MAY 1996
News
& Views from the
Wheat & Barley Growers
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Prairie Grains is the
official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain Growers Association,
South Dakota Wheat,
Inc., and the
Minnesota Barley
Growers Association.
Senator Grams' new seniority noteworthy
The Minnesota Barley Growers Association has urged inclusion of funding for value-added, farm cooperative initiatives in the new farm bill. This is a marketing direction many farmers will want to take during the ag market transition process; thus, it stands to reason that this growing area in agriculture receive federal support. We are optimistic that our influence in this area will be successful once the new bill is signed into law by the President.
Separately, you may have noticed that the Federal Crop Insurance Corporation is offering malting barley price and quality coverage for the 1996 growing season. I think there's still room for improvement, but it is a start, and it is something that absolutely would not have happened in the first place had the barley growers not got involved and pressed the issue.
Finally, it is significant to note that our Sen. Rod Grams has recently been named to the Senate Budget Committee, which writes the broad outline of Congressional spending and tax plans. He also serves on the Energy and Natural Resources; and Banking and Foreign Relations Committees.
Sen. Grams should be congratulated for this step up; it signifies that he has moved beyond his freshman status. Time is needed to become acquainted with the system, and he has done that. But now, it is not unreasonable for we as constituents to expect a stronger and more visible representation from him. The MBGA looks forward to a greater leadership role from Sen. Grams.
- Gerald Lacey, President, MN Barley Growers Association, Campbell, MN
How we woo our largest wheat customer
Wheat growers should never lose sight of who our largest wheat customer is: the United States, which uses close to 40 percent of the wheat that we grow. Plus, it's a cash market.
We promote the consumption of wheat within the United States through the Wheat Foods Council. The WFC is funded by wheat end users, and producers through the checkoff in wheat-producing states. We all want our contributions to the checkoff spent wisely. As Chair of Minnesota's Domestic Promotion Committee, I can tell you that I am genuinely impressed with the job that the WFC is doing. Our producer dollars are well spent there.
For example, our involvement in urging changes to the nation's school lunch program resulted in new guidelines that could increase wheat usage by up to 80 percent for school lunches (the 1995 usage was 16 million bushels of wheat).
The WFC is making a difference by guiding consumer buying and eating habits. Misconceptions about bread being fattening are disappearing, and the message that people need to include more grains in their daily diets is getting through.
Dietary research, nutritional doctrine, and the USDA's Food Guide Pyramid support the fact that grains should be the foundation of a healthy diet. But the message needs to be promoted, and we do this by being firmly committed to the continual efforts of the Wheat Foods Council.
- Art Brandli, MN Wheat Research and Promotion Council, Warroad, MN
Revenue Insurance: Major League Potential
Beginning this year, the Federal Crop Insurance Corporation offered a new alternative to multi-purpose crop insurance, called the income protection (IP) pilot program. This revenue protection experiment is being tried in 23 counties across the country involving various crops. Counties eligible for wheat were Kittson, Marshall, Polk, and Roseau in Minnesota; Grand Forks, Pembina, and Walsh in North Dakota.
It is interesting to note that when several of us who serve on the MAWG board were in Washington D.C. recently to press a few issues, one official involved with formulating FCIC policy said that the MAWG can be credited for northwest MN being included in the pilot program. If you recall, the MAWG under former president Warren Affeldt's tenure in 1994 was vocal about testing a revenue insurance program for wheat.
The pilot plan offered this year basically protects against reductions in gross income when yields or prices fall. The insured producer receives an indemnity when any combination of yield and price result in income that is less than the revenue guarantee. At $4.57, the price election under IP is quite favorable in comparison to $3.55 under the standard MPCI. The IP has very good revenue levels and reasonable rates for those who have good APH yields (40 bu./A and above).
But there are drawbacks; among them, IP is based on one unit coverage versus multi-units (by sections) available with MPCI. Thus, a grower will not collect until revenue for the whole farm falls below its established guaranteed income level. And as it stands now, it only takes a few bushels APH to cause a slide from excellent coverage for one producer to merely so-so for another.
As a prototype, this program would no doubt need modifications before it could be widely implemented. But it deserves a reasonable period of measurement. It contains key elements attractive to Democrats (farm income safety net) and Republicans (no handout-to be insured for crop revenue, the farmer pays a premium).
With some infield seasoning, perhaps this minor-league program may become the next major-league star to step up to the plate once the seven-inning stretch of freedom to farm (ag market transition) is over.
- Ron Anderson, MAWG board director Hallock, MN
Off Market Trading Coming Soon?
Greater demands will be placed on producers to manage price and income risks in the future with the reduction in federal farm support. As a partial response, proposals have been made to establish private alternatives to protect against price volatility, through the use of commodity options traded apart from an exchange.
So the Commodity Futures Trading Commission (CFTC) has opened discussion on the Commission's rule prohibiting the offer or sale of trade options "off-exchange" of commodities covered by the 1936 Commodity Exchange Act. Domestically-produced ag commodities specified in the Act include wheat, corn, rice, cotton, soybeans, and livestock, among others.
It was widespread fraud of off-exchange trades that led to the creation of the CFTC in the first place. Today, we see the growth of hybrid cash market contracts. There is some uncertainty whether some of these contracts are trade options or binding delivery commitments which are already exempt. These contracts raise questions of risks: legal and financial. Before off-exchange options trading is tried again, potential problems to such a move must be considered. For indeed, producers, elevators, and co-ops who use options contracts may be put at greater market risk.
If rules regarding off-exchange trading are changed, it is essential that the CFTC gives a more explicit definition to trade options, and retain guidelines on how and on what these new trade options may be used. Agriculture is already rife with risk; we can ill afford more on the marketing side.
- Tom Young, President SD Wheat Inc, NAWG Commodity Futures Committee Chair, Onida, SD
Thoughts on DC from a ND Notebook
Directors of the North Dakota Grain Growers Association board met with lawmakers and officials recently in Washington, D.C. to discuss key ag issues, with the farm bill at the top of the list. Here's a summary of thoughts and conclusions from my notebook:
The USDA has been at work drafting the technical details for carrying out the most likely farm bill scenario as quickly as possible. For instance, the drafters pretty much knew in mid March that guaranteed program payments will be a go, it's just a matter of finalizing how much. The people at USDA who carry out the final bill deserve credit. What they've essentially done is built the engine for the next farm bill and are ready to drive it into the countryside. All that's needed is the ignition key from Congress.
Although we may see moderate reform on environmental issues, it won't be at the level we wanted. We wanted to see a new farm bill contain provisions that would make conservation compliance more results-oriented: that conservation practices be economically achievable, applicable, and that penalties match violations. Also, we urged that swampbuster provisions be modified by exempting wetlands which are less than one acre in size, and frequently cropped (6 out of 10 years) farmland exempted. If we don't see these improvements in the new farm bill, we may have opportunities to go after these issues again in the new Congress.
The NDGGA emphasized on Capitol Hill that we were concerned about how a fund for rural America would be structured, if established. Such a fund could turn pretty suburban, depending on how the funds are ear-marked. We stressed that we wanted to see rural development funds allocated to such areas as ag research, value-added, and helping beginning farmers, rather than sewer and water projects.
Farm-favorable marketing loan levels championed by many in the Northern Plains didn't materialize for the simple reason of improbability. The annual variable of a crop size that is unknown-and hence, potentially expensive to a budget-driven Congress-kept a lid on attempts to increase loan levels.
Finally, the National Association of Wheat Growers has done a good job of implementing a major change in its philosophy toward farm programs (supporting the ag market transition concept) and has been representing the U.S. wheat grower well during these key later stages of the farm bill debate.
- John Cook, NDGGA President, Mohall, ND