More Grain Production Sought
Baking Industry Urge Government Action
As High Prices Take Toll
LAUREN ETTER & DAVID KESMODEL / Wall Street Journal 14feb2008
With the price of wheat and other grains soaring, food producers are calling on the government to help farmers ratchet up output.
Source: USDA via WSJ Market Data Group
Some are calling for loosening a federal conservation program that compensates growers for leaving fields fallow. Others are calling for restrictions on exports, an effort that's unlikely to gain traction but that illustrates the depth of their concerns.
So far, the government is resisting, but the growing chorus for government action signals a new phase in a long-term shift in the global grain markets. For years, U.S. farmers have groused about low prices brought on by overproduction. Now, surging demand from emerging nations and the biofuels industry have sent prices sharply higher.
In a letter to the Agriculture Department late last month, 45 organizations, including the National Chicken Council and the American Meat Institute, asked the newly sworn-in secretary, Ed Schafer, to release farmers from long-term contracts that idle land to preserve wildlife habitats under an effort called the Conservation Reserve Program.
Meanwhile, the baking industry's lobbying group, representing giants like Sara Lee Corp., Kellogg Co. and Interstate Bakeries Corp., plans to gather food-company employees as well as smaller bakers for a march on Washington next month to lobby for reduced wheat exports and to loosen the conservation program.
Robb MacKie, president of the Washington-based American Bakers Association, is calling on government officials, including Congress, to respond to the high prices, which he contends are "raising serious domestic food security issues."
Whether supplies meet such dire predictions depends on conditions in the U.S. and elsewhere. Key wheat-producing nations such Australia and Ukraine have had poor growing seasons. Global wheat stocks are at their lowest level in 30 years, while U.S. wheat stocks are the lowest they've been in 60 years, according to the USDA. Hard red spring wheat, the high-protein variety used to make high-quality bread and pizza crust, among other things, is the scarcest of all.
Millers and bakers might have to put up with high prices for only another three to five months; by then, the U.S. spring wheat crop will have been harvested and world wheat production is expected to increase, says Dan Basse, president of AgResource, an agriculture-research company in Chicago. After that, the price could soften. However, if there's a drought, the already-low grain reserves could go even lower, pushing prices even higher for a more protracted period.
Over the past year, corn and soybean prices hit records. Now, wheat prices are on a tear. On the Minneapolis Grain Exchange, hard red spring wheat closed at $17.63 a bushel yesterday, up from $4.92 a year earlier. In the cash markets, some farmers are fetching more than $20 a bushel. Many farmers are sitting on their grain, waiting for the price to go even higher, exacerbating the jump in prices.
Wheat prices have risen so swiftly that bakers can't adjust their prices fast enough to offset the impact, said Len Amoroso, executive vice president of Amoroso's Baking Co. in Philadelphia. "We are talking about prices that are just unheard of," he said. Tuesday, Mr. Amoroso said, he was quoted $48 per 100 pounds of flour from hard red spring wheat, which he uses to make sandwich rolls and other products. A year ago, he paid about $14.60.
Whether Washington acts may depend on how much consumers are affected. Already, prices have risen for everything from steak to pasta. Food prices rose about 5% in the U.S. last year, the highest rate since 1990, while overall inflation rose by about 4%. Some analysts expect food inflation to rise faster this year.
The average retail price for whole-wheat bread rose 12% to $1.78 per pound in November from a year earlier. Last month, food giants Kraft Foods Inc. and Kellogg said fourth-quarter profits declined because of higher ingredient costs.
Mr. MacKie and other bakers are asking the Agriculture Department to curtail wheat exports until there's a guaranteed supply at home. They cite export tariffs in Russia and China, which have supply concerns. Wheat exports from July to December of last year were 74% higher than they were in the same period the previous year, and they're expected to run strong in coming months, the USDA says.
Restrictions on exports are unlikely because of opposition from farm groups and U.S. trading partners. Such a move would be a throw back to the 1980s, when President Carter imposed an embargo on U.S. grain shipments to the Soviet Union, a move that was unpopular with U.S. farmers.
"That's not an option," said Mark Keenum, undersecretary of farm and foreign agricultural services at the USDA. "We're in the business of promoting agricultural exports, not impeding" them.
Easing the conservation program has some support from growers. Some land in the Conservation Reserve Program would be perfect for planting food grains, Mr. MacKie says.
So far, the USDA, under heavy pressure from conservation groups like Ducks Unlimited and Pheasants Forever, has said that the market will do its job and that farmers who want to be released from their contracts will have to pay a hefty penalty. "We are not ruling anything out entirely, but at this time, there are no intentions of allowing early-out of the CRP program," Mr. Keenum said. "We don't feel like the market situation or the price situation warrants that at this time."
Brian Leier, a 35-year-old grain farmer in Linton, N.D., said he favors freeing up land that has been idled for conservation. "It's either we release some CRP acres or there are going to be plenty of people starving around the world, I believe," Mr. Leier said.
source: p.A8 14feb2008