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California Association of Wheat Growers (CAWG)

May 16, 2008

HOUSE AND SENATE EASILY PASS FARM BILL CONFERENCE REPORT.  The farm bill conference report flew through the House and Senate this week with more than veto-proof margins.  Despite the votes – 318 to 106 in the House and 81 to 15 in the Senate – President George W. Bush will likely make good on his threats and veto the bill when it reaches his desk in a few days.

On Tuesday, NAWG announced the organization’s support of the conference report and joined a coalition of more than 550 other organizations in writing all Members of Congress asking for their vote.   In a statement of support for the conference report, released Tuesday, NAWG President David Cleavinger said:

“No one is thrilled with all aspects of this deal, but we understand the delicate balance it took to get it done. It’s mid-May and some wheat growers, especially in my home state of Texas, are getting ready to harvest. With diesel prices approaching $4 per gallon and fertilizer costs doubling over last year, we are producing wheat in a time of unprecedented risk. We need new, long-term federal farm policy now.”

CAWG President Ian Anderson penned several letters to our elected representatives indicating our support for the conference report. 

Key provisions of the conference report included the following:

 ·         The wheat direct payment rate will remain at 52 cents per bushel, but direct payments will only be paid on 83.3 percent of base acres in 2009, 2010 and 2011. In 2008 and 2012, direct payments will be paid based on 85 percent of base acres, like during the 2002 Farm Bill. Additionally, direct payments will be capped at $40,000 per individual;

 ·        The Market Access Program (MAP) and the Foreign Market Development (FMD) program were maintained at 2002 Farm Bill funding levels;

 ·        Non-farmers with AGIs over $500,000 will not qualify for farm program payments, and farmers with AGIs over $750,000 will not qualify for direct payments. Those with AGIs over $1 million without 2/3 of income from farm, ranch or forestry will be disqualified from conservation payments; and, 

 ·        Conservation program changes were more extensive and are summarized in a document accessible at:  http://www.wheatworld.org/pdf/Major%20Conservation%20Provisions.pdf

 hough the timing of the President’s veto remains unknown, it is hoped that Congress will be able to have override votes before Memorial Day Recess begins in a week.

GROUPS DEFEND ETHANOL, RENEWABLE FUELS STANDARD.  Agriculture and renewable fuel representatives shot back at ethanol critics at a House Small Business Committee hearing on food prices and small businesses, held Thursday.
 
Witnesses for the National Restaurant Association, American Bakers Association and Grocery Manufacturers Association used the hearing as an opportunity to advance a popular and well-financed but spurious “food vs. fuel” argument and to call for waivers of the renewable fuels standard (RFS). 

These attacks were met with a defense of agricultural producers and the renewable fuels industry by Tom Buis, president of the National Farmers Union, and Bob Dinneen, president of the Renewable Fuels Association, also on the panel. Some facts they presented:

• A recent report by John Urbanchuk of LECG reports that a $1 increase in corn results in a 0.3 percent increase in the consumer price index for food, whereas a $1 increase in gas results in a 0.6 percent increase for food;

• A Merrill Lynch estimate that the biofuels industry is reducing gasoline price by 15 percent per gallon; and,

• According to USDA, farmers receive only 20 cents of every food dollar consumers spend.

NAWG and U.S. Wheat Associates are preparing a statement for the record of the hearing, to be sent early next week, emphasizing: 1) the variety of factors - from weather problems to increasing demand - that have led to the increase in wheat prices; 2) that market functions are operating, bringing acres up and prices down; 3) the effects of high energy prices and volatile markets felt by wheat growers and other agricultural producers, themselves generally proprietors of small businesses; and 4) the wheat industry’s continued opposition to changes to our export system, Conservation Reserve Program (CRP) contracts or the RFS.

NAWG supports the expanded RFS, which calls for 36 billion gallons of ethanol including 16 billion gallons of cellulosic ethanol by 2022. Agricultural waste, including wheat straw, supplemented by biomass will be a major feedstock for a commercialized cellulosic ethanol industry.

HOUSE AG SUBCOMMITTEE LOOKS AT MARKET SWINGS.  Possible effects of an influx of new speculative money into commodity futures markets were the subject of a House Agriculture General Farm Commodities Subcommittee hearing on Thursday.

Many farm groups including NAWG have argued that while speculators play an essential role in futures markets, an influx of hedge fund money has interfered with the fundamental functions of futures markets and should be examined by regulators.

In comments presented to the grain exchanges and separately to the Commodity Futures Trading Commission (CFTC) last month, NAWG pointed to widening basis levels between cash and futures prices and suggested that the influx of speculative money into the futures markets is interfering with the markets’ ability to converge at the close of the contract.

Rod Clark, a vice president with CGB/Diversified Services in Mt. Vernon, Ind., represented the National Grain and Feed Association at Thursday’s hearing, and largely agreed with NAWG’s assessment. He said, in part:

“Today, that previously reliable relationship between cash and futures has deteriorated to a point where many commercial grain hedgers are questioning the effectiveness of hedging using exchange-traded futures…. we believe that one new factor – the entry of large amounts of long-only, passively-managed investment capital like index and pension funds into agricultural futures markets – is causing a disruption in markets and resulting in futures prices no longer reflecting true supply/demand fundamentals.”

Representatives from the exchanges and CFTC offered a different view of what’s been happening, arguing that the market is being driven purely by supply and demand considerations, not by speculation.

Jeff Harris, chief economist at the CFTC, observed that rises have increased in markets where there are no index funds involved (Chicago rice or Minneapolis HRS wheat) and where there are no futures contracts (durum wheat). He claimed that managed money funds are on both long and short sides of the markets. Terrence Duffy, executive chairman of the CME Group in Chicago, said price rises have been driven by fundamental factors, not by investors. Echoing the popular media perception, Duffy also fingered ethanol for a prominent role in the market situation, an argument rejected by many because the corn crop continues to grow to meet corn needs.   A number of Members of the Subcommittee expressed disappointment with CFTC’s apparent position that everything was fine, and encouraged them to consider in more detail the recommendations they had received to improve market functionality.

WHEAT GROUPS, OTHERS WRITE ON FOOD AID SUPPLEMENTAL FUNDS. 

State and National wheat associations joined a coalition late last week in asking Congressional leaders to include hundreds of millions of additional food aid dollars in supplemental spending bills working through Congress.  

The groups, ranging from commodity associations to faith-based aid agencies, urged acceptance of $850 million for FY2008 and $395 million for FY2009 of PL 480 Title II food aid funding in the House emergency supplemental bill.

They told leaders, including House Speaker Nancy Pelosi (D-Calif) and the Chairmen and Ranking Members of both Appropriations Committees, that if $850 million in additional funding is not provided in FY2008, commodity levels for Title II food aid programs would have to be reduced by up to 50 percent.   The groups wrote, in part:

“Added to the already astonishing levels of hunger and emergencies, export controls, natural disasters and other factors are causing shortfalls worldwide and placing basic foodstuffs out of reach for millions of poor people. Without this critical supplemental funding, food aid programs will be cut back…”

The wheat industry is highly supportive of U.S. food aid programs and has expressed continued concern about decreasing food aid commitments. NAWG will continue to follow the proposed additional funding as the war supplemental process, currently bogged down for political reasons, continues.

USDA URGES PRODUCERS TO RESPOND TO AG CENSUS.  USDA reminded producers this week that they still have time to respond to the 2007 Census of Agriculture.

Agriculture Secretary Ed Schafer said more than 2 million responses have already been received by the Department, but they are still waiting for responses from “a good number of producers”. USDA’s National Agricultural Statistics Service (NASS) has sent a second reminder mailing, and NASS staff is now calling and visiting producers who have not responded.

Conducted every five years, the Census of Agriculture is the only source of consistent and comprehensive agricultural data for every state and county in the nation. Anyone who receives a census form is required by law to respond. Individual responses to the Census are kept confidential under the law, though data is tabulated in a variety of forms that will be released to the public starting in February 2009.

Census forms can be returned by mail or submitted online. For more information, call (888) 424-7828 or visit www.agcensus.usda.gov.

WORD ON WHEAT: VETO OVERRIDE FINAL STEP ON A LONG ROAD by Jeff Newtson,  NAWG Domestic and Trade Policy Committee Vice Chairman. 

We took a giant leap toward the farm bill finish line this week when both the House and Senate approved the farm bill conference report by veto-proof margins. But while there’s great evidence we are nearing the end of this multi-year process, the biggest votes are still before us: the veto override votes.

The conference report before Congress this week that we believe President George W. Bush should sign is certainly not perfect. On the contrary, it hits two programs that are essential for wheat producers: the direct payment program, which is subject to new payment limits and reduced in three of five years, and the crop insurance program, which is cut by $5.7 billion.

However, let’s consider the alternatives if there aren’t enough votes to override the President’s likely veto of new farm policy:

1)      Members of Congress attempt the impossible – composing a new farm bill. Without doubt this would mean even more budget pressures and much deeper cuts to commodity title programs. Other priorities would also be hit, which would mean smaller vote margins from urban Members;

2)      A one or two year extension, with modifications to make enough Members willing to vote for it. Again, this would mean deep cuts to commodity title programs, especially the direct payment program, which is key for wheat growers; and,

3)      We go back to permanent law from the first half of the last century, which wouldn’t do much for most farmers and nothing for conservation or nutrition priorities, if it could – or would – be implemented at all. 

The fact is that Members of Congress and the agricultural, conservation and nutrition communities have been working on the new farm bill for nearly three years now. The 2002 Farm Bill actually expired almost eight months ago, meaning this process has been so delayed that some of my fellow wheat producers in the South will be in winter wheat harvest before the bill is finalized.

Most of the problem in getting the new deal has been because of a dramatically reduced budget, caused because the 2002 Farm Bill actually SAVED the government money. Under Congressional rules, that meant there was less money for the 2007, now 2008, bill, even while there were calls for new or unprecedented levels of investment in conservation, energy and nutrition programs.

Commodity producers really gave a lot up to get this deal - the conference report actually decreases commodity title spending by an additional $1.7 billion more than the $58 billion reduction in baseline negotiators started out with.

But, again, while this bill has flaws, it is not only the product of a lot of hard work and compromise and our best chance to ensure a safety net – however imperfect – for America’s producers, it is much preferable to all the options I suggested above.

- Newtson is a wheat producer in Helix, Ore.