases of land from the Conservation Reserve Program (CRP) without contractual penalties.

Both export restrictions and penalty-free early-outs from CRP have been advocated by bakers’ groups, with the American Bakers Association holding a fly-in last week in Washington on the issue.

Statements from NAWG and USW said, in part:

“...The fact is U.S. wheat production far exceeds domestic demand. Half of our annual production is purchased by countries that cannot grow enough for their own people and many wheat producers depend almost entirely on overseas customers...

“We believe even a temporary market disruption could dramatically undermine the economic incentive to produce more wheat...Previous cycles have proven that global wheat production will assuredly expand in response to higher prices and evidence of that is already being seen...”

Both national groups have been talking to reporters from across the nation and globe in recent months about the wheat price issue, explaining the market forces at work and the impact the price-run up has on farmers. Many producers sold into the market well below the record highs seen on the exchanges, and all producers must be concerned about the increased volatility in the market and rapidly rising input costs.

Wheat industry staff members have also stressed in public statements that while wheat prices are at unprecedented highs, they are not a significant cause of food inflation, especially compared to increased energy costs.

On average, each American consumes about 200 lbs., or 3.3 bushels, of wheat each year; at $12, wheat costs would equal 10 cents per day for the average consumer. Similarly, on average, a bushel of wheat makes about 70 one-pound loaves of bread; at $12 per bushel, wheat accounts for about 17 cents of the cost of a loaf.

WASDE SHOWS U.S. SUPPLIES TIGHTEN AS EXPORTS SOAR.  Joe Sowers,  U.S. Wheat Associates.  USDA revised its estimate up again for 2007/08 U.S. exports as strong sales continue despite high prices.

In its World Agricultural Supply and Demand Estimates (WASDE) release this week, USDA raised the U.S. export forecast to its highest level in 12 years, exceeding domestic use for the first time since 1995/96. The U.S. harvest was slightly below average this year, exports surged and domestic mill use was higher than last year. As a result, stocks will end the year at their lowest level since 1948. With stocks so tight, importers are quickly covering needs for the 2008/09 marketing year with the highest level of new crop sales booked since 1982.

USDA expects international wheat sales to exceed 1.225 billion bushels this year, 35 percent higher than last year. At the current pace, sales may exceed the USDA forecast. As global weather problems became apparent throughout the year, USDA steadily ratcheted up its export forecast. In May 2007, USDA’s initial forecast for 2007/08 exports were 975 million bushels (mbu). Committed sales and donations already total 1.200 billion bushels this year, leaving just 25 mbu to sell over the 12 weeks remaining in the marketing year. This week’s sales report showed 7.7 mbu were booked last week.

HRW exports are expected to make the largest jump over last year, forecast up 244 mbu (87 percent) from 2006/07. SRW exports are forecast up 54 mbu (37 percent), HRS 50 mbu (20 percent), durum 5 mbu (14 percent), while SW exports are forecast to fall 37 mbu (19 percent) as production was off nearly as much. The rise in exports and domestic use will take total stocks down 214 mbu (47 percent) with SRW stocks falling 77 percent from last year, HRW down 59 percent, HRS down 54 percent, SW down 17 percent and durum off 8 percent.

USDA export data shows a total of 83 mbu have already been committed for the 2008/09 marketing year (starting June 1), ten times higher than at this point last year, five times higher than the 10-year average and the highest new crop sales in 25 years. The forward purchases may signal that international buyers remain concerned about available supply as current year stocks are drawn down, and some governments are showing a willingness to artificially protect domestic supplies