[Senate Hearing 109-510]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-510
 
      DISCUSSION ON AGRICULTURAL TRANSPORTATION AND ENERGY ISSUES

=======================================================================

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION


                               __________

                            NOVEMBER 9, 2005

                               __________

                       Printed for the use of the
           Committee on Agriculture, Nutrition, and Forestry


  Available via the World Wide Web: http://www.agriculture.senate.gov



                                 ______

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           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY



                   SAXBY CHAMBLISS, Georgia, Chairman

RICHARD G. LUGAR, Indiana            TOM HARKIN, Iowa
THAD COCHRAN, Mississippi            PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky            KENT CONRAD, North Dakota
PAT ROBERTS, Kansas                  MAX BAUCUS, Montana
JAMES M. TALENT, Missouri            BLANCHE L. LINCOLN, Arkansas
CRAIG THOMAS, Wyoming                DEBBIE A. STABENOW, Michigan
RICK SANTORUM, Pennsylvania          E. BENJAMIN NELSON, Nebraska
NORM COLEMAN, Minnesota              MARK DAYTON, Minnesota
MICHEAL D. CRAPO, Idaho              KEN SALAZAR, Colorado
CHARLES E. GRASSLEY, Iowa

            Martha Scott Poindexter, Majority Staff Director

                David L. Johnson, Majority Chief Counsel

              Steven Meeks, Majority Legislative Director

                      Robert E. Sturm, Chief Clerk

                Mark Halverson, Minority Staff Director

                                  (ii)

  
                            C O N T E N T S

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                                                                   Page

Hearing(s):

Discussion on Agricultural Transportation and Energy Issues......    01

                              ----------                              

                      Wednesday, November 9, 2005
                    STATEMENTS PRESENTED BY SENATORS

Harkin, Hon. Tom, a U.S. Senator from Iowa, Ranking Member, 
  Committee on Agriculture, Nutrition, and Forestry..............    26
Baucus, Hon. Max, a U.S. Senator from Montana, Committee on 
  Agriculture, Nutrition, and Forestry...........................    03
Coleman, Hon. Norm, a U.S. Senator from Minnesota, Committee on 
  Agriculture, Nutrition, and Forestry...........................    01
Crapo, Hon. Mike, a U.S. Senator from Idaho, Committee on 
  Agriculture, Nutrition, and Forestry...........................    04
Lincoln, Hon. Blanche, a U.S. Senator from Arkansas, Committee on 
  Agriculture, Nutrition, and Forestry...........................    07
Salazar, Hon. Ken, a U.S. Senator from Colorado, Committee on 
  Agriculture, Nutrition, and Forestry...........................    05
Stabenow, Hon. Debbie, a U.S. Senator from Michigan, Committee on 
  Agriculture, Nutrition, and Forestry...........................    09
                              ----------                              

                               WITNESSES

Barnes, Gerald W., Chief Operations Division, U.S. Army Corps of 
  Engineers......................................................    11
Calhoun, Richard, V.P. Grain and Oilseed Supply Chain North 
  America, Cargill Incorporated..................................    34
Collins, Keith, Ph. D., Chief Economist, U.S. Department of 
  Agriculture....................................................    10
Elliot, Neal R., Ph. D., Industrial & Agricultural Program 
  Director, American Council for and Energy Efficient Economy....    36
Gruenspecht, Howard, EnergyInformation Adminstration, U.S. 
  Department of Energy...........................................    14
Kelley, Daniel T., National Council of Farmer Coorperatives, 
  Normal, Illinois...............................................    32
Neiber, Ryan, Rocky Mountain Farmers Union, Burlington, Colorado.    38
                              ----------                              

                                APPENDIX

Prepared Statements:
    Harkin, Hon. Tom.............................................    63
    Collins, Keith...............................................    46
    National Council of Farmer Coorperatives.....................    65
Document(s) Submitted for the Record:
    Statement of Sherman J. Reese, President, National 
      Association of Wheat Growers...............................    74
    Statement of Peter H. Huntsman, President, CEO, Huntsman 
      Coorperation...............................................    79
    Statment of Howard A. Learner, Executive Director, 
      Environmental Law & Policy Center of the Midwest...........    83
Questions and Answers Submitted for the Record:
    Harkin, Hon. Tom.............................................    92
    Lincoln, Hon. Blanche........................................    98
    Stabenow, Hon. Debbie........................................   102



      DISCUSSION ON AGRICULTURAL TRANSPORTATION AND ENERGY ISSUES

                              ----------                              


                      WEDNESDAY, NOVEMBER 9, 2005

                                       U.S. Senate,
         Committee on Agriculture, Nutrition, and Forestry,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:26 a.m., in 
room SDG-50, Dirksen Senate Office Building, Hon. Norm Coleman, 
presiding.
    Present or submitting a statement: Senators Coleman, 
Talent, Crapo, Harkin, Baucus, Lincoln, Stabenow, and Salazar.

 STATEMENT OF HON. NORM COLEMAN, A U.S. SENATOR FROM MINNESOTA

    Senator Coleman. This hearing of the committee on 
Agriculture, Nutrition and Forestry is called to order. Good 
morning, and welcome.
    The transportation and energy challenges we face this year 
hit our farmers particularly hard. But the faults revealed of 
late show us how to move farming in the Nation forward. Both 
transportation and energy are basic inputs into almost every 
farm and business, so high transportation and energy costs go 
to the heart of our competitiveness as a nation. It goes to the 
heart of our ability to create jobs, improve our standard of 
living.
    Our transportation system is the lifeblood of agriculture. 
U.S. agriculture is highly dependent upon the effectiveness of 
our integrated agriculture transportation system, and poor 
transportation directly adds to farmers' bottom lines. Truck, 
rail, and river must be able to work together to compete with 
each other and keep the price of transportation down.
    Congress recently passed a Highway Bill to address many of 
our surface transportation needs, but we have yet to pass the 
Water Resources Development Act, known as ``WRDA,'' to 
authorize crucial funding for our water infrastructure. 
Improving our river navigation will not only lower the cost of 
doing business for producers, but also mean less highway 
congestion and lower air emissions.
    Hurricane Katrina certainly highlighted the importance of 
river transportation to farmers, which was devastating to the 
agriculture transportation system in and around the Mississippi 
Gulf region. Overall, this area is responsible for about 60 to 
70 percent of U.S. world grain exports. It is estimated that 
one in four acres of U.S. production is destined for export 
channels; 60 percent of which goes through New Orleans to the 
Gulf.
    Hurricane Katrina resulted in the extended closure of the 
ports of New Orleans and South Louisiana; and still we are 
operating at only two-thirds capacity. This tells me two 
things. First, USDA needs to continue working hard to mitigate 
the barge backlog. And second, Congress needs to pass WRDA.
    Rail and truck transport have been critical for agriculture 
in this time of interrupted river traffic; but clearly, 
agriculture is heavily dependent on our rivers. And we cannot 
expect to compete with the rest of the world using locks over 
70 years old, as we have on the Upper Mississippi River system.
    But all of us here know transportation costs can't be just 
boiled down to infrastructure. The price paid for energy has an 
enormous impact. And beyond transportation, energy prices are 
taking a severe toll on our farmers. On average, energy 
accounts for about 13 percent of a farmer's expenses. The 
increased costs of fertilizer caused by high natural gas 
prices, combined with extraordinarily high diesel prices and 
high transportation costs, have been a true challenge for 
producers today, who can't raise their prices and are forced to 
absorb these very severe increases.
    Katrina made a bad situation worse, as far as the price of 
oil is concerned. Before the hurricane, on August 26th, the 
price of a barrel of oil was 50 percent higher than a year 
earlier. Three days later, Hurricane Katrina sent these prices 
skyward. And even now, the prices for gasoline and diesel are 
about 50 cents higher than 1 year ago.
    Right before harvest, farmers found themselves in the line 
of fire of these rising costs. Even before Katrina, farmers 
were projected to spend about $10.2 billion in 2005 for fuel, 
$2 billion higher than in 2004. Katrina has created a real 
crisis for our farmers in terms of energy costs, and I hope 
this issue will be addressed in any upcoming disaster aid 
package.
    Clearly, our energy problems go beyond--far beyond--
Hurricane Katrina. I want to share three numbers with you that 
I find very significant--a few numbers with you: 37, 53, 60, 
74. These four numbers represent the percentage of petroleum 
supplies we purchased overseas in 1980, 2002, today, and the 
projected purchases we will make in 2025: from 37 to 74. We 
were addicted to foreign oil in 1980; wherein our costs double 
our dosage down the road.
    I am serious when I say that this Nation's energy 
dependence is the greatest threat to our economy, our security, 
and our freedom that this Nation faces.
    This energy crisis presents a tremendous opportunity for 
our producers to grow the fuel our Nation needs. If we think 
Katrina was bad for energy prices, just imagine what would 
happen if OPEC, which currently accounts for well over 50 
percent of our oil supplies, shuts off the spigot. We must have 
energy independence, or risk losing our autonomy.
    I believe our farmers are a major part of our energy 
independence. That is why I want to see 10 percent of our motor 
fuel come from renewable fuels by 2010. All new motor fuels 
sold in the U.S. should contain at least 10 percent renewable 
fuels.
    And we need to be looking at a hard date for all vehicles 
to be able to run at E-85. Moreover, converting sugar to 
ethanol has been instrumental to Brazil's successful push 
toward energy independence. We need a viable sugar-to-ethanol 
program here in the United States.
    Coupling the energy production of our farmers with common-
sense conservation initiatives, we can solve our energy 
dependence problem.
    I want to hear from our witnesses today on what they think 
can be done to address our transportation and energy 
challenges. How do we become more efficient, more innovative, 
and more independent? What steps does Congress need to take to 
build an affordable, reliable, and environmentally friendly 
infrastructure system in this country?
    I look forward to hearing from our witnesses. And at this 
point, I turn to my colleague from Montana, Senator Baucus.

   STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM MONTANA

    Senator Baucus. Thank you, Mr. Chairman. Thank you very 
much for holding this hearing. I am also glad that you have 
assembled witnesses in order to discuss the energy crisis that 
the farmers and ranchers face in this country.
    Just last week, when I was home in Montana, I knew in my 
head that rising energy prices are a real problem facing 
farmers and ranchers, but I was not prepared for the onslaught 
of criticism and, more importantly, just the deep worry and 
concern; the deepened lines in people's foreheads, just 
worrying about how high costs have increased--essentially, 
diesel fuel and natural gas--not only for producers 
individually, but also as it translates into fertilizer.
    I mean, I have never in my 20-some years in the Congress 
experienced such a strong reaction about the problems the 
producers are facing due to the high energy crisis. I mean, 
this is a whole next category. This is really real.
    As a consequence, a lot of banks are wondering whether they 
should give loans to producers; whether it is going to cost 
out. You know, banks are worried about their bottom lines, just 
like producers are. And the banks are very worried that they 
are not going to be able to meet their bottom line because 
producers won't be able to get the price they need or, more 
importantly, because the energy costs might just be too high 
for them.
    And we all hear concerns from farmers. That is the nature 
of farming. But I have not heard anything quite this deep, this 
worrisome, as I have this time when I was home.
    And Mr. Chairman, clearly, since we represent our people at 
home, we have an obligation to do something significant about 
this; not just talk about it, but do something significant that 
addresses the problems that they are facing.
    I might say, too, that this is not only a domestic concern; 
it is an international concern. Data indicate that our costs 
are a lot higher than are the costs for farmers and ranchers 
and producers in other countries. Statistics provided by the 
American Chemistry Council indicate that the natural gas cost 
per million Btu is higher in the United States than in over 25 
developed and developing countries around the world.
    As of September, the United States had a $12.60 per-
million-Btu price for natural gas, $12.60. At the same time, 
South Korea, Japan, Taiwan--countries with no natural gas 
reserves--had costs around $5.25 per-million-Btu. Costs in 
Europe hovered around $7 per-million-Btu, as did prices in 
Mexico. Again, ours were $12.60. For those countries I 
mentioned--South Korea, Japan, and Taiwan--with no gas 
reserves, the costs are around $5.25 per-million-Btu; in 
Europe, about $7.
    This clearly is a tremendous price disparity. So it is not 
just an internal problem; it is an international 
competitiveness problem.
    Just coincidentally, Mr. Chairman, I was talking to a 
couple of mill operators, lumber mill operators, saying they 
can't compete, either; because natural gas prices in other 
countries are so much lower that the finished lumber, plywood, 
you know, other products that American producers are attempting 
to produce--we are being undercut overseas.
    And we have got a lot more imports to the United States 
because of costs. It is not just Canadian imports and stumpage 
fees, low stumpage fees, that are a problem facing American 
mill operators. It is also very low production costs facing 
producers in other countries; so that we Americans trying to 
put a sawmill together and a plywood plant together and sell 
some product in the United States are finding that we are being 
undercut by foreign competition, mainly because of energy costs 
overseas that are so much lower than they are in the United 
States.
    I have got some ideas of what the problem is and what is 
causing this, and we will get at that later, Mr. Chairman. But 
nevertheless, it is a real problem that we have to address.
    I just hope that maybe our witnesses can shed more light on 
all of this because, clearly, we have got a problem. And 
clearly, we have got to do something about this.
    And I just thank you for holding this hearing.
    Senator Coleman. Thank you, Senator Baucus.
    Senator Crapo.

    STATEMENT OF HON. MIKE CRAPO, A U.S. SENATOR FROM IDAHO

    Senator Crapo. Thank you very much, Mr. Chairman. I agree 
with the comments that my colleagues have made so far today. 
And I want to thank you for holding this hearing to discuss the 
agriculture transportation and energy issues. These issues are 
of vital importance to Idaho farm families, and I appreciate 
this opportunity.
    I want to first thank the Administration for substantial 
work done to assist with the recovery in the Gulf Coast. The 
challenges have been considerable, and the transportation 
disruption ripples through the agriculture industry far beyond 
those immediately impacted by the hurricanes.
    I look forward to hearing more from Dr. Keith Collins today 
regarding the details of USDA's efforts.
    As Idaho is a landlocked state, with a modest population 
and substantial distance to markets, the Idaho producers have 
limited shipping options. They face the same kinds of 
difficulties that Senator Baucus has just described from our 
neighboring state, Montana. And I am sure Colorado and others 
out in the West have the same types of experiences.
    I am consistently hearing from Idaho agriculture producers, 
who are growing increasingly frustrated with the limited 
availability and high cost of rail, truck, and barge service in 
Idaho.
    Specifically, much of the concern is focused on the cost of 
rail shipment and the limited availability of a consistent 
supply of rail cars to get their products to market. This is a 
real problem in Idaho and other states with similar challenges, 
and I support efforts to reach workable solutions.
    Additionally, U.S. producers already face enormous input 
costs, and I am deeply concerned that the cost of production is 
increasing even more through the rising cost of fuel. High fuel 
prices are resulting not only in higher costs around farm 
equipment and shipped goods to markets, but also in rising 
input costs for products such as fertilizer.
    While agriculture is certainly not alone in being impacted 
by rising fuel prices, I am deeply concerned with the strain 
that these increased production costs are putting on farm 
families and the effect that increased production costs have on 
U.S. agriculture's ability to compete in our global markets.
    Again, I appreciate all of our witnesses here today and 
their effort to contribute to this incredibly important 
discussion, and for the opportunity we will have to share our 
views on finding solutions. Thank you, Mr. Chairman.
    Senator Coleman. Thank you, Senator Crapo.
    Senator Salazar.

  STATEMENT OF HON. KEN SALAZAR, A U.S. SENATOR FROM COLORADO

    Senator Salazar. Thank you very much, Senator Coleman. Let 
me first say thank you very much to Chairman Chambliss and to 
Ranking Member Harkin for agreeing to hold this hearing to try 
to put a spotlight on the issues that are facing rural America, 
especially with the hike in gas and diesel prices that we have 
seen over the last several months. I think it is important for 
this committee to do it, and I very much appreciate the hearing 
that we are holding today.
    I also want to thank Ryan Neibur, who is here from Colorado 
today as one of the witnesses that we will be hearing from. Mr. 
Neibur is a fourth-generation family farmer who has chosen that 
way of life. And we, as members of this committee, are 
dedicating to sustaining family farming and ranching across 
America. I am pleased that he is here today, and I very much 
look forward to hearing his story about what it is like 
actually on the ground in eastern Colorado; which I am sure is 
very typical of what it is like for farmers and ranchers all 
across America.
    As I travel around my own State of Colorado, I share the 
same concerns that Senator Baucus shared; because I see those 
concerns in the faces of the people that I represent. I don't 
believe that at any time in my history in Colorado, having been 
to every one of our 64 counties many times, that I have seen 
the concern on the eyes and the minds of farmers and ranchers 
that I see today.
    Many of them were on the edge of the cliff financially. I 
think that the fuel spikes that we have seen over the last 
several months have all the tendency of pushing them over that 
cliff. And I think it is the responsibility of this committee 
to provide assistance to these farmers.
    A few weeks ago, I got on the World Wide Web, and I 
``Googled'' the gas prices on ``Google News.'' Sixty-four pages 
came back from that search on ``Google.'' But as I worked 
through the reams of these stories, I did not see a single 
article on the impact of high fuel prices on farmers and 
ranchers.
    I did see a lot of stories on a lot of other things: rising 
gas prices that were hurting commuters; hurting SUV drivers; 
hurting local governments; hurting lottery sales; hurting pizza 
delivery services; hurting golf travel plans; and indeed, even 
hurting the leaf-watchers in the western part of our country. I 
have no doubt that these high prices are hurting families and 
many people around America, but I am certain that they are not 
feeling the same kind of pain that farmers and ranchers are 
feeling across our country today.
    We all know, those of us who are associated with 
agriculture, that no one is hurt more by astronomical gas 
prices and diesel prices than farmers and ranchers. That is why 
it is so important to hold this hearing today.
    We must examine what is going on in rural America, and we 
must start to find ways to address the situation, both in the 
short term as well as in the long term.
    Here is what I am hearing from my state during harvest. 
Agriculture producers are some of the largest fuel consumers in 
the U.S., and producers are facing enormous fuel costs. For 
example, in Grand Junction, Colorado, diesel prices today are 
still over $3 a gallon.
    I have heard from a farmer in Brandon, Colorado, who has a 
dry land wheat farm of approximately 5,000 acres. He has seen a 
217-percent increase in diesel costs, and about a 71-percent 
increase in gasoline costs since the summer of 2004. This 
operation will use about 200 to 250 gallons of diesel per day 
during the heavy farming season and, if fuel prices do not 
moderate, this farmer will realize a doubling of fuel costs for 
2006; equating to an additional $16,000 annually, just for his 
fuel expenses on his farm.
    I have also heard from another farmer in northeastern 
Colorado who, in order to cover the increasing price of fuel, 
has applied for additional loans from his local bank; only to 
be turned down because he was already over-extended on his 
existing loans.
    These anecdotes illustrate a problem which goes far beyond 
the borders of Colorado. After 5 years of weather-related 
disasters, such as droughts, hurricanes, or fires, these 
higher-input costs are having a severe impact not only on 
producers' ability to harvest this year, but also in their 
ability to secure financing to operate for the next year.
    This is a crisis that is undermining the stability of 
farming operations across our country. This is a crisis and 
emergency that we must address. Our producers need help. In the 
short term, I believe they need economic loss assistance, which 
will help offset the staggering increases in fuel and 
fertilizer costs.
    We, on this committee, must work together to provide this 
help so that our producers will be able to stay in the business 
of agriculture, and so that our rural communities will remain 
viable. I urge the members of this committee to join together, 
on a bipartisan basis, and to pass legislation that will 
provide our producers with much-needed emergency economic loss 
assistance in the form of direct payments to producers.
    This type of economic loss assistance is not unprecedented. 
In fact, Congress has provided this sort of help in the past. 
We did it in 1999, in 2000, and 2001. Because of the economic 
pressures that our farmers and ranchers are facing today, we 
should do it again now in 2005.
    This will not be an inexpensive effort, but our producers 
are in a downward spiral, and we must help end that downward 
spiral. Each day, this energy crisis continues to drive farmers 
and ranchers into deeper debt, putting the life of our rural 
communities at risk.
    Over the long term, we must also address the opportunities 
that are created for ranchers and farmers through renewable 
energy. I strongly believe that that will be the next most 
important chapter for agriculture in America. And it is 
something that, as a member of the Energy committee, I intend 
to work on.
    Let me just finally conclude by saying there is another 
hearing that is taking place at exactly this same time, with 
the Energy and Natural Resources committee, where we are 
hearing from the five chairmen and CEOs of the largest 
petroleum companies in our world. When you look at the numbers 
that they are testifying about, in terms of the record profits, 
the record profits for just the last quarter alone were $32 
billion--$32 billion. When you start putting the zeroes behind 
that 32, there are a total of nine zeroes that you put behind 
that 32.
    I can tell you that, as the farmers and ranchers of America 
continue to feel the pain and the reality of struggling to stay 
in existence, there seems to me to be something unconscionable 
about the record prices that are being made by the oil and gas 
industry, while at the same time the farmers and ranchers that 
feed our nation are barely able to hang on.
    On my desk when I was attorney general, and on my desk 
today as a U.S. Senator, there is a sign that says, ``No farms, 
no food.'' And I think that we, as an American Nation, need to 
come back to that reality and do whatever we can to help our 
farmers and ranchers through this crisis that we are in today.
    Thank you again, Senator Coleman. And again, thanks to 
Senator Chambliss and to Senator Harkin for holding this 
hearing.
    Senator Coleman. Thank you, Senator Salazar.
    Senator Lincoln.

STATEMENT OF HON. BLANCHE LINCOLN, A U.S. SENATOR FROM ARKANSAS

    Senator Lincoln. Thank you, Mr. Chairman. And I would like 
to associate myself with my good friend and colleague from 
Colorado. I think Senator Salazar has really put into 
perspective the pain that our agricultural producers are 
feeling out there.
    I know that in the South, and particularly our great State 
of Arkansas, not only the drought conditions but the Gulf Coast 
disasters which have come up hit the southern part of our state 
and the growers that are there. They have had a double-whammy 
on the weather conditions. But then, to be hit with these 
incredible fuel prices, it is absolutely devastating our 
producers down there. They are seeing a tremendous amount of 
their efforts and resources going into a crop, to find that 
they are not going to be able to recoup those costs.
    In September, I introduced emergency legislation to help 
agriculture producers across the country cope with record 
economic losses that were suffered this year due to persisting 
drought conditions and these high fuel prices. They have been 
devastating.
    The severe drought conditions which the country has seen, 
particularly in our region, combined with the high fuel costs, 
have forced our farmers to experience extremely high operating 
costs. And it is literally wreaking havoc on the heartbeat of 
our Nation's economy.
    Now, having grown up on a farm and having seen, 
particularly, my father as a farmer--recognizing that the 
majority of farmers out there like to complain--but the fact 
is, they are not really that loud about it oftentimes. There is 
a real sense of pride in terms of what they produce and how 
they produce it.
    They work desperately to work by the rules. But they also 
have a real sense of pride and perfection, quite frankly, in 
what they do. And when they recognize the enormous amount of 
cost that they are having to put in to produce the crops that 
can be competitive in a global marketplace, it is just sending 
them into a tailspin.
    We are hearing from our bankers, as well, our financial 
institutions. I have got three counties of banks that are 
telling me that they are going to have a record number of farm 
operations that will not be able to pay out or cash-flow 
because of the record amounts of resource they have had to put 
into producing a crop, and then to find the natural disasters 
that have wreaked havoc on them at harvest time.
    So it is a time when we have to remember what it is our 
producers do. And they do it very quietly. Very quietly, they 
produce the safest, most abundant and affordable food supply in 
the world. They make sure that, per capita, we pay less for our 
food supply than any other developed nation in the world. They 
also reassure us that the grocery store shelves will be 
stocked, and they will be stocked with foods that are produced 
in a way that is sensitive not only to the environment, but 
also to the way that Americans want their food sources 
produced.
    So I hope that we can take a look at what it is these 
producers do in a very quiet way, in reassuring the American 
people that we can maintain that safe and abundant and 
affordable food supply.
    But I have to reiterate, Mr. Chairman, our farmers are 
devastated, in terms of these fuel costs. And it is not just in 
terms of the diesel they put in their tractors. It is also the 
feedstock for their fertilizer. They are paying record prices 
for fertilizer, the feedstock, in the natural gas that is 
causing that to happen.
    And I will just remind the committee that the projection is 
that in the next several years, we will no longer have a 
domestic production of fertilizer. So once again, we are going 
to set another variable onto our producers of not knowing what 
and when they can depend on the products that they need in 
order to produce this safe and abundant food supply.
    So I thank you, Mr. Chairman, for focusing on this. I know 
that there are multiple other issues, in terms of 
transportation. We do in our region have other issues, in terms 
of transport. Those small, rural county roads oftentimes are 
not able to transport the large cotton modules and the other 
crops that we grow. So we have got a lot of different issues 
there. But without a doubt, the fuel costs are the greatest 
burden that our farmers are carrying right now. And we have got 
to do something about it.
    Just in closing, I would like to also echo Senator Salazar, 
in terms of relieving our dependence on foreign oil. If there 
is one consistent thing I hear from our ag producers in the 
South, it is, ``Please, please, allow us to be a part of 
providing the kind of fuels, the renewable fuels, that we need 
in this country, to lessen our dependence on foreign oil and 
give us yet one more secondary market where we can market our 
products and our crops.''
    Now Eastman Chemical has produced its first off-line batch 
of biodiesel, which came out on-line a couple of weeks ago in 
Arkansas. We have got another facility that will be going into 
production as of April. There are a lot of people that want to 
invest. We have got to make sure that the incentives are there 
for them. And it is critically important to our agricultural 
producers. They are desperate for it, and want passionately to 
play a role in lessening our Nation's dependence on foreign 
oil.
    So thank you, Mr. Chairman. I appreciate you all bringing 
this very critical issue before the Congress. And I certainly 
am signing myself up to work as hard as I possibly can to 
alleviate that burden that our agricultural producers see. 
Thank you.
    Senator Coleman. Thank you, Senator Lincoln.
    Senator Stabenow.

STATEMENT OF HON. DEBBIE STABENOW, A U.S. SENATOR FROM MICHIGAN

    Senator Stabenow. Thank you, Mr. Chairman. Thank you very 
much for holding this important hearing.
    Welcome to each of you today. Thank you for your presence.
    We all are hearing the numerous stories about the impact of 
high energy costs on Americans and our economy. Most recently, 
we have heard about that in Michigan related to manufacturing 
and to our families. But there is no question about it, that 
our farmers are right in the middle of it.
    They are being hit, really, three different ways, as we all 
know: high gas prices, high diesel prices, and high natural gas 
prices. And so this is critically important for Michigan, as it 
is for all of the states that my colleagues represent; since 
agriculture is so important to us and our farming economy is 
absolutely critically hit by all of what is happening.
    I noticed, coming in and listening to Senator Lincoln talk 
about alternative fuels, that it certainly something that we 
are anxious in Michigan--we are very much involved with ethanol 
and biodiesel. And one of the reasons I was a strong supporter 
of the energy provision of the 2002 Farm Bill was because of 
the important ways in which we in agriculture can help to solve 
the problem of our dependence, over-dependence, on foreign oil. 
And we need to renew our efforts and move as quickly as 
possible on that front.
    I just introduced a bill called the Energy Tax Rebate Act, 
to give our farmers and families, businesses, an immediate $500 
tax rebate to pay for these increased costs, fuel costs and 
home heating costs. And I hope that we will see serious 
consideration and enactment of this type of tax rebate, to help 
our families and our farmers immediately.
    I appreciate again, Mr. Chairman, this hearing, and know 
that we have some important work to do together. Our farmers 
are feeling squeezed on all sides, and we need to act on their 
behalf.
    Senator Coleman. Thank you, Senator Stabenow.
    For our first panel today, we will have Dr. Keith Collins, 
Chief Economist at the United States Department of Agriculture; 
Mr. Gerald W. Barnes, who is Chief of Operations, U.S. Army 
Corps of Engineers, and Mr. Howard Gruenspecht, Deputy 
Administrator, the Energy Information Administration. We will 
start with Dr. Collins, and then move across.
    Dr. Collins, it is always a pleasure to have you before 
this committee. I just would note, on a personal note, to thank 
you for the work that you did a number of years ago debunking 
the myths in the anti-ethanol study that was done a while ago. 
So your service to this Nation is really appreciated, and it is 
a pleasure to have you here today.

   STATEMENT OF KEITH COLLINS, PH. D., CHIEF ECONOMIST, U.S. 
                   DEPARTMENT OF AGRICULTURE

    Mr. Collins. Thank you, Mr. Chairman. Mr. Chairman and 
members of the committee, thank you for the invitation today to 
come up here and talk about the implications for U.S. 
agriculture of the higher energy prices and the disruption of 
the marketing system due to the Hurricanes Katrina and Rita.
    Strong world energy demand and large expected farm 
production this fall were already causing high prices for 
energy and lower prices for key crops, even before Hurricanes 
Katrina and Rita struck. The hurricanes, of course, reduced 
energy production and caused extensive damage to our trade 
infrastructure. In a typical year, about half to two-thirds of 
grain exports move down the Mississippi. So, of course, the 
disruption of that channel meant the impacts were felt over 
much of the Nation.
    While substantial challenges remain, Gulf Coast areas have 
made some remarkable steps toward recovery. For example, 
between Baton Rouge and Myrtle Grove, Louisiana, there are ten 
export elevators and three floating rigs that load grain from 
barges onto ships. Operational capacity right after Katrina 
struck went to zero. Today, all of these facilities are fully 
operational.
    The Mississippi River channels used for grain export are 
now open and operating at normal depths. On the Mississippi 
Gulf, 90 percent of grain delivered there comes by barge. So 
recovery of barge traffic is crucial. The barge industry 
reports that only a small number of barges were lost, but twice 
as many barges as normal are currently on the lower 
Mississippi, and that is limiting grain movement from the 
Midwest to the Gulf. Lack of labor and housing, and barges 
holding poor-condition grain, still limit a return to normal 
traffic.
    The USDA has implemented several assistance programs to 
address the barge bottleneck and the related storage problems. 
We are providing assistance to move barges of damaged corn from 
New Orleans to up-river locations. We are paying incentives for 
alternative storage. We are providing assistance to move grain 
to other river transportation modes and locations.
    USDA has also provided flexibility for producers having 
2004 crop marketing loans. We have permitted emergency and 
temporary storage for new crop loans, and we have made 
available funding for emergency loans.
    The quick actions taken by the Army Corps of Engineers, the 
barge and grain companies and their employees, have helped 
limit the disruption to grain marketing. From late August 
through October 27th, grain inspections for export from 
Mississippi Gulf ports were 72 percent of last year's level. 
They even exceeded last year's pace during 1 week in October.
    Part of this decline in grain inspections has been offset 
with increased exports from other ports; so that during this 2-
month fall period, combined grain inspections for export from 
the Mississippi Gulf, from the Texas Gulf, and from the Pacific 
Northwest, were 94 percent of last year's level.
    In addition, cumulative corn exports since the start of the 
marketing year, September 1st, through October 27th, were 1 
percent higher than last year's exports during the same period; 
although soybeans are only 76 percent of last year's level.
    The hurricanes also worsened the already tight energy 
situation. Farmers paid 43 percent more for diesel fuel in 
October 2005 than a year earlier; while prices paid for 
fertilizer by farmers were up 13 percent this October, compared 
with last October.
    The higher energy prices and marketing disruptions are 
raising farm production expenses, pressuring the storage 
system, lowering crop prices to producers, and raising farm 
program costs.
    On a positive note, diesel and natural gas prices and barge 
rates have all fallen sharply the past 2 weeks. Corn and 
soybean prices have started to rise the past 2 weeks. Farm 
product demand remains relatively strong. And farm programs are 
cushioning the income drop for many producers. Still, energy 
costs will be a financial problem for producers this and next 
year, and substantial work still remains to restore the 
marketing system to normal.
    The USDA will continue its efforts of assistance, and try 
to assist other Federal, state, and local agencies.
    While farmers and ranchers face a number of challenges for 
2006, we are confident the underlying financial strength of 
U.S. agriculture will enable producers to deal with the 
uncertainties ahead. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Collins can be found in the 
appendix on page 46.]
    Chairman Coleman. Thank you very, very much, Dr. Collins.
    Mr. Barnes.

STATEMENT OF GERALD W. BARNES, CHIEF, OPERATIONS DIVISION, U.S. 
                    ARMY CORPS OF ENGINEERS

    Mr. Barnes. Mr. Chairman, distinguished members of the 
committee, I am Gerald Barnes, Chief, Operations Division, 
Directorate of Civil Works, of the Army Corps of Engineers. I 
am honored to be testifying before your committee today on the 
status of the Mississippi River transportation system and the 
role that the Department of Army and the Corps of Engineers 
play in ensuring the viability of this critical energy-
efficient transportation artery.
    I would like to offer my observations regarding the 
expected river conditions over the next 6 months, as well as 
offer a brief discussion regarding the inland navigation system 
in general.
    The Corps has had a navigation mission since the Survey Act 
of 1824. Since that time, the Corps has established a tradition 
of fulfilling the vital navigation needs of this Nation through 
the construction and maintenance of ports and waterways across 
the Nation.
    The goal of the Corps' navigation mission is to help 
facilitate commercial navigation by providing safe, reliable, 
highly cost-effective, and environmentally sustainable 
waterborne transportation systems.
    Water resources management infrastructure has improved the 
quality of our citizens' lives and supported the economic 
growth and development of this country. Our systems for 
navigation, flood and storm damage reduction projects, and 
efforts to restore aquatic ecosystems contribute to our 
national welfare.
    The Mississippi River serves as a major transportation 
artery for the movement of bulk commodities such as 
agricultural products and petroleum products. After Katrina 
struck Louisiana, numerous barges and towboats were impacted, 
many of which contained agricultural products for offloading at 
one of the many grain facilities in the New Orleans area.
    At the same time, all shipping into and out of New Orleans 
was halted; which had a major impact in the short term on the 
ability to move petroleum products and grain.
    Immediately after Hurricane Katrina passed, Federal 
agencies, including NOAA, the Navy, the Coast Guard, and the 
Corps, began to assess the condition of the Mississippi River, 
as well as other impacted ports and waterways. This monumental 
task was completed much sooner than projected, thanks to 
coordinated Federal efforts and the outstanding support from 
our waterways users and partners.
    The Mississippi River has been successfully restored to 
full deep-draft operation, and many of the barges and vessels 
have been retrieved and replaced back into service.
    In review of the latest long-range forecast graphs prepared 
by the National Oceanic and Atmospheric Administration for both 
precipitation and temperature, they suggest that the Upper 
Midwestern states have a 33 percent chance of not experiencing 
any unusual dry weather conditions during the upcoming winter 
season. And they suggest warmer than normal conditions 
projected.
    From evaluations of river stage information, it is 
reasonable to anticipate some fairly low stages during the next 
few months. And it is highly likely that stages lower than 
those reported earlier this year, minus-1.5 on the Saint Louis 
gage, would be encountered in the near future.
    River stages do not directly relate to reliable drafts and 
tow sizes. There are many other factors that are taken into 
consideration when deciding what prudent restrictions should be 
in place. On the Middle Mississippi, drafts are historically 
unrestricted, as long as the Saint Louis gage is above 0 feet.
    Once stages reach, or are forecast to reach, the-2 to-3 
feet stage, drafts have usually been reduced to less than 10 
feet. Provided the stages fall at a reasonable rate, and there 
is not a catastrophic grounding which disturbs the bottom of 
the river, drafts of 9 feet or better can usually be 
accommodated with dredging.
    In addition to draft restrictions, tow sizes are also 
reduced as stages fall. Unrestricted tows on the Middle 
Mississippi are usually in the 36- to 40-barge range. With 
stages approaching 0, this would possibly be reduced to 30 
barges or less. In the minus-2 to minus-3-foot range, tows 
would likely be reduced to barge configurations of 24 or less. 
With extreme low stages, two sizes might actually be reduced to 
12 to 15 barges. This is very much dependent on the actual 
channel dimensions, however.
    Decisions regarding restrictions in tow sizes and drafts 
are made through a collaborative effort of the Corps, the Coast 
Guard, the National Weather Service, and the towing industry.
    The Corps' primary role is monitoring channel conditions, 
assisting the Coast Guard in locating and marking channels, and 
dredging as required.
    There are three dredges currently working in the shallow-
draft channels of the Mississippi River. The Government dustpan 
dredge, and a contract cutterhead dredge are working on the 
Middle Mississippi, and a Government dustpan dredge is working 
on the Lower Mississippi near Memphis. In addition, the Corps 
has the ability to bring several others into the region, if 
required. There are two other large dustpan dredges that can be 
called upon, if needed.
    Historically, ice has resulted in suspension of commercial 
navigation on the Upper Mississippi above Saint Louis, from 
mid-December until mid-March. In conjunction, Locks 11 and 19 
are scheduled to be closed for major rehabilitation from 
December 15th, 2005, to March 15th, 2006.
    Historically, ice does not result in a complete closure of 
the Middle Mississippi. It can cause traffic delays and short-
term stoppages. This is not an annual event, and usually occurs 
in late January and February.
    The Mississippi River serves as a major transportation 
artery for the movement of bulk commodities, such as 
agricultural products and petroleum products. It is part of the 
Federal inland waterways navigation system, which includes 
nearly 12,000 miles of commercial waterways, rivers, and 
harbors, developed and maintained by the Corps.
    The inland waterway system carries one-sixth of the 
Nation's volume of inner-city cargo, about 630 million tons 
annually. The inland waterways include 192 commercially active 
locks, with 238 lock chambers. Some locks have more than one 
chamber, often of different dimensions. These locks enable 
barges to stairstep through a series of navigation pools and 
reach distant inland ports, such as Minneapolis, Chicago, and 
Pittsburgh.
    In terms of ton-miles of cargo, the vast majority of the 
traffic on the inland waterways travels along three principal 
corridors: Mississippi, Ohio, and Illinois waterways.
    Since the 1960's, the Federal Government has invested 
heavily in the maintenance and major rehabilitation of these 
structures on these high-commercial-use waterways. These 
investments support substantial movements of agricultural 
products, energy-related materials, and other bulk commodities. 
Under this Administration, the Corps is giving priority to 
continued maintenance and major rehabilitation of these 
waterways.
    In summary, given the uncertainty of the weather, it is 
impossible to predict what channel conditions will be for the 
rest of the year. However, due to the dynamic nature of the 
river, the Corps cannot guarantee that there would likely be 
any closures. But for the reasons given above, it is unlikely 
that there will be any long-term closures or catastrophic 
disruptions to barge movements due to inadequate channel 
dimensions.
    The Corps is committed to maintaining this vital waterway 
in the best condition possible. And we will remain diligent in 
monitoring channel conditions through surveys, communication 
with towing companies, to assure that potential problems are 
recognized early and addressed appropriately.
    Sir, this concludes my statement. I appreciate the 
opportunity to testify, and stand ready to answer questions.
    Chairman Coleman. Thank you, Mr. Barnes.
    Mr. Gruenspecht.

 STATEMENT OF HOWARD GRUENSPECHT, DEPUTY ADMINISTRATOR, ENERGY 
     INFORMATION ADMINISTRATION, U.S. DEPARTMENT OF ENERGY

    Dr. Gruenspecht. Thank you, Mr. Chairman and members of the 
committee. I appreciate the opportunity to appear before you 
today to discuss recent developments in energy markets and 
their possible implications for the agricultural sector.
    The Energy Information Administration is the independent 
statistical and analytical agency within the Department of 
Energy. We do not promote, formulate, or take positions on 
policy issues, but we do produce data, analyses, and forecasts 
that are meant to assist policymakers, help markets function 
efficiently, and inform the public.
    Hurricanes Katrina and Rita wrought incredible devastation 
on the central Gulf Coast; most importantly, in terms of human 
suffering, but also in energy impacts that have spread well 
beyond the stricken area. At its peak impact, Katrina shut down 
over 25 percent of U.S. crude oil production, 20 percent of our 
crude imports, 10 percent of our domestic refining, and over 15 
percent of U.S. natural gas production.
    Rita compounded those impacts. For example, nearly 30 
percent of total U.S. refining was shut in ahead of Rita, and 
outages continued at nearly 20 percent of refining capacity for 
some weeks thereafter.
    The farm sector, as many of you have mentioned in your 
opening statements, is a significant consumer of energy, 
particularly diesel fuel, propane, and electricity. In addition 
to direct farm use of energy, agriculture is indirectly 
affected by energy requirements in the fertilizer industry, 
specifically in nitrogenous fertilizers.
    With that background in mind, let me turn to recent energy 
market developments, starting with petroleum. Again, even 
before Hurricane Katrina struck, crude oil and petroleum prices 
were setting records. Oil prices worldwide have been rising 
steadily since 2002, due in large part to growth in global 
demand which has used up much of the world's surplus production 
capacity. Refineries have been running at increasingly high 
levels of utilization in many parts of the world, including the 
United States.
    In the immediate aftermath of Katrina, with the extent of 
the actual damage still largely unknown, crude oil prices rose 
briefly over $70 per barrel, up over $4 in less than 48 hours, 
but in less than a week had fallen back below the pre-storm 
level.
    The more significant impact, however, was on finished 
petroleum products. Spot prices for gasoline, which are the 
prices by which large volumes are sold by refiners, importers, 
and traders, rose as much as $1.40 per gallon east of the 
Rockies within 3 days; spot diesel fuel prices rose 35 to 40 
cents.
    The seemingly disproportionate change in finished product 
prices reflects the severity and expected persistence of 
Hurricane Katrina's impacts on refining operations in the Gulf. 
Following Rita, it was the turn of diesel prices to be 
disproportionately affected.
    Wholesale petroleum product prices, like those of crude 
oil, have now fallen well back from their peak levels. As of 
Monday, November 7th, the average retail price of regular 
gasoline was about 23 cents per gallon lower than its pre-
hurricane level. Diesel prices, having fallen by 45 cents per 
gallon over the past 2 weeks, are now within 10 cents per 
gallon of their pre-hurricane level. But keep in mind, the pre-
hurricane level was high, relative to the past.
    We have recently released, as of yesterday, our short-term 
energy outlook, reflecting our updated scenario for recovery of 
the energy system. The recovery of crude oil and natural gas 
production in the Gulf is occurring somewhat more slowly than 
we had previously assumed. However, the operation of the world 
oil market is substantially mitigating the impacts of these 
disruptions on crude and gasoline supplies.
    In our latest outlook, we project a continued drop in 
diesel prices, although prices are expected to remain 
substantially above year-ago levels through the end of the 
year.
    Several of the opening statements mentioned natural gas. 
Like crude oil and petroleum products, natural gas prices were 
also setting records before Hurricane Katrina struck. In 
August, the Henry Hub natural gas spot price averaged over 
$9.00 per 1,000 cubic feet, as hot weather in the East and 
Southwest increased natural gas fired electricity generation 
for cooling demand.
    The outlook we released yesterday projects an average Henry 
Hub natural gas spot price of $9.15 per 1,000 cubic feet for 
2005, and $9.00 for 2006. Weather is clearly a critical factor 
in any price projection for natural gas, given the importance 
of heating demand. A colder-than-expected winter will 
significantly raise projected prices, while a milder winter 
should lower them.
    The natural gas market is likely to stay tight over the 
next couple of months, but spot prices are expected to ease 
going into 2006. However, we do think that natural gas spot 
prices at the Henry Hub will average, on a monthly basis, over 
$10 per 1,000 cubic feet until the winter is over.
    Many of the opening statements mentioned the role of 
renewable fuels. While higher petroleum prices are viewed as a 
negative development by most energy consumers, higher prices 
could also serve to improve ethanol's competitiveness as an 
energy source.
    EIA, in the context of energy legislation that was recently 
enacted, recently conducted a study on the near-and mid-term 
potential price and supply effects of enacting legislation 
mandating the use of renewable fuels. We considered provisions 
similar to those that were ultimately included in the recently 
enacted Energy Policy Act.
    The estimated impact of such provisions was shown to be 
highly dependent on assumptions regarding the future path of 
world oil prices, relative to the costs of ethanol. And I can 
get into that more in the Q&A.
    Let me now turn to the upcoming heating season, where the 
expectation is for sharply higher costs, although somewhat 
lower than in the outlook we released a month ago. We expect 
natural gas households to pay 41 percent more than the previous 
winter; heating oil households to pay 27 percent more; propane, 
21 percent more; and 5 percent more for electrically heated 
households.
    Again, using previous information about energy use on farms 
and in closely related sectors, every additional dime added to 
the price of gasoline and diesel oil per gallon, sustained over 
a year, costs U.S. agriculture almost $400 million annually. 
Every dollar added to the price per 1,000 cubic feet of natural 
gas costs agriculture over $200 million annually in direct 
expense, and costs the fertilizer industry almost $500 million 
annually. Every dime increase in the price of propane costs 
agriculture over $200 million per year. Every penny increase in 
the price per kilowatt-hour of purchased electricity costs 
agriculture about $500 million annually in direct expense, and 
also adds about $35 million to the costs of the nitrogenous 
fertilizer industry.
    That concludes my statement, Mr. Chairman. I will be happy 
to answer any questions you or the other members might have. 
Thank you very much.
    Chairman Coleman. Thank you, Mr. Gruenspecht. Mr. 
Gruenspecht, let me kind of reverse order here, and ask a 
little bit about diesel. It seemed that regular gas went to $3 
a gallon, and had a big impact, and so a lot of conversation 
about that. Diesel is up there. Regular gas seemed to fall more 
quickly--well, it did. The price fell much more rapidly.
    And two questions. I hate to ask two questions at once, but 
let me put them together. There seems to be a phenomenon where 
prices rise quickly, and then ultimately they fall, but they 
fall back much more slowly. So the impact, you are paying that 
price; within a short period of time it seems prices shoot up. 
And then weeks later, we say, ``Well, they have rebounded.'' 
Yes, but it took me 3 weeks to get to where we were, still 
higher than a year ago. But the rise was very rapid.
    So can you help me on both those issues? Talk about the 
rapidity in the rise, and the slowness in fall, and what is 
controlling that. And then help me understand a little bit 
about why diesel costs, which really impact our producers 
greatly; why they seem to fall at a slower rate than the price 
of regular gasoline.
    Mr. Gruenspecht. OK. Well, let me try the first one first. 
Prices in the markets for gasoline and diesel fuel are affected 
mostly, or significantly, by the wholesale spot market prices. 
There is a lagged pass-through of wholesale spot market prices 
into retail prices.
    So in fact, when the wholesale prices rise, the retail 
prices initially don't rise as much. When the wholesale prices 
then start to fall, you have a combination of effects of the 
delayed pass-through of the previous rise, coupled with the 
start of the pass-through of the decline. So it is pretty 
typical that retail prices won't rise as much, but then there 
will be a delay in the fall.
    In terms of the diesel versus gasoline, that is really 
quite an interesting issue. Initially, following Katrina, 
gasoline took off, and diesel really didn't take off as much. 
But following Rita, we saw diesel rising more.
    There are really two things going on. One is, the 
disruption in refining really affected the output of both 
diesel and gasoline. But the world oil market is better able to 
respond to high gasoline prices by sucking in a lot of gasoline 
imports.
    The world market for distillate fuels, which includes 
diesel and heating oil, is a lot tighter, and there is less 
available spare capacity to supply diesel. Part of this 
reflects what is going on in Europe, where a very large 
proportion--over 50 percent of the new vehicles, new light-duty 
passenger vehicles, sold in Europe are diesel-powered. So 
Europe is moving toward less reliance on gasoline, and more 
reliance on diesel. And that, as well as diesel demand in 
Asia--which we can talk about more--has made the diesel market 
tighter.
    So we got more help, in terms of increased imports of 
products, in terms of gasoline. In fact, gasoline imports are 
running about 500,000 barrels a day above their seasonal norms. 
We have gotten much less help on diesel. So the imports helped 
us on gasoline; less on diesel.
    The other thing is, this is the time of the year for diesel 
generally to be tighter, because we are going into the heating 
season, which is when people in the Northeast who use heating 
oil start filling up their tanks. We are going into the 
harvesting season, when people in the farm communities start 
using diesel for their harvesting.
    So independent of the hurricanes, this is a time of year 
when there tends to be more pressure on diesel prices. For 
gasoline, past Labor Day tends to be the time when consumption 
is falling off. So it is really a combination of those factors, 
I think would be a fair description.
    Senator Coleman. One follow-up question.
    Mr. Gruenspecht. Absolutely.
    Senator Coleman. And then I want to go to Dr. Collins with 
what you just talked about in terms of the impact on our 
producers.
    Did you see any shifting within this country of refining 
capacity from diesel to regular gasoline? I mean, the consumer 
pressure is on regular gasoline. There are not as many farmers 
as there are folks just driving vehicles. And one of the 
impressions I get in my conversations with some of my producers 
is, ``You know, we are getting the short end of it, with this 
kind of great flurry about the rise in gas prices.''
    So did you notice any shifting of refining capacity that 
would have increased the pressure on our producers who use 
diesel?
    Mr. Gruenspecht. I think it is fair to say that there were 
very high margins available on gasoline immediately following 
Katrina. And I think there was an effort to fill the gasoline 
gap, and moving slates somewhat to emphasize the products that 
produce the highest margins. So I would say, yes.
    But then, obviously, following Rita, when diesel prices 
rose dramatically, that pressure works the other way. The real 
difference is, you don't get the help from the imports on the 
diesel that you were able to get on the gasoline.
    Senator Coleman. I am not sure if anyone on this panel can 
answer, but where is the line between pressure and gouging? It 
is one thing to say that there is pressure; it is another thing 
to say that--you know, gas at $5 a gallon in Georgia. Can 
somebody help me draw a line between taking advantage of 
increased margins and shifting production, the difference 
between that and gouging?
    Mr. Gruenspecht. Do you want to do that, Mr Barnes?
    [Laughter.]
    Senator Coleman. Dr. Collins? Does anybody want to just 
help educate this Senator?
    [No response.]
    Senator Coleman. We are going to have to look into that. I 
mean, that is an area of serious concern.
    Mr. Gruenspecht. I know there are lots of hearings today. 
And I know you have a panel of state attorneys general, I 
think, at one of the other hearings. I believe you also have 
the Chairman of the Federal Trade Commission at one of the 
other hearings. It is my understanding there is no Federal law 
in this area. But I think the states have laws, and I think 
they differ from state to state.
    I am an energy analyst; not a lawyer. So I have to watch 
how deep I dig my hole. Maybe those hearings will produce more 
of what you are looking for.
    Senator Coleman. Let me turn to Dr. Collins. Can you give 
me a little bit? I thought your testimony was rather optimistic 
about, certainly, recovery from Katrina and some of the long-
term economic impacts. But every member of this committee 
talked about the anecdotal conversations with our producers 
now; particularly increased diesel and natural gas right now.
    And we are looking at heating as the weather in a number of 
northern states--well, it gets cold in Colorado, too, but you 
have got a number of northern states represented. We have cold 
winters.
    Can you talk to me a little specifically on the impact of 
high diesel and natural gas prices on our producers; 
particularly in these cold-weather states?
    Mr. Collins. Sure. Perhaps if I was a little optimistic, it 
may be because I was focusing, too, on the transportation 
system, which I think has made a substantial recovery in the 
last month.
    With respect to higher energy prices, of course, this is a 
significant impact for producers. We estimated that this year, 
just for fuel alone, there is a 40-percent increase in farm 
production expenditures on fuel. The last time you can find a 
40-percent increase in 1 year, you have to go back to 1980, 
when we had the huge oil price spikes then.
    So economists can define a crisis as an abrupt change in 
relative prices. That is what we have seen here, an abrupt 
change in relative prices. So this cuts into the profitability, 
the bottom line, of producers.
    The saving grace here--which is a note of optimism--is that 
we have had very high gross cash income in 2004, and again in 
2005. Most people have in their mind that American agriculture 
produces $200 billion worth of farm products a year. They did, 
four or 5 years ago. This year, they are producing $240 billion 
worth of farm products, valued at cash receipts.
    In addition to that, we have had a substantial increase in 
farm program payments. So gross income is very strong. That is 
certainly not going to help every farmer, because not everybody 
gets farm program payments, and everybody faces energy costs 
differently. But higher energy prices at least have come at a 
time when we have been at the top of the farm cycle.
    I think that cycle is turning. I think in 2006, we are 
going to face lower farm incomes. And we are going to face 
higher energy costs in 2006, as well. So I think that that will 
be more of a problem for producers.
    Senator Coleman. I want to turn to my colleagues, and maybe 
do a second round. Mr. Barnes, just a question here. In your 
testimony, you talked about substantial investment in our 
waterways system. Does the Corps of Engineers have a position 
on the 2005 Water Resources Development Act? We have been 
trying to get WRDA passed. Is the Corps weighing in on that?
    Mr. Barnes. Sir, we finished the report, and the Chief 
Engineer recommended in that report both small-scale structural 
and non-structural measures on the Upper Mississippi River, to 
include a number of items I can mention later; and then new 
1,200-foot locks at Locks 20, 21, 22, 24, and 25, on the 
Mississippi; and the LeGrange Lock and the Peoria Lock on the 
Illinois Waterway. The report is under review by the Assistant 
Secretary, in conjunction of course with the Office of 
Management and Budget. The Assistant Secretary is expected to 
recommend in that study, also, an electronic guidance system to 
assist tows.
    It is sufficient to say that, also, there is a reminder 
that authorization of the plan recommended in the report is 
contained in the Water Resources Development Act, 2005, passed 
by the House of Representatives. And it is also contained in 
the Senate version of WRDA 2005 that has been reported out of 
the committee.
    Senator Coleman. We have a bipartisan effort to modernize 
locks. This is an important issue. I notice the President 
indicated his support, endorsed modernization of the Panama 
Canal. I would also hope that we would have strong support for 
modernizing the Upper Mississippi River system.
    Mr. Barnes. Right, sir.
    Senator Coleman. Very important to us. Senator Baucus.
    Senator Baucus. Thank you, Mr. Chairman.
    Is it Mr. Gruenspecht? Is that how you pronounce your name? 
Thank you, very much. Is it true that natural gas prices, as I 
indicated in my statement--and I am just asking for 
confirmation--are much higher in the United States historically 
than in those other countries I mentioned?
    Mr. Gruenspecht. Today?
    Senator Baucus. Generally, today, and over the last several 
years.
    Mr. Gruenspecht. I think, actually, there was a report done 
by the Department of Commerce earlier this year that looked 
into the comparison, as part of the issue of natural gas and 
its effect on industrial competitiveness. I think they found 
that there were definitely some countries that used to have 
more expensive natural gas than the United States, that now had 
cheaper natural gas than the United States. But it is not a 
uniform situation, in my understanding.
    Senator Baucus. OK. My figures, and they could be wrong----
    Mr. Gruenspecht. Right.
    Senator Baucus. These are just my figures. And this is 
provided by the American Chemistry Council. Why them; I am not 
sure how we got this. But just to repeat, the natural gas cost 
per million Btu in the United States is higher than in over 25 
developed and developing countries.
    As of September, the U.S.--that is clearly after Katrina--
had $12.60 per million Btu. And in South Korea, Japan, Taiwan--
with no natural gas reserves and no supplies to speak of--costs 
were about $5 per million Btu. And Europe hovered around $7 per 
million Btu, as is the case in Mexico.
    And I hear this anecdotally from American business people, 
as I mentioned to you. And so let's assume that generally it is 
correct. I don't know if it is or not----
    Mr. Gruenspecht. Right.
    Senator Baucus [continuing]. But let's assume that it is. 
The next question is, why? Why are natural gas prices much 
higher???????
    [sic] in other countries--Japan, North Korea, South Korea, 
Europe, Mexico--than they are in the United States? Why? What 
would explain that?
    Mr. Gruenspecht. OK. Let me try. Regarding the natural gas 
market in North America, although we do have a limited amount 
of liquefied natural gas coming in, primarily we have a market 
that clears within North America. In terms of United States 
natural gas use, we domestically produce about, I think, 83 
percent of what we consume. We import a bunch----
    Senator Baucus. Much more than the case with crude oil.
    Mr. Gruenspecht. Much more than the case with crude oil. We 
import natural gas from Canada, about----
    Senator Baucus. Not much. Basically, it's domestic.
    Mr. Gruenspecht. No, about 15 or 16 percent.
    Senator Baucus. Right.
    Mr. Gruenspecht. And then a tiny bit of liquefied natural 
gas. And actually, we export natural gas to Mexico. We are net 
exporters to Mexico of a small amount.
    Senator Baucus. But basically, it is produced pretty much 
domestically.
    Mr. Gruenspecht. It is produced domestically, and certainly 
in North America.
    Senator Baucus. Right.
    Mr. Gruenspecht. So we have a situation where you have 
tight production--and we have been in that situation for some 
time. Our domestic production has been relatively flat, despite 
increasing drilling. And we also have a situation where a lot 
of electric generating capacity has been built that can use 
natural gas.
    Senator Baucus. But my question is, why are they higher 
here than, say, Japan?
    Mr. Gruenspecht. Well, because we are clearing the market 
in North America. OK? So something like oil is a world 
commodity, like some of the agricultural commodities that this 
committee would address. And you would expect the price to 
equilibrate on a world basis; but natural gas prices don't 
equilibrate, at least now, on a world basis. There is a North 
American clearing market, and there is a market for----
    Senator Baucus. Why can it be lower in Japan, which does 
not have any significant domestic production?
    Mr. Gruenspecht. Well, again, I am not stipulating that the 
quoted prices are right, but they bring----
    Senator Baucus. True, but you hear it. That is the kind 
of----
    Mr. Gruenspecht. Right, and that could be right. And they 
bring in liquefied natural gas because, as you point out, they 
do not have domestic production. They bring that in under long-
term contracts. Those contracts have whatever terms they have; 
in many cases, tied to the price of crude oil. And the pricing 
in that market comes out of those contracts. The pricing in the 
North American market, however, largely comes out of the demand 
and supply in North America. I mean, that is----
    Senator Baucus. Let me----
    Mr. Gruenspecht. OK.
    Senator Baucus [continuing]. Take the same subject, 
different direction.
    Mr. Gruenspecht. OK.
    Senator Baucus. It is my understanding--I don't know if it 
is accurate or not, but again, it is my understanding. People 
are showing me figures which show--these are DOE figures--that 
the actual supply of natural gas to the United States over the 
last 5 years has been pretty much constant.
    Mr. Gruenspecht. That is, I think, correct. Production.
    Senator Baucus. Right, production. They have also shown me 
on a volume basis--not price, but a volume basis--the actual 
demand for natural gas in the United States in the last 5 years 
is fairly constant.
    Mr. Gruenspecht. I believe that is also correct.
    Senator Baucus. Now, and they also show me that the price 
has not been constant although--although--the supplies have 
been constant, and the volume demand has been fairly constant. 
The prices are just all over the lot, and very high in some 
points. A lot of spikes in price.
    Mr. Gruenspecht. I think that is also correct.
    Senator Baucus. Now, my next question is, why? Why is that 
the case? And it goes to the question of, how much of natural 
gas prices in the United States is determined by the spot 
market, is determined by trading on the NYMEX, say, the futures 
markets; and how much is determined by provisions of long-term 
contracts? And the question is, what are the terms of those 
contracts and the degree to which the terms of those contracts, 
the price terms of those contracts, are in any way reflected to 
the spot market? Those are a lot of questions----
    Mr. Gruenspecht. Those are good questions.
    Senator Baucus [continuing]. But you get the drift of where 
I'm going.
    Mr. Gruenspecht. I get the drift. I think I get the drift. 
It may be hard for me. I don't maybe have the gift to answer 
this as well as I would like, so some of it may----
    Senator Baucus. Well, if anybody else on the panel can----
    Mr. Gruenspecht [continuing]. Go to the record. But it is 
true that because the market is the North American---- clearing 
market and, as you point out, production hasn't increased 
significantly----
    Senator Baucus. It has not.
    Mr. Gruenspecht. Right. So in fact, by definition, demand, 
if you can't consume more than you have got----
    Senator Baucus. You would think. You would think.
    Mr. Gruenspecht. If it ain't there, you are not going to 
consume more. So at least we got that right. Production has 
been flat, and consumption has also been flat.
    What is going on is, people on the demand side are 
competing with each other for the natural gas that is 
available. And the advent of some of the new demand from 
electric power generation has tended to put more pressure on 
the relatively fixed amount of supply. I mean, something has to 
give. If there is a certain amount of supply, and you have to 
clear the market----
    Senator Baucus. Right.
    Mr. Gruenspecht [continuing]. Then price is going to rise. 
And I think that----
    Senator Baucus. Again, but how much of this is the gap 
between actual supply and demand forces, on the one hand, and 
perceived supply and demand, on the other, reflected in futures 
trading on the NYMEX?
    [No response.]
    Senator Baucus. And I am going to ask another question 
there, while you are thinking about that.
    Mr. Gruenspecht. Boy, you are really----
    Senator Baucus. And that is this. I understand--again, I 
could be wrong----
    Mr. Gruenspecht. OK.
    Senator Baucus [continuing]. I am just digging into this--
that on other futures markets there are bans that limit 
volatility in trades. Mr. Collins is here. Is that true? With, 
say, wheat futures.
    Mr. Collins. Yes, sir. Commodities.
    Senator Baucus. Commodities. I am also told, though, that 
is not the case with natural gas and the NYMEX. There is no 
ban, volatility--well, maybe practically--I mean, maybe 
theoretically; but practically, there is not a ban on the 
limitation of volatility in prices.
    And then you get another area that is a little bit ``iffy'' 
here, and I am not going to go too far in this direction 
because I am even on weaker ground, because I just don't know 
the facts yet. I am looking into the facts, believe me. The 
question: Who are these traders?
    And again, to what degree does the spot market price 
reflect--is it being pushed up by traders? Because, lo and 
behold, my gosh, a hurricane hits. And even though there are 
lots of natural gas reserves in the ground, they will go 
bananas because Hurricane Katrina has hit. That is, the 
supplies are really there; but still, you know, they bid up the 
price, and that gets the prices higher.
    And traders bid up the prices. Traders pocket huge income. 
And now, the other question: Who are the traders? Who owns the 
traders? Who are they? And I have got some ideas about that, 
too.
    But the point I am trying to get at is that we have got to 
think a little more deeply about what is really causing natural 
gas price increases; and not just say, ``Well, gee, it was 
Katrina,'' or not just say it was something else. I mean, we 
have got to get behind the figures, behind the data, and follow 
the money; see what is really going on here.
    And that is why I am asking you these questions about why 
is there a price differential in natural gas between other 
countries and the United States. Why? I have got some ideas as 
to why.
    And you have just confirmed that, really, the actual 
production of gas, and the actual demand for gas on a volume 
basis, have been pretty constant the last 5 years; although 
prices are all over the lot. And so I am trying to figure out 
why is that the case.
    And frankly, we have got to find a solution to that, so 
that consumers, farmers, ranchers, you know, people who use 
natural gas, aren't paying as much in price increase as they 
really should be paying; and at the same time when a lot of 
people are making a lot of money off of all these trades. And 
that, to me, is the issue here.
    Mr. Gruenspecht. Well, I will just say a little bit. On the 
trader thing, obviously, perhaps Dr. Collins might have more to 
say, and the Commodities Futures Trading Commission might have 
more to say. I mean, we really track the energy side of things 
and the fundamental energy data.
    Senator Baucus. Right.
    Mr. Gruenspecht. You know, with respect to one comment you 
made about storage being adequate, and why are prices so high, 
as you know, recently prices--and again, I am not making 
excuses for anybody, but prices have in fact been falling.
    One reason prices, I think--at a fundamental level, not 
talking about the trading aspect of things--have remained high, 
even though storage levels have been by historical standards 
pretty healthy, is that, you know, we still are down in 
production in the Federal Gulf of Mexico over 4 billion cubic 
feet a day, which, if you take that out over a 30-day month, 
would be 120 billion cubic feet. And we are still down in 
production in Louisiana, from the storms, as well.
    So when people look at the historical storage level that 
they are comfortable with, you know, that is comfortable given 
normal production. But, in fact, if you envision or are worried 
about production being sub-par--and it has been sustained sub-
par over the past 2 months--then what would in a normal 
production environment be considered a healthy level of storage 
doesn't look so healthy.
    Just like if you knew your income was going to be depressed 
over the next several months, you might want to have more money 
in your bank account than you normally would have going into 
that period.
    So again, I am not making excuses for anybody. But talking 
about the energy fundamentals, there are some energy 
fundamentals there.
    The other thing on gas, in terms of volatility, is that, 
unlike the other fuels, gas demand is very weather-dependent. 
And that is a big factor. And I am not taking issue.
    Senator Baucus. You just happened to be here----
    Mr. Gruenspecht. I know----
    Senator Baucus. You tried to answer my question.
    Mr. Gruenspecht. OK.
    Senator Baucus. So I just thank you for that.
    Mr. Gruenspecht. I am trying.
    Senator Baucus. I appreciate that. Yes, thank you.
    Senator Coleman. Thank you, Senator Baucus. Senator Crapo.
    Senator Crapo. Thank you very much. Dr. Collins, I want to 
focus my questions on you. And really, I want to focus on the 
general issue of the availability of viable, affordable 
transportation options to agriculture producers. Has the USDA 
researched the economic impact of the lack of affordable 
shipping options to the overall agriculture industry?
    Mr. Collins. Not precisely in those terms. We do have an 
Office of Transportation at USDA that follows these markets. We 
do publish a transportation update every week. We try to track 
the proportion of agricultural commodities that are shipped by 
each mode, and we try to understand what are the driving forces 
behind the rates; whether it is truck, whether it is rail, or 
whether it is barge.
    But I don't know of any long-term economic studies that we 
have produced. But we do try to keep the shipping industry up 
to date on how we see things unfolding in transportation and 
agriculture.
    Senator Crapo. Well, as I indicated in my opening comments, 
rail transportation is a big sore spot in Idaho. Has the USDA 
conducted any studies, or are there any conclusions you can 
share with us on the rail shipping, specifically, and the 
impact of rail shipping, and the affordability, or lack of 
affordability, of it on the price of agriculture commodities?
    Mr. Collins. Well, I would say a couple of general things 
about that. First of all, taking the last part first, when you 
have an increase in transportation costs, that is going to get 
passed forward, partially, to consumers. It is going to get 
passed back, partially, to producers. Often, as a rule of 
thumb, we use something like a 75 percent 25 percent split, 
where 75 percent gets passed back to producers.
    So the consequence of this is, farmers get lower income; 
and consumers buying farm products pay a little more, or more 
than they otherwise would.
    Senator Crapo. But the pass-back is three-fourths of the 
increase?
    Mr. Collins. That is generally a rule of thumb that we use. 
It will depend on the market, the commodity, and so on.
    One of the things we have observed with respect to rail, 
and it is true with barge as well, is that there hasn't been an 
increase in capacity--number of cars built or number of barges 
built. We know--barge is a good example, because the focus has 
been on that on the Lower Mississippi--that we have seen more 
barge retirements than new barges built for years now.
    The whole transportation system in the United States has 
been under pressure, particularly the last year. If you look at 
what is going on now with respect to rail, we have a terrific 
seasonal problem in rail.
    This is the season when agricultural crops are harvested; 
there is rail demand. This is the season when new cars show up 
in showrooms; there is a tremendous demand for rail to move new 
cars, including imported cars. Because of high natural gas 
prices, we have seen more demand for coal; there is more coal 
moving by rail. And we have got the Christmas season, the 
Thanksgiving and Christmas shopping season coming up, where 
most stores do most of their business; a lot of that stuff is 
transported by rail. So right now, we have this tremendous 
pressure on rail rates that comes from all of these different 
sources.
    I can remember early in my career, we used to always say 
that truck transportation was three times as expensive as rail, 
and rail was three times as expensive as barge. So if you were 
going to do something, if rail or barge wasn't available, you 
did truck. If it was between rail and barge, you did barge.
    But that is not so true any more. Because of the high 
energy prices, because of the demand, because of an economy 
that grew at 3.8 percent last quarter, there has just been 
tremendous demand for all modes of transportation. And we 
haven't seen the response in terms of new rail cars or new 
barges built during that period.
    Senator Crapo. The description you just gave of the pressed 
capacity of the rail industry is sort of a ``downer,'' if you 
will, for those in agriculture. And your last comment about the 
fact that we have not seen the increased production of cars or 
facilities raises the question of infrastructure. Is the 
solution to this problem to somehow see an expanded investment 
in infrastructure?
    Mr. Collins. Well, I am not sure. One of the solutions has 
been, what we have seen is grain companies buy their own cars 
and build their own cars. And so we have seen a lot of the big 
grain companies, the integrated grain companies, own their own 
cars now. And they will auction those cars off on the secondary 
market, too, to provide those available to other shippers. So 
that is a market response to this pressure. If the railroads 
weren't doing it, the grain companies are going to do it.
    I think we have seen over the last couple of years better 
performance in the rails with respect to agriculture. You may 
remember a couple of years ago the tremendous problems we had, 
particularly in the Southern Plains, with respect to rail 
movement. I think it has gotten better, and I think this fall, 
it has actually, despite the hurricanes, been pretty good. We 
have some areas where there is track washout. I think the Union 
Pacific has some problems; but Burlington Northern and Santa Fe 
seem to have done a pretty good job.
    And rail rates themselves actually didn't quite spike as 
much as barge rates this past fall. We saw the premium paid for 
rail cars go way up; but the tariff rates had gone down, so the 
net effect wasn't that great.
    But I am not sure of the answer to the question of a public 
policy with respect to infrastructure. I know we have talked a 
little bit about locks and dams on the Mississippi. That is 
something that I think everybody has supported. The 
Administration has supported more investment, particularly on 
the Upper Mississippi and Illinois Rivers. And so I think that 
there is some support for public investment in those kinds of 
resources, locks and dams on the Mississippi.
    I am not sure it is there for rail cars or barges, because 
there are private firms that can respond to a market incentive 
and buy and build those things themselves.
    Senator Crapo. All right, thank you. I see my time is up. 
But this is an issue I think we really need to explore, because 
we have got to figure out how to relieve this pressure that you 
have described. Thank you, Mr. Chairman.
    Senator Coleman. Thank you very much, Senator Crapo. Before 
we go to Senator Salazar, we have the presence of our 
distinguished Ranking Member here. And I know he is pressed for 
time, so I will turn to Senator Harkin.
    Senator Harkin. Mr. Chairman, thank you very much. Again, I 
apologize for being late. I would just ask that my statement 
would be made a part of the record.
    Senator Coleman. Without objection.
    [The prepared statement of Senator Harkin an be found in 
the appendix on page 63.]

STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM IOWA, RANKING 
   MEMBER, COMMITTEE ON AGRICULTURE, NUTRITION , AND FORESTRY

    Senator Harkin. And again, just picking up just a couple of 
things I have heard, our inland waterways transport 16 percent 
of our goods, at 2 percent of the cost of fuel usage. So it is 
very efficient, very effective.
    And I know, Mr. Chairman, you had asked earlier about the 
WRDA bill. We have got to get that through. We have got to 
think down ahead, that we need to expand these locks and dams, 
we need to make the river more accessible to our shippers and 
our farmers.
    Right now--you talked about rail--but they are captive to 
rail. I mean, you have only got one rail line, and there is no 
competition there at all. And to the extent that we can get our 
rivers more accessible and get bigger barges on those rivers, 
that provides that competition and keeps those prices down for 
our farmers.
    So I am hopeful, Mr. Chairman. I know you are supportive of 
it. And I hope we can get this Water Resources Development Act 
bill through as soon as possible, and get on with the business 
of expanding those locks and dams.
    With that, I thank you, Mr. Chairman.
    Senator Coleman. Thank you, Senator Harkin. I would note 
that I indicated to Mr. Barnes that there is a bipartisan focus 
and effort and commitment to this expansion of locks and dams 
and improving our inland waterway system. And I think certainly 
the Ranking Member's comments reflect that. So thank you, 
Senator Harkin. Senator Salazar?
    Senator Salazar. Thank you. And again, Ranking Member 
Harkin, thank you for holding this hearing along with Chairman 
Chambliss. I think it is a very important hearing.
    Dr. Collins, let me ask you a question. You know, last 
night, I was reading your testimony. It was on page 7. You made 
a statement about, I quote, ``The lower... prices and higher 
prices for energy-related products such as diesel, propane, and 
fertilizer, are cutting into farmers' bottom lines.''
    And in response to some of the questions that were asked by 
my colleagues, you said that ``crisis'' would be defined as an 
abrupt change in relative prices, and that the increase in 
these costs were 40 percent or so, which was the highest spike 
we have seen in 25 years.
    Given that, what I would like to do is to just have you 
answer the following questions, as the Chief Economist. And let 
me just say, I thank you very much at the outset for the 
service that you provide to our country. As the Chief Economist 
for the Department of Agriculture, as you look at the impacts 
of these price spikes on farmers and ranchers, do you have an 
estimate as to how many farmers and ranchers will be forced 
into bankruptcy by these higher costs that have had to be paid 
for these items?
    Second, do you have an estimate as to how many farmers and 
ranchers are not going to be able to secure their operating 
lines for the coming year for their operations?
    And third, is the Administration prepared to support 
emergency assistance for farmers and ranchers that are caught 
in this squeeze this year?
    Mr. Collins. Regarding the first two questions on farmers 
that would be exiting agriculture or unable to finance their 
operations, those are not variables that we estimate or 
forecast at USDA. I can't answer that question.
    There are too many factors that determine whether someone 
is going to go out of business or not. You can't take a change 
in energy costs in 1 year and translate that into somebody 
leaving the business.
    American agriculture is incredibly diverse. People have 
tremendous sources of income outside of farming. Farm income 
accounts for 13 percent of total household income of all 2.1 
million farms, so they have other sources of income to draw on 
if they wanted to stay in business. So it is not something that 
we can predict, who is going to go out of business.
    Every year, farmers go out of business. Every year, new 
farmers start farming. And the net effect is the change in the 
number of operations. And it is just a tremendously difficult 
variable to try and forecast, so we just don't do that, because 
we can't do it very well.
    With respect to providing assistance, I guess the best 
answer I could give you to that is that the Administration has 
already sent to Capitol Hill its proposed reallocation to 
provide assistance to the hurricane-affected states: the $800 
million which you have probably seen; $550 million in 
conservation spending, and $250 million in Section 32 money for 
direct assistance to producers. That is what the Administration 
is proposing.
    Senator Salazar. If I may just interrupt you, because I 
know that we don't have all the time in this hearing, I am 
aware of the package that the Administration has sent over, and 
I am supportive of the efforts to try to help the producers in 
the Gulf Coast states.
    The issue of these high costs of energy, though, that we 
haven't seen for 25 years is something that affects the Nation 
as a whole. And so I am wondering about my producers in 
Colorado, or Senator Coleman's producers in Minnesota, or 
Senator Harkin's producers in Iowa.
    What are we doing in terms of trying to deal with what I 
consider to be an emergency crisis for farmers and ranchers 
across the country?
    Mr. Collins. Right. Well, if you are focusing strictly on 
energy, what I would say is that that is a national problem, 
and that requires a national solution. To look particularly at 
farmers and suggest that you are going to write them a check to 
offset their higher energy costs, I think is a difficult 
proposition, at best.
    I say that because we have had historical programs to try 
and cover farmers' production costs. We used to call that 
``parity.'' Then in the 1970's, we used to tie our target 
prices to costs of production. As farm programs have evolved, 
we have focused our support on the value side, by providing a 
target price--for example, wheat growers, a $3.92-a-bushel 
target price; corn growers, a $2.63 target price--made up of a 
marketing loan, a counter-cyclical payment, and a direct 
payment.
    That is a substantial risk-reducing safety net that the 
American taxpayer now provides producers. And over time, we 
have tried to make that more market-oriented, so that we didn't 
inoculate producers from changes in commodity prices that they 
are selling.
    In the same way, if we start neutralizing input prices that 
farmers have to pay, that would be moving us in the direction 
that we went once before, and have abandoned.
    Senator Salazar. Yes, but, Dr. Collins----
    Mr. Collins. So it is just a precedential thing that I 
think you have to think seriously about.
    Senator Salazar. My time is up, but let me just make this 
comment to you. I think that what we have seen here in the 
months of August, September, and October, is very 
unprecedented. I mean, when we talk about the 200-percent 
increase in prices that people have had to provide into their 
inputs for production, I think that is something that we 
haven't seen for a very, very long time.
    Mr. Collins. That is true.
    Senator Salazar. And I would expect that the number of 
farmers who aren't going to be able to get those operating 
lines at the bank this next year is going to be very large.
    Mr. Collins. That's right.
    Senator Salazar. I suppose many farmers are not in that 
category where they can go into other resources to be able to 
provide their financing.
    And I do think we have a huge disaster, emergency, on our 
hands. And we have, in the role of the U.S. Government, in the 
past in the last number of years, been able to provide some 
direct emergency assistance. And I hope to be able to work with 
my colleagues on this committee, as well as the Department of 
Agriculture, in pushing that forward.
    Mr. Collins. Yes, sir.
    Senator Coleman. Thanks, Senator Salazar. Senator Talent?
    Senator Talent. Thank you, Mr. Chairman. I appreciate your 
holding this hearing.
    Dr. Collins, I am going to ask mostly about the river, but 
I really have to respond to something you just said. We do have 
a precedent of helping farmers when there has been a natural 
disaster. We did with the Florida hurricane a couple of years 
ago. We have often done it.
    And I just think maybe what is hidden here is a 
disagreement about something. I mean, I think the ability of 
our producers to continue to produce the safest and most 
abundant and highest-quality food supply in the world is not 
just an economic issue. It is a national security issue. I 
don't want to be in a position where we are importing food the 
way we import oil.
    And part of that means, when there is some extraordinary 
hit on that sector, we should ameliorate a little bit some of 
the costs that they have had to take because of that. I don't 
view that from an ideological perspective. For me, that is just 
a question of trying to protect the food security of the people 
of the country. So I guess we disagree about that.
    We have certainly done it in the past. To say it is not 
precedented, I just would suggest to you, is factually 
incorrect.
    You can go ahead and respond. I am going to ask another 
question, first, and then maybe you can respond to all of it.
    Mr. Collins. OK.
    Senator Talent. The Administration announced a cost-sharing 
program so companies could recoup their costs of installing 
temporary or emergency grain storage that was necessary due to 
the shutdown of the Mississippi River. Was the bidding open to 
rice producers?
    I know the needs of the corn growers, and I strongly 
support meeting those. We have a number of rice producers in 
Missouri. They had to build temporary storage, and they paid 
about $700,000 for it. I wonder if any rice contracts were 
considered in that bidding and, if not, why it was limited to 
corn and wheat, when rice and soybeans have faced similar 
problems?
    And if you could, answer that. And then, I just want to 
make one other comment, and just join those who have spoken 
about the importance of keeping our river system open, both by 
fixing locks and dams--I mean, if we are going to fix the 
Panama Canal, which is fine, we need to fix our locks and dams.
    And we all understand that in the context of trade 
competitiveness. Everybody who argues for a trade agreement 
will say one of the reason we are competitive with low-cost 
countries is because we have a very good transportation system. 
And it is true. But you have to invest in it and keep it up.
    But I would just appreciate whatever you could do, and Mr. 
Barnes, to keep the Missouri River open. And I hope that we can 
convince the Corps somehow that keeping the river open to 
navigation means putting more water into it when the river is 
low, and less water into it when the river is high.
    I mean, if you ask somebody in this country, as a matter of 
common sense, when the U.S. Government released water from the 
upstream reservoirs into the rivers, ``Well, should they 
release it in the spring, when the river is high; or should 
they release it in the summer, when the river is low?'' I think 
most people, not trained in engineering or hydrology, would 
say, ``Well, gee, I think we ought to release it in the summer, 
when the river is low.'' And yet, they would be shocked to find 
out the policy of our Government is to the contrary; and that 
now you all are actually moving toward releasing it twice in 
the spring, causing two rounds of flooding.
    So if you want to comment on that, I would appreciate it. 
Thank you, Mr. Chairman.
    Mr. Collins. All right. Let me start with my comment that I 
think providing a payment for energy price increases that would 
affect farmers like they affect every other business in 
America, like every other household in America--would be 
unprecedented. I think that would be unprecedented.
    Certainly, in the disasters that you spoke about, we did 
provide assistance. And those were focused on agriculture; 
those were focused on crop losses; and they were special, 
localized, specific disasters.
    We face a $5 billion increase in energy costs in 
agriculture this year. We are predicting next year we will face 
a $2 billion increase in interest costs. Interest is an input 
just like energy is an input. And my comment about precedential 
is, how do you distinguish covering interest rate increases 
from energy increases, when this would be a national impact 
that affects everybody; not just unique to agriculture?
    So I was just trying to provide a little food for thought 
here for the committee as they proceed.
    Senator Talent. Well, no, I didn't mean to get--I don't 
know, I've got a cold, so maybe I am in a bad temper. No, I was 
just saying, it is not unusual for us, when a disaster 
peculiarly affects our producers in a certain way----
    Mr. Collins. Correct. It depends on the----
    Senator Talent [continuing]. To provide some funding to 
help them through that time. Now, it may be true that we have 
never--I am trying to think whether we have ever looked at a 
disaster that had an increased energy price. But we have looked 
at drought disasters, I mean, with the result of the last 
hurricane. So it is not unprecedented in that sense for us to 
treat the farm sector a little bit differently. That is the 
only point I was making.
    Mr. Collins. OK. I am happy to agree with that. Regarding 
rice, I believe we did, under our alternative storage program, 
receive a proposal for alternative storage from a rice-storer. 
We did not accept that proposal. We accepted corn and wheat 
proposals.
    I think our logic for that was that at the time we made 
that decision--that was early in the post-Katrina period--that 
our number-one priority was to try and deal with the backup on 
the Mississippi River.
    We were also looking at the basis and price effects of 
commodities. And corn, wheat, soybeans, had some very wide 
basis changes during that period. Those basis changes 
translated into much lower posted county prices and soaring 
government farm program payment costs.
    During that period of time, we were not facing any change 
in the loan repayment rate for rice. There was no increased 
budget exposure for rice. And that increased budget exposure 
for grains, driven by the congestion on the Mississippi, was 
probably the single biggest reason why the decision was made to 
focus on the grains, as opposed to rice.
    If we had had more money, I am sure we would have dealt 
with rice. It was just a question of the scarce resources, and 
setting our priorities.
    Senator Talent. OK.
    Mr. Collins. With respect to the locks and dams on the 
Mississippi, I can only say, just as a general statement, that 
is something that the U.S. Department of Agriculture has 
supported. We are concerned about the fact that the Mississippi 
represents the backbone, the spine, of our inland 
transportation system. When grain arrives in Japan or some 
foreign country, often half the landed price that the Japanese 
are paying is attributable to transportation.
    Our competitive advantage in the world market is keyed to 
our transportation infrastructure. We do some long-term 
forecasts. We don't do the 50-year forecasts that the Army 
Corps of Engineers does. But in our last long-term baseline 
forecast, which goes out to the year 2014, we project that the 
corn exports by that year would be 3 billion bushels. And you 
would have to assume that a substantial portion of those 
bushels--perhaps 60, 70 percent--would go down the Mississippi.
    So we need expanded transportation capacity to stay 
competitive in the world market for the future. That is what is 
behind our support of maintaining and improving that 
infrastructure.
    Mr. Barnes. Senator Talent, good to see you again, sir. 
Pleased to take your question. The Corps has an agreement that 
has been struck with regard to the Missouri River mainstream 
master water control manual, to begin reducing releases from 
the Gavens Point Reservoir, but maintaining them at a flow rate 
of 23,000 Cfs. That was implemented in early October, to touch 
the fall shipping season, and gradually was reduced in modest 
amounts of 1,000 to 3,000 Cfs, over generally the month of 
October.
    What that did, in fact, tie to, it prolonged the shipping 
stage on the Mississippi River by about 2 additional feet, and 
maintained the 0 gage in Saint Louis; such that about 4 to 5 
feet of additional water below the minimum required by law of 9 
feet was available.
    As to the spring rise, both the fall and the spring rises--
spring releases, rather--are tied to minimum storage that's 
maintained at Gavens Point. And given my earlier comments about 
we are in the midst of a fairly prolonged drought, particularly 
in the upper and the northwest area of the country, it is not 
likely that there will be minimum flows in Gavens Point such 
that a spring release would be occurring this year.
    Senator Talent. Thank you, Mr. Chairman.
    Senator Coleman. Thank you, Senator Talent.
    I want to thank the members of this panel. It has been very 
worthwhile, and thank you. Thank you for your testimony.
    With that, we will have our second panel, many of whom have 
traveled a great distance to be here, be prepared to be seated.
    With us for our second panel today is Mr. Daniel T. Kelley, 
of the National Council of Farmer Cooperatives, on behalf of 
the Ag Energy Alliance, out of Normal, Illinois. Welcome, Mr. 
Kelley.
    Mr. Kelley. Thank you.
    Senator Coleman. Mr. Rick Calhoun, Vice President, Grain 
and Oilseed Supply Chain, North America, Cargill, out of 
Minneapolis, Minnesota; on behalf of the North American Export 
Grain Association and the National Grain and Feed Association. 
It is good to see you again, Mr. Calhoun, and a great pleasure 
to have you here with us.
    Dr. R. Neal Elliott, Industrial and Agricultural Program 
Director of the American Council for an Energy Efficient 
Economy, out of Washington, D.C.
    And Mr. Ryan Neibur, of the Rocky Mountain Farmers Union, 
out of Burlington, Colorado.
    Gentlemen, a great pleasure to have you here. We will start 
with Mr. Kelley, and then move across the panel. You may 
proceed, Mr. Kelley.

   STATEMENT OF DANIEL T. KELLEY, NATIONAL COUNCIL OF FARMER 
  COOPERATIVES, NORMAL, ILLINOIS; ON BEHALF OF THE AG ENERGY 
                            ALLIANCE

    Mr. Kelley. Thank you, Mr. Chairman, members of the 
committee. I am Dan Kelley, a corn and soybean farmer from 
Normal, Illinois. And I also serve as Chairman and President of 
GROWMARK, Incorporated, a farmer-owned cooperative serving 
farmers throughout the Midwest.
    I am here today on behalf of the National Council of Farmer 
Cooperatives, and the Agriculture Energy Alliance. We commend 
you for holding this hearing, and appreciate the opportunity to 
share our views on the impact of high natural gas prices.
    NCFC is the national trade association representing nearly 
3,000 farm cooperatives across the United States, whose member-
owners include a majority of our Nation's more than 2 million 
farmers. NCFC members are uniquely affected by the surge in 
energy costs as producers, suppliers, and consumers of energy 
and related products.
    In addition my comments today, I would like to submit for 
the record a brief statement by NCFC.
    Senator Coleman. Without objection.
    [The prepared statement of NCFC can be found in the 
appendix on page 65.]
    Mr. Kelley. Thank you. The Agriculture Energy Alliance, of 
which NCFC is a member, represents a broad-based coalition of 
100 farm organizations and agribusinesses facing a real crisis 
because of public policies that have created demand for natural 
gas, while at the same time restricting access to new supply 
sources.
    U.S. agriculture and related agribusinesses use natural gas 
for irrigation, crop drying, food processing, crop protection, 
and nitrogen fertilizer production.
    Since 2002, 36 percent of the U.S. nitrogen fertilizer 
industry, which uses natural gas as a raw material, has been 
either shut down or mothballed. According to the U.S. 
Department of Agriculture, farmers' fuel, oil, and electricity 
expenses have increased from $8.6 billion to $11.5 billion, 
from the period 1999 to 2005.
    Over that same period, fertilizer expenditures went from 
$9.9 billion to $11.5 billion. Combined, these expenditure 
increases represent a $4.5 billion decline in U.S. farmers' 
bottom line over that 6-year period.
    The U.S. chemical industry has been especially hard hit by 
high energy prices, since natural gas is needed as a feedstock. 
Its natural gas costs increased by $10 billion since 2003, and 
$40 billion of business has been lost to overseas competitors, 
who pay much less for natural gas.
    Chemical companies closed 70 facilities in the United 
States in 2004 alone, and at least 40 more have been tagged for 
shutdown. Of the 120 chemical plants being built around the 
world with price tags of $1 billion or more, only one of those 
is being built in the U.S.
    Our Nation's current natural gas crisis has two solutions: 
to increase supply; and second, to reduce demand. The challenge 
is to find ways to balance our Nation's dwindling available 
supply of, and rising demand for, natural gas.
    The Energy Policy Act recently approved by Congress and 
signed into law included a number of important provisions to 
help meet our Nation's agricultural energy needs. Additional 
action, however, is needed to further encourage the timely 
development of critical supply sources.
    For example, Congress can adopt measures to ensure 
potential Federal lands and Outer Continental Shelf areas are 
open for leasing; that leases and permits are issued promptly; 
that the appropriate tax and royalty policies are in place; and 
that the necessary pipeline infrastructure is available to 
bring supplies to market; while leaving behind as small an 
environmental impact as possible.
    The agriculture community believes that it is strategically 
critical for Congress to remove these production barriers now, 
to provide new sources of natural gas and oil supplies.
    A high priority should be placed on opening up to 
exploration Lease Area 181 in the Gulf of Mexico; which is 
known for its abundant supply of energy resources, with access 
to existing pipeline infrastructure. This action would 
facilitate speedy delivery of much-needed natural gas to the 
marketplace. This area alone could ensure that agriculture has 
access to natural gas to continue manufacturing our fertilizer, 
to grow our crops, and to help meet the food and fiber needs of 
consumers at home and abroad.
    Again, I appreciate the opportunity to testify before the 
committee, and will be happy to answer any questions later. 
Thank you.
    Chairman Coleman. Thank you very, very much, Mr. Kelley.
    Mr. Calhoun.

STATEMENT OF RICHARD CALHOUN, VICE PRESIDENT, GRAIN AND OILSEED 
SUPPLY CHAIN--NORTH AMERICA, CARGILL INCORPORATED; ON BEHALF OF 
 THE NORTH AMERICAN EXPORT GRAIN ASSOCIATION, AND THE NATIONAL 
                    GRAIN & FEED ASSOCIATION

    Mr. Calhoun. Chairman Coleman and members of the committee, 
I am Rick Calhoun. I am Vice President of Cargill's Grain 
Division, and President of Cargo Carriers, which is a 
subsidiary barge line for Cargill. I am here today representing 
the National Grain and Feed Association, and the North American 
Export Grain Association.
    The transportation system in the United States has for many 
decades been one of the true competitive strengths of U.S. 
agriculture. For a number of reasons, this asset has turned 
from a potential strength to a potential weakness. Higher 
energy costs, congestion on railroads and highways, lack of 
investment in modernizing and maintaining the inland waterway 
system, as well as the recent storm-related problems, are 
combining to sharply escalate the costs of moving agricultural 
products to market.
    At the same time, of course, some competing countries in 
South America are building infrastructure, which will narrow 
the competitive advantage we previously enjoyed.
    We believe that limits on transportation capacity in the 
United States are becoming a very serious economic issue in the 
agricultural as well as the rest of the national economy. We 
submit that the time has come to get serious about how we can 
expand transportation capacity, or face the reality that 
economic growth in agriculture and in other economic sectors 
eventually will be constrained by our inability to efficiently 
move product.
    The U.S. transportation system serving agriculture, 
including barges, railroads, and trucks, was running at 
virtually full capacity at the time Katrina struck the United 
States. The loss in transport capacity from that storm proved 
how vulnerable the U.S. is to such disruptions.
    While most of the export elevators are now in condition to 
move product, the remaining constraints on the system, as 
reflected in barge unloadings--which remain at about 27 percent 
under the 5-year average--this loss in export capacity has made 
U.S. FOB Gulf export prices relatively high. As a result, we 
are seeing traditional customers, such as Korea, sourcing corn 
from China and others.
    We commend Secretary Johanns and the Administration for the 
post-hurricane initiative designed to assist in the recovery. 
One program, involving incentive payments to offset costs 
associated with disposing or directing to alternative uses out-
of-condition corn, helped get barges emptied more quickly and 
back into service to transport new crop corn from the Midwest. 
We appreciate the USDA's initiative in developing the program, 
and recognize that the efforts of many individuals were 
necessary to make this happen.
    We would also like to call attention to Monday's 
announcement that additional resources will be made available 
to ease barge congestion related to Hurricane Katrina. This 
step, too, will be helpful in restoring barge operations and 
assist in the possibility of raising internal U.S. cash grain 
prices.
    More barge transport capacity will help alleviate storage 
congestion. It will reduce government LDP payments that have 
risen sharply due to congestion, and minimize losses in U.S. 
market share to reliable customers like Korea.
    Given the critical importance of the inland waterways to 
efficient movement of export grain and many other products, 
modernization of locks and dams and improved river maintenance 
should be given a higher national priority--it should have been 
given a higher national priority several years ago. Now, with 
substantially higher prices, it is more important than ever.
    Barge transportation is 2.5 times as fuel efficient as rail 
movements, and almost nine times as efficient as trucking 
product. So as energy is likely to remain expensive, and energy 
conservation is a national goal, the time is nigh to begin 
seriously investing in modernizing the commercial navigation 
system.
    Many members of this committee have been leaders in trying 
to pass a water resource development bill in the Senate, and we 
thank you for that. Given that the House has passed a bill this 
year, we would respectfully request that the Senate redouble 
its efforts to move this bill forward. Even if a bill is passed 
today, we are decades away from completing the critical 
construction projects--not years, but decades.
    In the 25 years since the Staggers Act was passed, the rail 
freight never had a chronic capacity shortage until the past 2 
years. Since then, the problem has only gotten worse, and there 
are signs that it may take a number of years to work through 
the rail capacity challenges.
    Along with the strain in capacity, of course, we see 
freight rates increasing; sometimes very sharply. Simply adding 
rail cars to the existing system will not solve the rail 
capacity issue. Railroads need to hire crews, purchase more 
locomotives, build double track in some corridors, build 
passing lanes, and make structural adjustments to rail yards to 
improve efficiency.
    Even with a commitment by rail carriers to expand capacity, 
these kinds of changes require several years. And economic 
projections suggest higher volumes of intermodal freight, coal 
movements, and other parts of the rail business will continue 
to expand the demand for rail freight in the next several 
years.
    With severe capacity limits, rail service is becoming 
increasingly unpredictable; which adds to the effective costs 
of transportation. With capacity severely constrained, in 
particular during harvest months, the farmers in rail-served 
markets likely will be confronting increasing price risks in 
coming years, unless transportation capacity problems can be 
successfully resolved.
    Finally, the Jones Act requires that goods transported by 
water between U.S. points travel in U.S.-flagged, U.S.-built, 
U.S.-crewed, and U.S.-owned vessels. While we know there is 
strong resistance to any amendment to this law from industries 
protected by it, the increase in congestion of cars and 
commercial trucks on the Nation's highways, the rail capacity 
shortage, and the need for more inland waterway capacity 
eventually should force some reassessment of the pro's and 
con's of maintaining such a law in perpetuity.
    In conclusion, it certainly appears that high energy costs 
are here to stay. And we have a transportation capacity 
challenge in the major modes serving agriculture. We need cost-
effective, highly dependable, and responsive transportation 
services to respond to customers' needs when they want to make 
purchases.
    Simply put, we must be in position to serve all types of 
customers, if we are to successfully compete and grow in 
markets. Katrina and the difficulties we have confronted this 
year only reaffirm that now is the time to reassess our 
strategy for transportation investments that will ensure 
adequate capacity in future years. Thank you.
    Chairman Coleman. Thank you, Mr. Calhoun.
    Dr. Elliott.

   STATEMENT OF R. NEAL ELLIOTT, PH. D., P.E., INDUSTRIAL & 
 AGRICULTURAL PROGRAM DIRECTOR, AMERICAN COUNCIL FOR AN ENERGY-
                       EFFICIENT ECONOMY

    Mr. Elliott. Thank you, Mr. Chairman, and thanks to the 
committee for this opportunity to discuss this very critical 
topic with the committee.
    I would also like to acknowledge the contributions of my 
colleague, Lee Murray, who helped in preparation of the 
testimony.
    ACEEE is a public, non-profit, research organization 
dedicated to increasing energy efficiency as a means of 
promoting both economic prosperity and environmental 
protection. We were founded in 1980, and have been involved in 
a number of government policy discussions over the intervening 
years, including assisting some of the staff of this committee 
in the work on the Energy Policy Act--I'm sorry, the Farm Bill, 
2002.
    I would also like to acknowledge and commend the committee, 
under the leadership of Senator Harkin and Senator Lugar, for 
including major energy efficiency provisions in the Farm Bill 
in 2002. I think we can now see that those activities 
anticipated the energy crisis that is currently confronting the 
agricultural community, and prepared them in some ways for the 
forthcoming challenges that they are now facing.
    As Mark Kingland, of Alliant Energy in Iowa, said of the 
provisions, particularly Section 9006, these are making a real 
difference out there on the farms today with small-and medium-
sized farmers, because they are now making investments that 
they would not otherwise be making, that are going to have 
impacts on their competitiveness for decades to come.
    Not only have these provisions had direct energy impacts, 
but they also really have mobilized, if you will, the ag 
community and many in the energy efficiency community to bring 
forth their own programs in responding to the energy challenges 
that are now facing the farm and ag-ranch community. And these 
activities have leveraged Federal funding many times over in 
the past 3 years.
    To give a brief response, perhaps, to the questions that 
were raised earlier, particularly by Senator Salazar, America, 
I would say, is in an energy straitjacket right now. In 
contrast to sort of previous periods that we have seen, we now 
have tight markets in supply of all major energy sources that 
are available to us.
    It will take several years, if not longer, to make 
significant expansion in energy resources. However, there is 
one resource that is available to us today, and that is energy 
efficiency and conservation. This is a resource that we can 
bring to the market both quickly and cost effectively. And we 
have seen several examples of those in recent years. In 
California and New York in 2001, energy efficiency and 
conservation played a major role in reducing demand and 
rebalancing energy markets; which avoided major economic 
losses.
    In the current market, the very tight markets they are in, 
small changes in energy demands can have significant impacts on 
prices. We have witnessed that over the last couple of months 
on the up-side, as small changes in availability of supply, as 
a result of the hurricanes, have resulted in the price spikes.
    In the longer term, however, what we are going to need to 
do is look at expanding our resources in the marketplace. And 
the ag sector is uniquely positioned to respond to that, by 
becoming more energy self-sufficient by using local fuels. This 
shift will also help decouple the ag sector from the market.
    So how do we go about saving energy in the farm? And it is 
not new. I ran ag programs in North Carolina, as an extension 
specialist, in 1980. We put together brochures like this. They 
are still relevant today. What we need to do is we need to 
bring that information back to the farmers and make it 
available to them.
    And the ag sector is uniquely positioned to take that kind 
of information and use it practically. The extension system, 
the experiment stations, the land grant universities, as well 
as the USDA rural development program, are all well positioned 
to deliver that information. What we need to do is mobilize the 
network. We need to build the awareness, provide the updated 
guidance to the farmers, and then provide the resources and 
education that they need.
    And to do that, we recommend full funding of many of the 
provisions that were in the Farm Bill of 2002, the Section 
9006, the Conservation Security Program; also, funding of some 
programs that were authorized but not funded, such as Section 
9005, which provides audits.
    So now is the time not to scrimp on funding. Now is the 
time to actually make sure that the USDA and the other folks in 
the ag community have the resources that they need in order to 
mobilize the farmers to respond to this crisis that now faces 
them.
    I would like to thank again the committee for the 
opportunity to give these remarks, and look forward to any 
questions the committee may have. Thank you, sir.
    Chairman Coleman. Thank you, Dr. Elliott. And to all of the 
members of the panel here, we will enter your complete 
statements in the record. Obviously, the complete statements 
are much more extensive than the 5-minute period you had here. 
So they will become part of this official record. We want to 
thank you.
    Mr. Neibur.

    STATEMENT OF RYAN NEIBUR, ROCKY MOUNTAIN FARMERS UNION, 
                      BURLINGTON, COLORADO

    Mr. Neibur. Senator Coleman and members of the Senate 
Agriculture committee, I am honored to have been asked to get 
off the combine and be here today to discuss with you one of 
the most important and critical issues farmers and ranchers are 
dealing with across America.
    I want to thank Senator Salazar for including me, and 
especially for taking the time and effort to hold meetings in 
every county in Colorado, listening and talking to the people 
about this unfolding energy crisis and how it affects farmers.
    I was raised on a fourth-generation family farm near Akron, 
Colorado, and attended Colorado State University. After 
college, I returned home and began doing custom application of 
chemical and fertilizer. I now farm 4,500 acres of irrigated 
and dry land, and own my own chemical and fertilizer store, 
Tri-County Ag. I am an active member of the Rocky Mountain 
Farmers Union, and proud to be here today representing the 
family farm and ranch members of the National Farmers Union.
    Wherever rural Americans gather today--at church, picking 
up parts, or getting repairs at the implement dealers, at the 
feed store and, of course, at the local coffee shop--everyone 
is talking about fuel and energy costs.
    Even before the natural disasters of the hurricanes, oil 
companies began to raise prices and establish record profits. 
For example, Exxon Mobil posted earnings of $25.3 billion 
dollars in 2004, and last Thursday posted the highest corporate 
profit ever, of $9.9 billion.
    While the reports of these profits hit the front page of 
all newspapers throughout the country, the impact of this price 
gouging on family farmers and ranchers, small businesses, 
including trucking and other industries, goes unreported and 
misunderstood.
    Let me share with you what is happening on my farm and 
every other family farm and ranch throughout America.
    The price of natural gas has increased 215 percent in the 
last 3 years. This increase has raised my cost of irrigation 
per crop year from $50 an acre in 2003, to $158 expected in 
2006. At this rate, farmers will not be able to afford 
irrigation, and will be forced to dry-land farm in an area that 
has been in a drought for 5 years. In my situation, dry-land 
farming irrigated ground is not an option with my bank.
    Natural gas is the main ingredient used to make anhydrous 
ammonia and liquid nitrogen. In 2003, we paid $295 a ton, 
compared to $495 a ton in 2005. In the production of our corn 
crop, this price increase translates into a cost-per-acre 
change of $37-per-acre in 2003, to $62-an-acre in 2005; almost 
doubling the cost.
    In December 2003, I paid $1.10 a gallon for farm fuel. In 
October 2005, I paid $2.85 a gallon, for the same farm fuel; an 
increase of over 155 percent.
    On my farm, fuel expense has gone from $60,700 in 2004, to 
over $135,000 in 2005. If you put this into a per-acre basis, 
it is extremely scary. Fuel cost for harvesting corn in 2004 
was costing $9.80 per acre. In 2005, fuel cost for harvesting 
this year was over $22 per acre. Remember, the price of corn 
has not increased; nor has the yield.
    Farmers and ranchers are in a situation that does not allow 
us to pass on these additional costs as a surcharge; which 
other industries, such as truck lines and airlines, are able to 
do.
    In addition, farmers and ranchers are facing lower 
commodity prices. The price of corn in 2003 at our local market 
was $2.45 a bushel; and in 2005, the price was $1.81. So this 
huge increase in the price of natural gas and other fuels has 
hurt me even more.
    Regrettably, it seems that Congress is in the process of 
cutting farm commodity price support programs at a time when we 
need more help, not less. Lower income, higher production 
costs, and a reduced farm safety net do not add up to a 
balanced checkbook; and local lenders are getting extremely 
nervous.
    In my part of the country, farmers and ranchers are waiting 
for a clear signal that Congress and the Administration are 
taking seriously the economic crisis resulting from high energy 
and fuel costs, and that something will be done to address the 
problem.
    As a farmer, I have no means by which to pass on the higher 
costs of energy. And it seems that Congress should consider 
approving some type of mechanism to help farmers and ranchers 
offset these higher costs.
    I believe that renewable energy and fuels--like wind and 
solar for electricity, biodiesel, ethanol, and hydrogen--can 
decrease our dependency on imported and fossil fuels. Farmers 
must be involved in the manufacturing side--the value-added 
side--of the process, to benefit economically.
    NFU has been a longtime advocate for renewable fuel 
standards and renewable bio-based fuels. And we believe that 
more efforts need to be made to produce fuel and energy from 
our farms. We are also in favor of a mandate for the 
establishment of an extended biodiesel standard.
    In closing, I want to thank the Chairman and Ranking Member 
for recognizing the seriousness of these issues, and for your 
consideration of the actions necessary to address our crisis. 
Thank you.
    Chairman Coleman. Thank you very much, Mr. Neibur. And I 
had a meeting yesterday with wheat growers from Minnesota, and 
what you express here was expressed by them. And my meeting 
with the corn growers is going to be the same thing; and 
soybean growers, same thing.
    Everyone is paying increased surcharges, fuel surcharges, 
coming in to them; but you can't levy a food surcharge for fuel 
and energy going out. So you find yourself squeezed. And it is 
a serious problem. And I am glad that we have your perspective 
here this morning.
    Dr. Elliott, let me, if I can, respond to some of the 
things Mr. Neibur said. Very practically--very practically--
what are the one, two, three, four, five things that can be 
done today, in terms of conservation, that farmers can do to 
save on some energy costs?
    Mr. Elliott. Well, there are a number of opportunities. I 
would say what we see first is a practice, if you will: the 
low-till/no-till opportunities. If you are doing irrigation, 
look at some of the advanced irrigation scheduling and soil 
moisture monitoring aspects.
    Probably more than anything else, energy awareness, and 
just being able to go out, and thinking about, ``Do I need to 
drive the pickup truck out to that field today?'' A lot of it 
is not doing a big thing. There are no silver bullets out 
there. What we have got is a lot of little, small steps that 
together add up to some significant cost savings for the 
farmer.
    Senator Coleman. And I wonder, Mr. Neibur, if you could 
give us a real kind of very specific--what are the things that 
you and your fellow producers are talking about, in terms of, 
right now, what you can do to deal with some of the energy 
costs, as practical things?
    And then give me--I think you have kind of laid out perhaps 
one or two things that you want Government to help you do.
    Mr. Neibur. OK. I would start off by saying, you know, as 
far as the no-till, conservation-tillage practices, I have been 
practicing those since I started: very minimum tillage across 
the whole board, no-till, strip-till. And so, you know, I am 
really struggling to find ways where we can cut back.
    We will buy motors that use less fuel for irrigation. You 
know, most of the practices that are available, we have already 
got implemented. I hope that answers the first question.
    The second one, as far as what I would like the Government 
to do, you know, that is a tough question. I believe I was in 
Mr. Salazar's office a month and a half ago, and we were 
addressing the same issues. And he brought it up, ``How do you 
do it?'' Well, I don't really know.
    You know, direct payments, obviously, have been there in 
the past. You know, I personally don't feel that--you know, our 
posted county price for corn is $1.98. It could have been $1.98 
in 1950, and it just hasn't increased.
    I was joking last night with some people, and said, ``You 
give me $4 corn, and I won't be here.'' So I guess that is the 
million-dollar question. Other than direct payments to offset 
the increase in fuel costs, I wouldn't, you know----
    Senator Coleman. Well, it is a conversation that we have to 
have. I think it is fair to say--my colleague and I both 
admit--the answers aren't going to simply come from us in 
Washington. I mean, that is the purpose of these hearings. What 
we do need is input from folks who are out there dealing with 
it day to day.
    Mr. Neibur. Yes.
    Senator Coleman. And come up with some solutions.
    Mr. Kelley, from a co-op perspective, can you tell us a 
little bit about the specific impact of these energy prices? 
And are there things that you are doing, things that the co-op 
is doing, to alleviate some of the pain?
    Mr. Kelley. Well, the impact--obviously, we are an 
agricultural co-op, and so we have been affected in terms of 
transportation costs of products. And we deal with retail 
cooperatives throughout the Midwest and to the East Coast. So 
all of our co-ops and all of our members have been impacted, as 
the other panelists have said.
    What we are doing is in a couple of areas. One is, we are 
increasing our capability in biofuels. We have been marketing 
ethanol for 30 years. Ninety percent of the gasoline that we 
market, which is several million gallons, contains ethanol.
    We have invested, and are investing, in biodiesel--soy 
diesel plants, to further refine the vegetable oil so that it 
can be used in our producers' equipment--tractors and whatever.
    We are also increasing our storage capacity. One of the 
critical issues around soy diesel right now is, because of the 
demand levels where it is at, it is not available at terminals. 
So it has to be a process called ``splash blending''; which 
means that the driver has to dump it in the truck manually. We 
are now investing in facilities to improve that capability, to 
where we will be able to blend that right at the terminal; be 
injected as the fuel is loaded.
    So we are expending some resources, some of our members' 
capital, to further enhance our capability in terms of the 
biofuels area.
    And we believe strongly we have been producing--as a 
farmer, I have produced food and fiber all my life. We have the 
opportunity today to produce fuel to replace much of the crude 
oil that we are importing today. And so anything that we can do 
as a country to enhance the capability to deliver, to market, 
to process, corn, soybeans, and other products into fuel, to 
me, is in the national interest, and something that we should 
be about.
    Senator Coleman. I certainly share that perspective. I was 
in Brazil not too long ago; the fifth-largest country, I think, 
in the world. Half the population of Latin America at the end 
of this year will not import a drop of foreign oil.
    Sixty percent of the new cars are onto flex-fuel engines; 
which means they can run on 100 percent ethanol, or 100 percent 
regular gas; the same vehicle, just sensors in the fuel pump 
line kind of change compression ratios. So if Brazil can--and 
they made a commitment 30-some years ago to move in this 
direction.
    Mr. Kelley. Well, I think that is our challenge. What we 
decide here in the next few months will probably take at least 
five to ten to 15 years to enact. So time is critical.
    Senator Coleman. Yes. And that turns to you, Mr. Calhoun, 
and your testimony--decades away from completing some of the 
construction projects. You know, you go from the micro, what is 
happening on the farm, to kind of the macro, infrastructure, 
construction.
    You talked about modernizing locks and dams; you talked 
about WRDA; you talked about expanded rail capacity. Could you 
prioritize the investments needed to rehabilitate our 
transportation infrastructure as it relates to agriculture?
    Mr. Calhoun. Thank, Senator Coleman. I think they are all a 
priority. And I don't know that I would like to rank them one, 
two, or three. The modernization and the expansion of locks and 
dams--it will require decades. You don't fix these things in a 
year. And they have been neglected for a long period of time.
    I think there are a number of groups--MARC 2000 and 
Waterways Conference, Inc.--which have been working with 
Congress to try to identify the priorities on the various 
rivers. And frankly, we are looking at needs on the Ohio, the 
Illinois, and the Mississippi Rivers, to try to serve all the 
markets.
    And it is not just agricultural. There are a lot of things 
moving up and down the inland waterway system that aren't just 
grain. It is coal, and fertilizer, and things that are all 
vital to our economy.
    The rail situation today, throwing more cars at the system 
is not going to solve it. In fact, it might make the problem 
worse. We have to become more efficient. We have to be able to 
put more capacity through the same amount of infrastructure, or 
we are going to have to make some major infrastructure 
investments in this country. And those are big decisions for 
railroads. And to start double-tracking, you know, hundreds of 
miles of track, that is a lot of money. And that is a bet on 
the economy. And those decisions are going to be before us in 
the years ahead.
    Anybody that goes out in one of our major cities--you know, 
Senator Coleman is from my area. And if you drive around 
Minneapolis around rush hour, it is horrible. I moved there in 
1989, and it is a disaster. And there is more that needs to be 
done there. And the last thing we need to do is put more trucks 
on the roads.
    So to say that one is more important than the other, I 
think would probably--that is a debatable situation. But I 
think we need to take a focus and look at all of them. And all 
of these things can be going on simultaneously. They don't have 
to be done in a sequence.
    Senator Coleman. I appreciate your candor and your 
perspective. Senator Salazar?
    Senator Salazar. Thank you very much, Senator Coleman.
    First, Mr. Neibur, thank you again for getting off the 
combine and coming here with the real-life story about what is 
happening on the ground itself.
    Second, for all of you who are involved here, I think you 
just heard Senator Coleman talk about the great prospect of 
renewable energy, and what has happened in Brazil. I would ask 
you to join us, keeping your eyes on that spotlight, because I 
think there is going to be a lot happening, even this year and 
into the next Congress, with respect to the new Farm Bill. And 
I think it is going to open up a whole new chapter of 
opportunity for rural America.
    Third, in terms of a question, Mr. Neibur and Mr. Kelley, 
you are surrounded by people who actually are on the ground, 
farming every day. And you know your neighbors and you know the 
members of your co-op. You, yourselves, both are farmers.
    The short-term issue of this spike that we saw--August, 
September, October--tell us how severe that is. Do you think 
that you are going to see your neighbors and others essentially 
be forced out of business this year because of this 
unprecedented rise in costs we haven't seen for 25 years? Mr. 
Kelley, how about you, and then Mr. Neibur.
    And then, just to finish my other question, Dr. Elliott, 
with you, with respect to conservation, the thing that could be 
done immediately--just reinforcing what Senator Coleman asked--
if you were just to say what two actions the U.S. Congress 
could take now--as opposed to April or May; but now, in 
November, in the remaining 2 weeks--what would those two 
actions be to move with conservation?
    So why don't we just start with Mr. Kelley, Mr. Neibur, and 
then Dr. Elliott.
    Mr. Kelley. Senator, thank you for your question. The 
immediate impact will definitely impact people's bottom lines. 
The agricultural economy, because of what was said earlier, 
with some excellent years in terms of gross income, can 
withstand a short-term downturn, in terms of net income.
    However, I think there will be producers--one of the 
aspects of the current Farm Bill is that you have to have a 
crop in order to be able to get LDP payments. If you only have 
50 bushel corn, versus 150, obviously, that changes your income 
structure. So I think there are many things besides the energy 
crisis that are going to affect farm income this year.
    But the short-term--people had the opportunity that saw 
this coming to be able to forward contract through our 
cooperative and our member cooperatives some of their fuel. 
Those that took advantage of that, both that and LP gas, 
probably kept their costs of production down.
    But as we look to the future, those opportunities aren't 
there today to forward price next year's inputs. We are paying, 
as Mr. Neibur said, $500 for anhydrous ammonia--probably, 35 
percent, 40 percent higher than what it was a year ago.
    So as we look at next year's crop, being able to secure the 
financing to finance a higher input, both in fuel, fertilizer, 
and other inputs, is going to put a real question mark in 
bankers' eyes. Fortunately, as to my knowledge of the farm 
credit system, their credit quality is high. I am sure the rest 
of the banking industry and agriculture is fairly similar.
    And so, as we look at the opportunities, I think we can 
weather this current storm with a negative-impact bottom line, 
but the long-term impact of these higher costs is going to make 
it very difficult.
    Senator Salazar. Mr. Neibur?
    Mr. Neibur. Thanks again, Mr. Salazar. Mr. Kelley hit the 
hammer on the head, I guess: the whole issue with the banks, 
the cash-flow issues. You cannot take these fuel costs and the 
irrigation costs and the fertilizer costs in to your bank and 
make it cash-flow.
    So in turn, your bank is going to say, you know, ``We are 
not going to supply you with an operating note, when there is 
no chance of there being a profit.'' And you know, last year 
was tight; this year was virtually impossible; and next year 
looks like it is not going to work.
    And so the answer to your question is, yes, there is going 
to be a tremendous amount of banking issues, bankruptcies, 
people just falling out of bed. They just can't--you know, and 
we are in a situation, too--maybe perhaps a little different 
than Mr. Kelley--of our drought; like I noted there, 5 years of 
drought. I have not raised a single crop of dry-land corn in 5 
years.
    And so we have got that, on top of the fuel prices, on top 
of the fertilizer prices. And so I would say that the effect is 
going to be very wide, very widespread.
    Senator Salazar. Thank you, Mr. Neibur.
    And Dr. Elliott, 2 weeks, two things for us to do.
    Mr. Elliott. Well, the first thing, Senator Salazar, is 
something not to do; which is, don't cut funding for programs 
like the Conservation Security Program, 9006, and others in the 
USDA budget. And I think, also, send a directive to USDA to 
take a look at deploying the resources that they have, that we 
hope are not cut.
    Senator Salazar. Do you think those resources are being 
deployed now?
    Mr. Elliott. I think they are being deployed. I think they 
could be deployed better, and they need to be deployed more 
aggressively. The problem is, that is hard to do in a day of 
shrinking budgets and offices, like RD and Extension.
    Senator Salazar. Thank you all very much.
    Senator Coleman. Thank you, Senator Salazar.
    Gentlemen, thank you. Your testimony has been very, very 
helpful. And I appreciate Mr. Neibur coming off the combine to 
be here. Gentlemen, all, thank you for what you have 
contributed.
    With that, this hearing of the committee on Agriculture, 
Nutrition, and Forestry is now adjourned.
    [Whereupon, at 12:39 p.m., the committee was adjourned.]

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                            A P P E N D I X

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                            NOVEMBER 9, 2005



      
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                         QUESTIONS AND ANSWERS

                            NOVEMBER 9, 2005



      
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