Washington Post- “Global Food Crisis” Series
Dan Morgan reported in today’s Washington Post that, “At Stephen Fleishman’s busy Bethesda shop, the era of the 95-cent bagel is coming to an end.
“Breaking the dollar barrier ‘scares me,’ said the Bronx-born owner of Bethesda Bagels. But with 100-pound bags of North Dakota flour now above $50 — more than double what they were a few months ago — he sees no alternative to a hefty increase in the price of his signature product, a bagel made by hand in the back of the store.
“‘I’ve never seen anything like this in 20 years,’ he said. ‘It’s a nightmare.’”
The article stated that, “Fleishman and his customers are hardly alone. Across America, turmoil in the world wheat markets has sent prices of bread, pasta, noodles, pizza, pastry and bagels skittering upward, bringing protests from consumers.
“But underlying this food inflation are changes that are transforming U.S. agriculture and making a return to the long era of cheap wheat products doubtful at best.
“Half a continent away, in the North Dakota country that grows the high-quality wheats used in Fleishman’s bagels, many farmers are cutting back on growing wheat in favor of more profitable, less disease-prone corn and soybeans for ethanol refineries and Asian consumers.”
The article explained that, “In the 1980s, more than half the farm’s acres were wheat. This year only one in 10 will be, and 40 percent will go to soybeans…U.S. farmers are expected to plant about 64 million acres of wheat this year, down from a high of 88 million in 1981. In Kansas, wheat acreage has declined by a third since the mid-1980s, and nationwide, there is now less wheat in grain bins than at any time since World War II — only about enough to supply the world for four days. This occurs as developing countries with some of the poorest populations are rapidly increasing their wheat imports.”
The Post article noted that, “‘If our comparative advantage is corn and soybeans and Russia’s is wheat, having these shifts occur over time is not the end of the world,’ said Edward W. Allen, a senior economic analyst at the Agriculture Department.
“But in the long run, said USDA wheat analyst Gary Vocke, ‘The forces leading to the trends are still in place.’ Though supplies may rebound, he and other experts doubt that prices will drop to prior levels.
“That poses serious concerns for countries that historically have counted on the United States to have inexpensive wheat on hand to cushion shocks.”
In an overview of some of the dynamics of the wheat market, Mr. Morgan indicated that, “Problems started last summer with poor European harvests and a disappointing winter wheat crop in the southern Great Plains. U.S. prices moved above $7 a bushel, then crossed $10 after Australia harvested yet another drought-damaged crop in December. As supplies of wheat ran low, foreign countries began grabbing limited stocks of premium wheat from the northern plains — the variety used to make the flour for Fleishman’s bagels. Morocco, its own harvest of wheat to make traditional couscous inadequate, jumped in with a purchase of 127,000 tons.”
In addition, Mr. Morgan stated that, “Whether 2008’s high prices will lure many farmers back to wheat is still a matter of debate.
“The ethanol boom, in particular, is providing strong incentives to keep former wheat acres in corn. Within a year, [Kindred, N.D farmer David Braaten] will be able to truck his corn to three modern ethanol refineries, one already built and two others near completion. These huge distilleries will need corn from an area about the size of Rhode Island, and many of the acres will come at the expense of such traditional crops as wheat and sugar beets.
“Corn has even begun to make inroads in the western part of the state, where sparse rainfall and the short growing season traditionally have ruled out most crops except wheat, barley and oats. Spurred by the availability of cheap coal for power and a local cattle industry that will buy the dry byproducts for feed, a new ethanol plant opened last year in Richardton, west of Bismarck, the capital.”
And near the conclusion of the Post article, Mr. Morgan noted that, “James A. Anderson, a plant breeder at the University of Minnesota, predicted that the seed companies will continue to make inroads in wheat country with new kinds of corn and soybeans.
“‘They’ve definitely moved into the spring-wheat region with dedicated breeding,’ he said. ‘They’re trying to get whatever acreage they can and sell more of their seed.’”
An update posted at the House Ag Committee Online stated that, “The next Farm Bill conference meeting is scheduled to take place Tuesday, April 29, at 2:30 p.m., in 1100 Longworth House Office Building. Audio of the meeting will be streamed from our Live Audio/Video page.”
Congressional Quarterly reported yesterday that, “The leaders of the House and Senate Agriculture committees are hoping the Tuesday meeting will be one of the last for the farm bill.
“On Friday, key members of those committees and the House Ways and Means and Senate Finance committees worked out a tentative deal on funding for the measure that would include some cuts to farm subsidies as well as a reduction in the size of a new disaster relief fund sought by Senate Finance members.
“Lawmakers discussed the details of those cuts over the weekend, but no decisions had been made as of Monday, said a Senate Agriculture Committee aide.”
Greg Hitt reported in today’s Wall Street Journal that, “A five-year, nearly $300 billion farm bill emerging on Capitol Hill appears to fall short of President Bush’s goal of making big cuts in subsidies to affluent farmers. The question now is whether Mr. Bush will sign it.
“Under a tentative agreement reached by key members of the House and Senate, the bill would make only modest changes in support for farmers.
“The measure would end a practice that allows farmers in some cases to collect triple payments from the government. The legislation would only slightly trim so-called direct payments that annually provide commodity producers with income support.”
Mr. Hitt explained that, “The proposed bill would ratchet down payments to wealthy individuals not directly involved in farming, perhaps setting a cap that would cut off benefits for those earning above $500,000 in nonfarm income. Details of that proposal have to be finalized, congressional aides said.
“Even after those changes, though, the measure would leave intact a safety net that dates to the Depression, when the government intervened aggressively to stabilize the farm economy.”
The Journal article also indicated that, “Whether Mr. Bush intends to pick a veto fight with Congress on the farm subsidy issue is unclear. The White House has kept a low profile since congressional negotiators reached a tentative agreement late last week, in part because some details of the package seemed fluid over the weekend.
“But a White House spokesman said Monday Mr. Bush is concerned about the direction of the bill. White House spokesman Scott Stanzel pointed to Mr. Bush’s threatened veto of the farm bill back in February, and added that the legislation ‘currently being discussed’ lacks the ‘important reforms the president has repeatedly called for.’
“‘We are watching the debate on Capitol Hill very closely,’ Mr. Stanzel said Monday. ‘But we remain concerned that Congress has not risen to the challenge of reforming’ subsidy programs.”
Reuters writer Charles Abbott reported yesterday that, “Farm bill negotiators are trying to wrap up language to deny subsidies to farmers with large off-farm income, a touchy issue for months, said the Senate Agriculture Committee chairman on Monday.
“‘It is a dicey subject. I believe we can reach an accord,’ said Chairman Tom Harkin, Iowa Democrat. The matter was believed to be one of the final issues for the legislation.
“Subsidy rules became the test of reform following the collapse of proposals for a radical farm-program overhaul last year. The Bush administration says the wealthiest Americans should not qualify for crop subsidies.”
With respect to executive branch perspective, Mr. Abbott noted that, “‘The farm bill proposal currently being discussed by conferees lacks important reforms the president has repeatedly called for,’ said White House spokesman Scott Stanzel.
“Stanzel said the bill included budget gimmicks to disguise its cost and could increase farm subsidy spending. The bill calls for small increases in subsidy rates for some crops and for a $3.8 billion disaster fund for agriculture.
“‘Now is the time to modernize our agricultural policies for the future, but members of Congress have not risen to the challenge,’ said Stanzel when asked the White House view.”
Food Prices and Biofuels
David M. Herszenhorn reported in today’s New York Times that, “Citing hunger riots in developing countries and soaring grain prices around the world, Senate Democrats called on Monday for a swift increase of $200 million in foreign food aid, on top of an additional $350 million that President Bush has requested in a supplemental spending measure.
“In response, the administration urged Congress to give it more flexibility to buy food for donation from local and regional providers, a method that antihunger experts say is cheaper and more efficient than buying and shipping American commodities, as well as encouraging agricultural development.”
The Times indicated that, “At a news conference, Senators Richard J. Durbin of Illinois and Robert P. Casey Jr. of Pennsylvania, both Democrats, called for adding $200 million in food aid to the supplemental spending measure that will provide additional financing for military operations in Afghanistan and Iraq.”
And J. Taylor Rushing reported yesterday at The Hill Online that, “Senate Majority Whip Dick Durbin (D-Ill.) said Monday that U.S. ethanol policies may be partly to blame for a global food crisis threatening to leave millions hungry.
“Durbin, whose state produced 2.28 billion bushels of corn in 2007 — second only to Iowa — emphasized he wasn’t advocating a shift from policies that provide incentives for biofuel production. At the same time, he said the role biofuels are playing should be explored as part of a coordinated congressional response to massive hunger overseas.
“‘I’ve supported ethanol from the beginning. The object of having homegrown fuel in America is a good goal, and it’s one we’re moving toward ever so slowly,’ he said. ‘But we have to understand it’s had an impact on food prices. Even in the Corn Belt, we’d better be honest about it.’”
The Hill article noted that, “Groups that represent U.S. agriculture producers, such as the National Corn Growers Association, say evidence is scarce that food shortages are linked to ethanol production or the federal renewable fuels standards that mandate it.”
Daniel W. Reilly reported today at Politico.com that, “As a Midwestern senator, Durbin must walk a political tightrope, acknowledging that the demand for ethanol has contributed to the rising international food prices, without scapegoating farmers.
“Durbin promised to take a hard look at the situation, although he said that there are many other factors contributing to rising global food costs and that other alternative energy sources, such as cellulosic ethanol, could provide fuel without affecting food prices.”
With respect to “many other factors contributing to rising global food costs,” Guy Chazan and Neil King Jr. reported in today’s Wall Street Journal that, “An escalation in attacks by militants in the Niger Delta and a strike by Exxon Mobil Corp. workers are playing havoc with oil production in Nigeria at a time when worries about tightening global supply have sent the price of benchmark crude close to a record $120 a barrel.”
Meanwhile, Dow Jones News writer Ian Talley reported yesterday that, “U.S. Sen. Kay Bailey Hutchison, R-Texas, Monday said she would soon offer a bill to freeze the new national biofuels mandate, citing concerns over the rise in food prices.
“Although it is unclear how much support the senator will gain given that Congress passed the mandate with bipartisan support as a key tenet of their energy policy just a few short months ago, the action is symbolic of a wider political upheaval against ethanol.”
Andrew Bounds reported yesterday at the Financial Times Online that, “US-produced biofuels could in effect be shut out of Europe under plans being discussed in Brussels.
“Anxious to distance itself from charges that its push for biofuels is creating hunger round the world, the European Union is considering stringent social and environmental criteria for imports that the US and some other big biofuel producers would not meet.
“The sustainability criteria under discussion would in effect bypass World Trade Organisation rules forbidding biofuel bans. By excluding those products not meeting the criteria from its biofuels target of a 10 per cent contribution to the fuel mix by 2010, the EU would deprive those products of government support, removing incentives to import them.”
And Ben Hall reported at the FT Online on Sunday that, “Africa and Latin America should adopt their own versions of Europe’s Common Agricultural Policy as a response to rising demand for food, according to Michel Barnier, France’s farm minister.
“While critics of the CAP prepare to use surging food prices and threats of shortages to seek freer trade in agriculture, Mr Barnier told the Financial Times that, on the contrary, the developing world should draw inspiration from Europe and form self-sufficient regional agricultural blocs funded with a redirection of development aid.
“Mr Barnier, a former French foreign minister, ex-EU commissioner and member of the governing centre-right UMP party, said he would not allow Europe’s system of subsidies and barriers to trade to take the blame for ‘disorder’ surrounding the commodities spike in prices and associated unrest in some countries.”
The FT article added that, “‘What we are now witnessing in the world is the consequence of too much free-market liberalism,’ he said. ‘We can’t leave feeding people to the mercy of the market. We need a public policy, a means of intervention and stabilisation.’”
CFTC- Commodity Trading
Yesterday’s AgriTalk Radio Program with Mick Adams took up the issue of speculative investment in commodity markets and featured a conversation with Acting Commodity Futures Trading Commission Chairman Walter Lukken. To listen to an audio excerpt of the discussion between Mike Adams and Chairman Lukken, just click here (MP3-4:59).