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Time for a grain reserve

(Monday, Jan. 13, 2003 -- CropChoice guest commentary) -- Dan McGuire of the American Corn Growers Association wrote the following letter in response to Dan Looker's column (see below) on the Business Perspective page of this month's edition of Successful Farming magazine.


You are absolutely on target in calling for a grain reserve. Those who doubt that logic only need look at how the grain and soybean markets and prices were hammered yesterday by USDA's final crop production and supply/demand reports. The market conditions did not justify what USDA did and as one well known market analyst said, "Who's kidding who here" when referring to the excessive reduction USDA made in domestic corn feeding. The analyst continued, "It's conflicting information when you say the beef production will go up and feed usage down, unless there are clear signals." Another analyst observed, "For instance, the latest cattle on-feed report indicated higher placements. Also, as current cash-cattle prices at $78 push ut to the $83-$84 level, there could be some improvement in animal numbers. That would start moving feed usage higher."

A grain reserve would be serving as an economic damage control mechanism to hold prices up in the face of that seriously negative USDA report, which as many such USDA reports of the past, was biased in favor of grain buyers, processors and exporters to drive grain prices down just as they were maintaining some upward momentum. The farm groups and others that claim grain reserves act as a ceiling on grain prices need to re-evaluate their old thinking given the corporate concentration and control that now exists in ag markets. Corporate concentration is the real ceiling on market prices. Indeed, the control and/or manipulation of futures, cash, processor exporter and importer bids is in the hands of a few multinational entities that do both the exporting and the importing. Most farmers understand that reality but some farm and commodity organization leaders seem to be in denial.

Establishing a grain reserve is not rocket science. A reserve can be a price enhancing tool for farmers with provisions to channel corn and soybeans from the reserve to ethanol and soydiesel processing plants. You also make an essential point about multinational companies importing grain into the U.S. to hold our domestic prices down. And lets never forget that U.S. production technology and infrastructure development has been transfered to South America and other countries via U.S. federal and state tax dollars for many years, subsidizing the very competition that U.S. farmers now face from imports. The U.S. will need to reinstitute Section 22 in federal law as soon as possible to stem those imports in the future or our market prices will be forever hammered by our so-called "agribusiness friends." Thank you for that wake up call. Some of us have warned that this scenario was inevitable under the agribusines-driven "market oriented/globalized" farm policy that has been in place and getting worse since 1985. This country and our national security is not served by such a farm and trade policy...of the grain trade, by the grain trade and for the grain trade.


Dan McGuire
Policy Chairman
American Corn Growers Association

Agriculture's Enron: Part II
Maintaining a modest grain reserve protects your own markets

By Dan Looker
Business Editor

My November column, "Agriculture's Enron," drew a lot of responses -- both pro and con. The column, in case you've already burned it, said that not having a grain reserve in our farm bill is a political disaster waiting to happen. I stated that the next time we have a nationwide drought of 1988 proportions, the public will learn that there's no food security in the Farm Security and Rural Investment Act of 2002.

Eric Jacobsen of North Liberty, Iowa, was one of the most eloquent in the camp against reviving a grain reserve. "Back when we had that nonsense, grain prices could never get any traction, because as soon as prices got to a decent level, the bureaucrats released grain into the open market cutting the rally off at its knees," he says.

He's right. That has happened. And that's why reviving a grain reserve doesn't appeal to everyone. It seems to be a cap on once-in-a-lifetime rallies.

Jacobsen also alludes to today's global market when he says, "We've learned that crop failures worldwide are impossible."

We'll see. In the U.S., corn yields are 10% below trend about once every 12 years. A graph of corn yields from 1866 is on Iowa State University economist Bob Wisner's Web page.

Several critics got the impression that I want to go back to a 1930s system of government controls. I don't. But for your survival in this brave, new century, we need a new grain reserve.

We already have a new lid on bull markets. It may be worse than the old reserve. It's that global market.

A new price cap at work

For the past two years, market analysts have tried to explain why prices don't rise as much as they expect when fundamentals look bullish. I don't know all the reasons, either. It could be less competition among grain companies. It's also more competition from global supplies -- wheat from eastern Europe, soybeans from South America, inscrutable Chinese stocks.

We've tasted the global market's power. Last year, Wilmington Bulk, LLC imported Brazilian soybean meal and European feed wheat for big poultry and hog companies.

So now, thanks to the great global market, farmers all over the world get to work for prices that may never reach that dreamed-for drought rally -- unless there really is an unusual worldwide weather disaster.

The next 50-year drought in the U.S. alone will be like an embargo on our exports ordered by Mother Nature. We'll be an unreliable supplier. And you'll really see imported wheat and soybean meal flow into this country.

That's why I favor a grain reserve.

It's a small insurance policy against global disaster. If it's a U.S. disaster only, then it could ease Mother Nature's embargo by providing domestic feed for livestock and grains for ethanol.

Without a grain reserve, you always risk killing your real consumers -- cattle, hogs, and poultry. Breeding herds that are sold off would take years to rebuild. That's your market.

In the last farm bill debate, National Farmers Union proposed a modest reserve to guarantee corn supplies for ethanol co-ops. That makes sense if we want energy security, too.

A grain reserve does not have to be part of production controls. It could be set up many different ways, with a variety of incentives and with a cap to keep it from getting too big.

Don't get hung up on labels

I don't want to oversell this. For farmers, a grain reserve puts a modest floor on prices, but if the reserve is small, its benefits will be, too.

Finally, I hope that we don't get hung up on labels or ideology. A Minnesota farmer thinks I'm a socialist. I saw oxen plowing fields in Cuba last fall. There's little danger of that.

If you're into labels, though, you should know that Henry A. Wallace, the ag secretary who created the first reserve, was a Republican in the 1920s when he was advocating the idea in his own magazine, Wallaces Farmer. He also was a visionary businessman who started Pioneer Hi-Bred International, now owned by DuPont. (Here's a fine biography: American Dreamer: The Life and Times of Henry A. Wallace by Culver & Hyde.)

Meanwhile, e-mail me your ideas on how a grain reserve might work. Or chime in on our Talk groups.