Grainnet

Washington, DC -- The biggest challenge facing Congress in developing the 2007 farm bill will be to ensure sufficient acres are available to meet market demand for grains and oilseeds to sustain a burgeoning U.S. biofuels industry, while providing continued opportunities for growth for the livestock, poultry and export sectors, the National Grain and Feed Association said Sept. 13.

In testimony presented at a Sept. 13 House Agriculture Committee hearing on federal farm policy, the NGFA said that in addition to annual improvements in crop yields provided by seed genetics and production practices, the only two substantial ways to make sufficient acres available to meet growing demand:

> shift acres now dedicated to other crops into corn production,

> implement flexible policies for the Conservation Reserve Program (CRP) to allow the market to bid productive, non-environmentally sensitive land back into production.

“For the NGFA, biofuels are not a food versus fuel issue,” testified Michael Malecha, senior vice president for US Bioenergy Corp., Inver Grove, MN.

He said NGFA’s 900 member companies operate about 6,000 grain, feed, processing, biofuel and exporting facilities that handle 70 percent of the U.S. grain and oilseed crop.

“While each has a different market focus, we share one important priority, ensuring optimal market conditions that allow for a sufficient supply of grains and oilseeds to meet market demand."

Malecha said, "For us, biofuels represent a resource-capacity issue, particularly with respect to land and transportation.”

Malecha, who serves on the NGFA’s Board of Directors, noted that market forecasts for ethanol production increases are changing rapidly, some private estimates have increased by up to 50 percent in just the last six months.

But he said if healthy economic returns to the ethanol sector continue as projected, the market has the capacity and financial investment to add approximately 2 billion gallons of ethanol capacity annually, which will require an additional 700 million bushels of corn production every year.

That would result in 35 percent or more of the U.S. corn crop being utilized for ethanol production during the life of the next five-year farm bill, the NGFA said.

Meanwhile, the NGFA noted projections are that soyoil use for industrial purposes, including biodiesel, could increase from 82 million gallons in 2005-06 to 685 million gallons by 2010-11.

“To avoid supply disruptions to other users of corn, the market needs to have the opportunity to bid more acres into corn production,” Malecha testified.

“Regardless of the method, it is critical for the long-term viability of the U.S. grain and oilseed industry to provide sufficient flexibility (in the next farm bill) to bring idled productive cropland back into production and limit future idling of productive land when market conditions warrant.”

To accommodate the expected demand for additional production, the NGFA called on Congress to consider several refinements to the CRP, whose 36.5 million currently enrolled acres represent the fourth largest U.S. crop in terms of acreage and risk surpassing U.S. acres planted to wheat if current trends continue.

The NGFA noted that the U.S. wheat industry has been particularly undermined by the CRP, with extensive enrollments in the Northern Plains adversely affecting U.S. agriculture’s ability to produce adequate quantities of certain wheat classes, as well as oats.

Competition for remaining wheat acres will continue to grow, the NGFA said, as corn plantings “move West” in response to ethanol expansion.

Concerning reforms to the CRP, the NGFA recommended that Congress consider:

> Encouraging the U.S. Department of Agriculture (USDA) to allow CRP contracts that represent the lowest environmental benefits, but which recently were extended for an additional two to five years to expire when they reach their expiration dates.

“This would accomplish the intended effect of minimizing (market) distortions that could have occurred if mass CRP contract expirations occurred in any one year, while allowing U.S. agriculture the flexibility to bid these acres back into production to meet demand as biofuels production continues to expand at a significant pace,” Malecha said.

> Base future CRP enrollments only on updated rental rates and environmental benefit index (EBI) scores that are most environmentally beneficial.

The NGFA urged that only acres within the top range (80 to 100 percent) of EBI scores be idled under the CRP.

> Reducing the current 39.2-million-acre CRP cap mandated under the 2002 farm law.

> Reevaluate the validity of the current 25-percent maximum per-county enrollment in the CRP.

The NGFA said that because USDA apparently has been utilizing outdated cropland data to determine when this cap is reached, several counties “far exceed” the 25 percent level given modern-day normal cultivated acreage.

That has resulted in economic hardship for several counties where excessive amounts of productive farmland have been removed from production.

Paradoxically, the NGFA said, this also has prevented USDA in such counties from enrolling more environmentally sensitive lands, such as in filter strips that could provide more meaningful environmental benefits in protecting water quality.

The NGFA also noted its continuing opposition to enrollment, reenrollment or extensions of CRP contracts for whole farms or large tracts of productive land.

The NGFA also noted that enrollment of productive farmland into the CRP and paying CRP rental rates inflate local land values and make it difficult for beginning and tenant farmers to build economically viable units.

“The NGFA believes that refinements to the CRP will be essential to obtain the increased number of corn and soybean acres likely to be needed to support a growing biofuels industry, while maintaining the demand for corn from export and livestock and poultry markets,” the NGFA’s Malecha said.

“Idling productive farmland runs counter to the support Congress and the administration have shown to biofuels and for creating opportunities for growth.”

The NGFA also encouraged Congress, when developing the next farm bill, to:

> Fashion farm income support payments in a way that minimizes market distortions, avoids immediate or significant fluctuations in funding levels, and minimize exposure to legal challenges under the World Trade Organization.

> Reject calls to resurrect government- or farmer-controlled grain reserves or government-subsidized grain storage programs.

Such programs distort market price signals; encourage uneconomically justified storage expansion; reduce market-based incentives for storing grain; undermine market price rallies for producers when reserves overhang the market; and are difficult to unwind once established.

The NGFA said it does recognize and support the need for government-controlled reserves intended to meet humanitarian needs, such as the Bill Emerson Humanitarian Trust.

The NGFA’s membership encompasses all sectors of the industry, including country, terminal and export elevators; feed manufacturers; cash grain and feed merchants; end users of grain and grain products, including processors, flour millers, and livestock and poultry integrators; commodity futures brokers and commission merchants; and allied industries.

The NGFA also consists of 35 affiliated state and regional grain and feed associations, as well as two international affiliated associations.

The NGFA has strategic alliances with the Pet Food Institute and the Grain Elevator and Processing Society, and has a joint operating and services agreement with NAEGA.

For more information, contact Randy Gordon at 202-289-0873

See Related Websites/Articles:

• National Grain & Feed Association

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