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California Association of Wheat Growers (CAWG)

May 30, 2008

CONGRESS BACK NEXT WEEK TO TACKLE FARM BILL PROBLEM.  Congress was out this week on Memorial Day Recess but is set to return Monday to tackle finalizing the farm bill and take a first crack at climate change legislation.

The farm bill was left in limbo last week when a problem with the bill’s transmission to the president left out Title III, the trade title. President W. Bush vetoed the bill before the mishap was discovered and both the House and Senate overrode that veto overwhelmingly, making 14 of 15 farm bill titles law. To ensure the entire bill is enacted, though, a new, complete bill will likely be passed by both chambers and sent to Bush for yet another veto. The House started this process last week with passage of H.R. 6124, which includes all the farm bill language and which the Senate will take up next week.

CLIMATE CHANGE.  Also next week, the Senate is scheduled to begin consideration of climate change legislation. Assuming cloture is achieved in a vote Monday night, most of the week will be spent on the Lieberman-Warner bill, according to Senate Majority Leader Harry Reid (D-Nev.). Much of this week has been spent on negotiations surrounding the bill, which would create a greenhouse gas (GHG) offset program taking advantage of agriculturally-produced carbon and other GHG credits.

NAWG staff continues to work on these and other legislative issues and will keep states informed as appropriate on developments and whipping needs.

U.S. WHEAT EXPORTS ESTIMATED UP 42 PERCENT OVER 2006/2007.  It appears likely that total U.S. wheat export sales in 2007/08 will be more than 38.4 MMT or 42 percent higher than in 2006/07, which saw sales of 23.8 MMT.

A year ago, USDA forecast U.S. wheat exports for 2007/08 would be 26.5 MMT, but as weather problems appeared around the world and demand increased, U.S. exports soared even during a time of unprecedented high prices caused by declining global stocks over the past several years, increased demand, increased speculative trading volume and weather problems.

After responding to this demand, total U.S. wheat stocks will end the year at an estimated seven MMT, the lowest level in 60 years, but wheat production in the coming year is estimated to be up 16 percent, while worldwide production is shown up 8 percent.

Ag exports across the board are forecast up significantly. USDA said Friday that U.S. agricultural exports will reach a record $108.5 billion in the 2008 fiscal year, $26.5 billion above the final 2007 export figure. Despite rising agricultural imports, the new forecast’s realization would mean a $30 billion ag trade surplus.

NAWG and U.S. Wheat Associates continue to work together and in broader coalitions to spur additional exports, including by passage of pending free trade agreements with Colombia, Panama and South Korea. NAWG and U.S. Wheat staff members last week attended a press conference held at the White House in an effort to spur on consideration of the Colombia agreement, which is held up for political reasons.

HRW CONDITIONS STABLE AS TEMPERATURES AND IMPORT DEMAND HEAT UP.  Joe Sowers, USW Senior Market Analyst.  The weather has turned warmer in the Southern Plains just as the HRW harvest begins in Texas and parts of Oklahoma. USDA estimates that total winter wheat yields, including HRW, SRW and SW, will average 3.0 MT per hectare (44.3 bushels per acre) this year, up from 2.8 MT per hectare last year and a ten-year average of 2.9 MT per hectare. The new crop is in high demand as empty supply pipelines around the world spur the need to replenish supplies. With only two weeks left in the 2007/08 marketing year, sales for the next marketing year total 4.8 MMT, the highest since 1996—a year when global stocks were also below average—and the second highest since 1988.

Nearly half of this year’s new crop sales are HRW, increasing attention on winter wheat conditions particularly in the top three HRW states of Kansas, Oklahoma and Texas. Lack of rain over the winter raised fears for the crop in the Southern Plains with drought particularly severe in the region comprised by southeast Colorado, southwest Kansas and the panhandles of Texas and Oklahoma. Timely rainfall in the spring helped yield estimates. USDA currently estimates yields in Kansas at slightly below normal but well over last year’s production average. Yields in Oklahoma are estimated at normal levels and are also well above last year’s average. Texas is estimated at somewhat below the ten-year average yield.

New crop demand for HRW has been very strong from Iraq as the country aggressively moves to replenish reserves. HRW sales for 2008/09 to Iraq currently approach 800,000 MT. Demand from South America has been spurred by restricted exports from Argentina, pushing new crop U.S. HRW sales to Brazil above 329,000 MT. Meanwhile, HRW new crop sales to such consistent importers as Nigeria, Mexico, Cuba and Japan are at 536,000 MT, more than double the total at this point last year.

USDA TO OPEN 24 MILLION ACRES FOR HAYING, GRAZING.  Agriculture Secretary Ed Schafer announced this week that USDA will allow about 24 million acres of Conservation Reserve Program (CRP) land to be used for hay and forage after the primary nesting season ends for grass-nesting birds.  Schafer said this authorization will provide “much needed feed and forage” while avoiding early-outs of CRP, which NAWG and other groups have opposed. USDA estimates that this program will make available up to 18 million tons of forage worth $1.2 billion.

Under the program, some eligible land will have to be reserved for wildlife and any land that is used must have a conservation plan. The most environmentally-sensitive land in CRP will also not be eligible.   While rental payment reductions will not be accessed on acreage used under the hay and forage program, a $75 fee will be charged for contract modification.  Signup for interested CRP participants will begin June 2 at local Farm Service Agency offices, and all forage use must be completed by than Nov. 10.

About 34 million acres are currently in CRP, which allows producers to enroll eligible land for 10- or 15-year conservation contracts.

WORD ON WHEAT: WE ALL AGREE ON ONE ISSUE – ENERGY COSTS.  By David Cleavinger, NAWG President.  I went to my equipment dealer the other day to see about buying a wheat drill. I hadn’t missed the fact that everything on the farm is going up, but I was still surprised at what I learned: they couldn’t give me a price.  Steel, it seems, has shot up just like agricultural commodities and oil. Because no one’s really sure what the price of steel will be when the drill is made, I will have to wait until it is built before my dealer will quote a price.

This story is slightly surreal, but it demonstrates well some of the wacky things that are going on these days in farm country.  Though commodity prices are high – higher certainly than I’ve seen in my lifetime – inputs are also soaring. Diesel is more than $4 a gallon. My fertilizer bill more than doubled. Everything else I use at home and on the farm – from chemicals to supplies for the house – is also ticking up.

This, of course, would not be surprising to rural or urban readers. The costs of most things are, indeed, rising, for one big reason: energy.  Oil declined this week to about $127 a barrel, well above a $100 a barrel record that didn’t seem like too much of a milestone for how quick it became history. Gas is now regularly seen for sale at more than $4 a gallon and would be higher were it not for the billions of gallons of ethanol also in the fuel system.

Despite the fact renewable fuels are keeping the cost of gas down by at least 30 cents, ethanol, much to the dismay of many in agriculture, is almost constantly under attack. We found out recently that, like many things, the myths about ethanol aren’t getting play in the popular press because they ring true as much as because they being perpetrated as part of a well-financed and well-coordinated P.R. campaign.

Disturbingly, this campaign is sponsored by the Grocery Manufacturers Association, which is comprised of companies that buy wheat, corn, soybeans and other commodities produced by American farmers. It posits that ethanol and the farmers who support it aren’t just responsible for higher commodity prices, but also for higher food costs, world hunger and environmental destruction. 

NAWG has been working with other agricultural groups over the past few weeks to push back against this incorrect and insulting effort. We have joined with others in the agricultural community to write letters to GMA members and to reach to reporters who are covering the food and energy price issue. I reminded reporters this week on a press call about this issue of some important facts:

• Wheat acres have been going down for years for reasons including a lack of biotechnology, and wheat prices are up because of a confluence of events including low stocks, bad weather, strong demand and a weak dollar that promotes exports.

• Wheat, like other commodities, makes up a very small portion of a finished food product - maybe 20 cents of a loaf of bread at $12 a bushel. Wheat, therefore, could not possibly the sole factor in higher wheat-product costs.

• If wheat prices really are making that much of an impact, bread prices should be coming down anytime, as wheat futures have declined more than a third from their highs earlier in the year.

Some odd things are happening out in farm country. Energy costs are something bearing down on us all – no matter if we are producing the commodity, using it to make a grocery store product or buying the product in the store. The energy problem is the real threat to food production in this country and around the world, and it only makes sense that we all work together to attack it rather than blindly blame renewable fuels or the business of agriculture.

- Cleavinger is a wheat producer in Wildorado, Texas.