[Senate Hearing 109-622]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-622
 
                  TO REVIEW THE IMPLEMENTATION OF THE 
PEANUT PROVISIONS OF THE FARM SECURITY AND RURAL INVESTMENT ACT OF 2002

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

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION


                               __________

                              MAY 2, 2006

                               __________

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


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


                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
30-238                      WASHINGTON : 2006
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001


           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

                              ----------                              
                                                                   Page

Hearing(s):

To Review the Implementation of the Peanut Provisions of the Farm 
  Security and Rural Investment Act of 2002......................    01

                              ----------                              

                          Tuesday May 2, 2006
                    STATEMENTS PRESENTED BY SENATORS

Chambliss, Hon. Saxby, a U.S. Senator from Georgia, Chairman, 
  Committee on Agriculture, Nutrition, and Forestry..............    01
Dayton, Hon. Mark, a U.S. Senator from Minnisota.................    03
Lugar, Hon. Richard, a U.S. Senator from Indiana.................    03
                              ----------                              

                               WITNESSES
                                Panel I

Gaibler, Floyd, Deputy Under-Secretary of Agriculture, Farm and 
  Foreign Agriculture Services, United States Department of 
  Agriculture, Washington, DC....................................    04

                                Panel II

Fletcher, Stanley, Ph.D., Professor, Department of Applied 
  Economics, University of Georgia, and Director, National Center 
  for Peanut Competitiveness, Griffin, Georgia, Accompanied by: 
  Armond Morris on behalf of the Georgia Peanut Commission, 
  Tifton, Georgia and Jimbo Grissom on behalf of the Western 
  Peanut Growers Association, Seminole, Texas....................    16
Plowden, Evans, General Counsel, American Peanut Shellers 
  Association, Albany, Georgia...................................    18
Rasor, Gary, Consultant on behalf of the American Peanut Products 
  Manufactures, Inc., and the J.M. Smucker Company, Rittman, Ohio    20
                              ----------                              

                                APPENDIX

Prepared Statements:
    Fletcher, Stanley, Ph.D......................................    48
    Gaibler, Floyd...............................................    30
    Plowden, Evans...............................................    52
    Rasor, Gary..................................................    56
Document(s) Submitted for the Record:
    Biographies of the Field Hearing Witnesses...................    66
    Statement of the National Peanut Buying Points Association...    62



                  TO REVIEW THE IMPLEMENTATION OF THE 
PEANUT PROVISIONS OF THE FARM SECURITY AND RURAL INVESTMENT ACT OF 2002

                              ----------                              


                          TUESDAY, MAY 2, 2006

                                       U.S. Senate,
         Committee on Agriculture, Nutrition, and Forestry,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:36 a.m., in 
room SH-216, Hart Senate Office Building, Hon. Saxby Chambliss, 
chairman of the committee, presiding.
    Present or submitting a statement: Senators Chambliss, 
Lugar, and Dayton.

STATEMENT OF HON. SAXBY CHAMBLISS, A U.S. SENATOR FROM GEORGIA, 
  CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

    Chairman Chambliss. This hearing will now come to order and 
good morning.
    First of all, let me must say to my colleagues up there and 
to the folks in the audience, we have been presented with a 
nice little gift here. Mr. Bell from Bell Plantation in Tifton, 
Georgia, has given us a little gift box here, gentlemen, that 
contains some products that they are making there at Bell 
Plantation and we appreciate very much your thoughts here, Mr. 
Bell. I assure you, since we get our hands on it before staff 
does, we may get to enjoy them rather than staff.
    [Laughter.]
    Chairman Chambliss. We welcome everyone this morning to our 
hearing to review the implementation of the peanut provisions 
of the Farm Security and Rural Investment Act of 2002. I would 
like to thank our witnesses for the time, trouble, and expense 
that they were willing to incur today to help us obtain a 
sector-wide review on the peanut program. In addition, I would 
like to welcome members of the public attending this hearing, 
as well as those who are listening through our website.
    The peanut provisions in the 2002 farm bill were a radical 
departure from those authorized in past farm bills. Congress 
repealed the Depression era quota system, which dates back to 
the 1930's and which limited the amount of peanuts that were 
allowed to be marketed for domestic food use and dramatically 
altered the entire peanut sector. Although the old program had 
served the industry well for many years, many felt the program 
needed to be changed and refined to an ever-changing global 
marketplace.
    As many of you remember, changing a 60-year-old program was 
not an easy feat. The quota program was intricately intertwined 
in the roots of many small communities from Virginia and 
Georgia to Florida over to Texas and Oklahoma. Although some 
producers were understandably reluctant to accept change, the 
majority recognized the need to respond to the pressures of the 
market.
    As a result, policymakers were able to rewrite the 
direction of Federal peanut policy. In a historic moment, all 
facets of the peanut industry reached a united provision that 
allowed us to move the industry in the next generation.
    I would just like to add a personal note here that that 
took a great deal of fortitude and commitment on the part of 
folks involved in the peanut industry. We have not always had 
the cooperation of growers, shellers, and manufacturers in the 
peanut industry and the history of the program was that there 
was a lot of, I don't know exactly what word to use, but there 
was not always total agreement between those three sectors of 
the industry, particularly in my State, which is the largest 
peanut growing State. And while I had friends on all sides of 
the issue, it was a delicate line that we had to walk.
    But from one segment of the growing part of the country to 
the other, from one segment of the sheller industry to the 
other, as well as the entire manufacturing community, it came 
together in really an unprecedented way and allowed us to 
proceed in a very positive way in the last farm bill. I have 
told my friends in each segment of the industry over the years 
that I appreciate that commitment, but I want to say that again 
publicly today.
    The fact is that while I came under a lot of criticism from 
a lot of my growers who thought that the program we wrote in 
2002 was the wrong direction, virtually 100 percent of those 
growers have come to me since then and agreed that we were 
right and they were a little bit emotional in some of their 
comments and some of their way of thinking in 2002. I think the 
fact of the matter is that the 2002 farm bill has worked very 
well from a peanut perspective and has been a very positive 
bill.
    The new program allowed producers to transition from the 
old quota program by providing compensation to quota owners and 
users while establishing a three-prong program that is similar 
to the programs available to producers of many other 
commodities. With the establishment of direct payment, 
countercyclical payment, and marketing loan programs for 
peanuts, today's peanut program allows producers to be more 
competitive in the marketplace both domestically and abroad.
    The program has worked largely in the manner that was 
envisioned in 2002, and since then, numerous producers, 
especially those who were reluctant to accept the historic 
changes, have told me that the program is working well.
    That is not to say, however, that the program has worked 
perfectly. Those areas which historically have produced peanuts 
have shifted to other areas since the enactment of the 2002 
farm bill. Acreage in many traditional peanut producing areas 
has shifted both within States and across State lines and there 
has been a significant expansion of acreage in new producing 
areas.
    Unfortunately, the new peanut program has not been free of 
challenges. Under the Marketing Quota Program, peanut prices 
were largely determined by government policy. Under the new 
program, which allows the marketplace to determine peanut 
prices, timely and current market price information for peanuts 
is lacking. This is understandable because of the small number 
of U.S. peanut producers, sporadic sales, and the absence of a 
market exchange. However, the lack of such timely market 
information has complicated USDA's task of implementing the 
program, particularly the establishment of weekly loan 
repayment rates, which is vital to ensuring that U.S. producers 
are competitive in the export market has proven to be a 
substantial challenge.
    I look forward to hearing from all sectors of the peanut 
industry this morning. I am hopeful that the witnesses' 
testimony will help us all gain a better understanding of the 
successes and problems facing the industry today.
    Before I turn to the first panel, I would first turn to my 
colleagues for any opening statements they wish to make. 
Senator Lugar, any comments?

  STATEMENT OF HON. RICHARD LUGAR, A U.S. SENATOR FROM INDIANA

    Senator Lugar. Thank you, Mr. Chairman. On my farm, we are 
not able to grow peanuts, so I have always approached the 
peanut hearings with a sense of eagerness to learn much more 
about the industry from my colleague, the Chairman, and from 
the distinguished witnesses. We very much appreciate each one 
of you coming today and we look forward to a great learning 
experience.
    Chairman Chambliss. Thank you. Under the new program, 
Senator, you can grow peanuts in Indiana. It is just that we 
don't want you growing peanuts.
    [Laughter.]
    Senator Lugar. Maybe that is what I will learn today.
    Chairman Chambliss. We don't grow soybeans and corn in 
Georgia, but seriously, that is one thing about the program, 
the new program, is a lot of folks in other areas outside of 
traditional peanut areas can grow peanuts.
    Senator Dayton?

  STATEMENT OF HON. MARK DAYTON, A U.S. SENATOR FROM MINNESOTA

    Senator Dayton. Mr. Chairman, thank you. I apologize in 
advance for having to leave just before ten. The Homeland 
Security Committee is marking up this Hurricane Katrina report. 
But I just want to say, I don't know of anyone who is a 
stronger proponent for a commodity in his home State than you, 
sir, starting with these, which are available at all of our 
hearings. I try to be as good a proponent for my State, but one 
of our favorite Norwegian foods is lutefisk, which, for those 
who don't know, is cod soaked in brine, and I can't quite get 
the same enthusiasm in the committee or whatever for that 
product as you.
    [Laughter.]
    Senator Dayton. I just salute you for that. You also have 
been very gracious and fair as a committee chairman on behalf 
of all the different commodities that do reflect the diversity 
of agriculture throughout our country, and I thank you for 
that, as well. Thank you, Mr. Chairman.
    Chairman Chambliss. Thank you. You need to bring some of 
that cod to meetings from now on. We will pass it around and 
see what reaction we get.
    Senator Dayton. You will get a reaction.
    [Laughter.]
    Chairman Chambliss. Our first panel today is a longtime 
good friend, Mr. Floyd Gaibler, who is Deputy Under Secretary 
of Agriculture for Farm and Foreign Agricultural Services, 
obviously located here in Washington, D.C. Floyd, you have been 
here many times. You have been a great advocate for agriculture 
at USDA and we are always pleased to have you here and we look 
forward to your comments.

 STATEMENT OF FLOYD GAIBLER, DEPUTY UNDER SECRETARY, FARM AND 
FOREIGN AGRICULTURAL SERVICES, U.S. DEPARTMENT OF AGRICULTURE, 
                         WASHINGTON, DC

    Mr. Gaibler. Thank you very much, Mr. Chairman and members 
of the committee. We appreciate the opportunity to appear 
before you today and share information that the Department has 
obtained from our experience in administering the new peanut 
program over the last 4 years and suggest what we think are 
some areas of attention.
    As you are well aware, the aim of the Congress has been to 
make commodity programs more market oriented. And, as you 
mentioned, the 2002 farm bill significantly modified the peanut 
program, shifting it from a rigid two-price program with quotas 
to one providing more farmer flexibility along with direct 
countercyclical and marketing assistance loan program payments.
    While we have had few problems in the direct and 
countercyclical payment programs, one of the most perplexing 
questions of the merge is why the Marketing Assistance Loan 
Program for peanuts does not function like that of the 
marketing loan programs for other commodities. That is a very 
high proportion of our annual peanut program is placed under 
loan and very little use is made of loan deficiency payments. 
Our conclusion is that the storage and handling payments 
encourage heavy loan placements and that some holdover industry 
practices from the previous program era impede price discovery.
    Price discovery is important to the administration of all 
of our marketing loan programs because it provides the 
requisite information for establishing an accurate loan 
repayment rate. However, the peanut industry has not 
traditionally operated in an open market environment. Thus, 
there is no readily available transparently established market 
price for setting the loan repayment rate as exists for other 
commodities.
    This largely results in the widespread use of contracting, 
the primary method of marketing peanuts. Peanut shellers and 
peanut growers enter individual contracts, often before 
planting. These option contracts provide little in the way of 
publicly available price information, and dependence on them 
precludes the emergence of a cash market in an industry with so 
few buyers.
    In trying to establish a loan repayment rate or a National 
Posted Price, one source of information we explored using was 
the Weekly Agricultural Marketing Service Shelled Peanut 
Report. However, several problems have emerged when we examined 
the information contained in this report. Particularly, the 
information is based on a low volume of transactions with a 
thin market and the potential exists for manipulation of 
reported prices through this selected reporting of trades that 
occurred.
    In our view, the only dependable source of price 
information is the National Agricultural Statistics Service 
Agricultural Prices Report. NASS reports monthly average prices 
received for farmers in shelled peanuts, which includes option 
prices paid to farmers. However, NASS only reports a single 
price that encompasses all types of peanuts and does so only 
once a month, which may reflect a several-week lag in actual 
transaction prices.
    Another major factor that negatively affects the loan 
program operations is the provision for peanut storage and 
handling costs for all peanuts under loan through the 2006 crop 
year. This benefit is generally not available to producers of 
any other covered commodity. To capture the peanut storage and 
handling subsidy, peanut shellers offer option contracts that 
both require producers to place peanuts under loan at harvest 
and allow shellers to redeem the peanuts from under the loan at 
will.
    We believe this provision inhibits price discovery and the 
administration of the marketing loan program for peanuts and 
further facilitates the industry's reliance on option contracts 
rather than actual cash markets. I think it also helps to 
explain why the outlays for these payments are so much higher 
than the estimate that was originally provided by the 
Congressional Budget Office for this aspect of the program when 
it was implemented.
    Expiration of the provision of mandating these payment of 
storage and handling costs, in our view, would help the peanut 
industry adjust to the Marketing Assistance Loan Program and 
allow it to function in a manner more consistent with those of 
other commodities, resulting in lower loan placements and a 
greater use and availability of loan deficiency payments.
    In addition, our experience with operating the Marketing 
Assistance Loan Program for peanuts suggests that a shorter 
loan duration for peanuts would improve program functionality. 
Currently, marketing assistance loans for peanuts and other 
program crops have a term of 9 months. Shortening the term to 
no more than 6 months with an expiration date of June 30 each 
year would mitigate the market conflict that we now have 
between old and new crop peanuts. June 30 was the date used in 
the prior peanut program and we believe this change would 
encourage peanuts from the previous crop year to be moved into 
market before the start of the harvest of the new crop.
    Finally, most of the criticism that we have heard and seen 
focuses on the determination of the National Posted Price. Some 
in the industry have argued that the National Posted Price is 
too high to allow domestic producers to compete in the export 
market. However, we believe these arguments fail to recognize 
that the peanut program was fundamentally changed from a two-
tier price support program to a single price program for all 
peanuts.
    The National Posted Price is intended to be a market 
clearing indicator for all peanuts, regardless of end use. As 
such, the National Posted Price reflects the combined value of 
all end users as revealed by the market price and does not seek 
to direct peanuts to one market over another as was true in the 
previous program. The current program does not distinguish 
peanuts by end use or destination.
    And were USDA, as has been requested, to intentionally 
reduce the repayment rate to capture additional exports, it is 
our view that it would likely present World Trade Organization 
concerns. Analysis by USDA Foreign Agricultural Market Service 
indicates that the systematic decrease in the National Posted 
Price would also capture few additional exports and that this 
minor gain in export sales would come at significant cost to 
the taxpayer.
    An examination of U.S. peanut trade data indicates that the 
U.S. is not losing export markets under the new program, but 
nor are we experiencing any significant levels of imports. U.S. 
peanut exports have remained at or around 250,000 tons annually 
since 2002, on a par with export performance during many of the 
preceding years.
    In summary, our 4 years of experience in administering the 
Peanut Marketing Assistance Loan Program and working with the 
industry allow us to offer some suggestions that we believe 
would enhance the operation of the program. These include 
exploration of an incentive-based or mandatory price reporting 
system, allowing the exiration of storage and handling payments 
after the 2006 crop, and shortening the maturity loan from 6 
months with the term expiring on June 30 each year.
    As we have in the past, we stand ready to work with you, 
others in Congress, and all segments of the peanut industry in 
developing reliable and consistent market price information to 
assist in the more effective operation of the Peanut Marketing 
Assistance Loan Program.
    Thank you for your continued support of USDA programs and 
allowing us to share our views with you on these very important 
issues. Thank you, Mr. Chairman.
    Chairman Chambliss. Thank you, Mr. Gaibler.
    [The prepared statement of Mr. Gaibler can be found in the 
apendix on page 30.]
    Chairman Chambliss. Since implementation of the 2002 farm 
bill, the administration of the peanut program has shifted away 
from the Peanut and Tobacco Division at USDA. Who is actually 
administering the current program, and is there any particular 
reason for that change away from the Peanut and Tobacco 
Division?
    Mr. Gaibler. I can't tell you the reasons for the change 
because that occurred prior to my coming to the Department in 
this position. However, that function is primarily conducted in 
the Farm Service Agency, by the Economic Policy and Analysis 
Staff. They are composed of economists that are very familiar 
with the industry and are responsible for actually making the 
determination week to week of the National Posted Price.
    And I would just also say parenthetically that we have 
looked at this issue from a broad perspective. We put together 
a task force in 2003 that involved people from the Office of 
Chief Economist, our World Agriculture Outlook Board, the 
Foreign Agriculture Service, Economic Research Service, and the 
Agricultural Marketing Service. We brought together all the 
expertise the Department has in trying to figure out how best 
to administer this program.
    Chairman Chambliss. Do we basically do that with all 
programs in the commodity title?
    Mr. Gaibler. Yes, in a similarl fasion. We have officials 
within the Farm Service Agency, beyond those in EPAS, some in 
other divisions of the Farm Service Agency. But again, they are 
all people who have expertise in the programs, and the markets 
and the commodities that they are dealing with.
    Chairman Chambliss. In your written testimony, you indicate 
in the course of the 200 crop year for peanuts, USDA paid $50 
million in marketing assistance loan benefits even though other 
supply and use factors for the crop year suggested a robust 
market. Could these benefits be attributable to growers slowly 
adjusting to the new program?
    Mr. Gaibler. Well, When the program was initially 
implemented, we were faced with the conundrum of what actual 
kind of market prices that we could use and should use in 
trying to determine the loan repayment rate. The initial 
decision was to use the AMS shelled prices, and that was used 
in the initial implementation operation of the program. But it 
became clear, to the analysts and others who monitor this that 
the loan repayment rate was going down rapidly when all other 
market and supply-demand indicators, suggested that prices 
should be at a higher level. So this led the agency to take a 
different look at how we implement this program and the 
decision was made then to make an adjustment and to place more 
reliance on the NASS price, the in-shell farmer price.
    Chairman Chambliss. I share the same concern you do on this 
issue relative to virtually 100 percent of peanuts going into 
the loan. I think that is one of the provisions in the new 
program that is an unintended consequence of the program and we 
have got to figure out a way to ultimately get out of that 
because I think it has caused more problems than it has 
benefits.
    But one of the problems I see is that you have got a little 
bit of a catch-22 situation in that you attribute the fact that 
so many of the peanuts are going into the loan in part to the 
storage and handling fees being paid under the program, and 
that may be right. But if you had no storage and handling fees 
paid under the program, then we know who is going to pay those 
storage and handling fees and that is the farmer, which means 
they are going to have smaller contracts than they would have 
otherwise. So if they have smaller contracts that are below the 
loan price, because most of these contracts now are in the 
range of the loan. So if they are going to get less, there is 
going to be more incentive on the farmer to put peanuts under 
the loan.
    So I am a little bit puzzled as to how we should address 
this program as we think about rewriting this title to, No. 1, 
encourage more sales under contract versus more of the crop 
going into the loan, and I am not sure that elimination of 
storage and handling fees is the solution to that. I understand 
you have another portion of that which is shortening the loan 
time period from 9 months to, I believe, to 6 months is what 
you recommend. Again, I don't know that even the combination of 
those two would be the total answer. Any comments you want to 
make on that relative to what we ought to be thinking about?
    Mr. Gaibler. Well, I do believe that shortening the loan 
period, in reference to your last comment, would make a lot of 
sense. We reference in our testimony, how we think that some of 
the industry practices should be modified. But this is a case 
where we think the practice that was conferred and utilized 
under the existing program makes a lot of sense. I think there 
is at least some majority level of support for doing that. The 
primary reason for, I think, not doing it is that the Committee 
and Congress obviously aren't going to take on trying to make 
that kind of change unless there is some industry consensus.
    With respect to the storage and handling payments, the only 
thing that is really comparable there is the cotton program. 
The cotton program offers a recourse loan for seed cotton and a 
non-recourse loan for the lint. So the cotton ginners typically 
take that seed from ginning as payment for the ginning process, 
so the cotton farmers actually pay for the ginning of their 
cotton through that foregone seed revenue.
    So if you made a change in the program and the marketing 
loan were operated similar to cotton, we would have to offer a 
recourse loan for the in-shell peanuts and a non-recourse loan 
for the shelled peanuts.
    But I do think that there has to be some recognition of the 
problems that the option contracts, as they are currently 
structured, provide, because they do require the producers to 
put all their peanuts under loan as part of the contract. I 
believe if we can get away from that process and encourage more 
on-farm storage by the peanut producers themselves or through 
these cooperative marketing associations who can take in 
peanuts and market them on behalf of a number of peanut 
producers, it would be another avenue as a means to transition.
    But again, we are willing to look at options and try and 
figure out how we can make this transition work most 
effectively.
    Chairman Chambliss. That is an interesting concept, 
thinking about shelled versus unshelled. The cotton is a little 
bit hard to compare because ginners usually take the seed for 
the ginning costs. It is usually an offset there unless there 
is some high demand for seed, which there hasn't been in the 
last several years, and I am not sure we would have that same 
scenario with shelled versus unshelled, but I see what you are 
saying.
    Current farm law requires the Secretary to establish a 
repayment rate for commodities that minimizes forfeitures, 
accumulation of stocks and storage costs, and allows 
commodities to be marketed competitively in domestic and 
international markets. It appears that the Secretary is 
determined that the county posted price for grains and oil 
seeds can be used to establish a repayment rate that meets the 
criteria in the statute. For rice and cotton, the repayment 
rate is not solely based on U.S. domestic price because it 
would not result in a repayment rate that achieves the 
objectives stipulated in the statute.
    The peanut industry has expressed concern that the current 
method of calculating a repayment rate for peanuts is not 
achieving the objectives in the statute. Please explain how the 
repayment rate is currently calculated and what additional 
authority and/or data, particularly international price data, 
would be necessary to enable the Department to calculate a 
repayment rate that more accurately reflects rural prices and 
allows U.S. peanuts to be marketed more competitively in 
domestic as well as international markets.
    Mr. Gaibler. The process uses a mathematical formula that 
tries to draw on all available price information, particularly 
the NASS price, also the AMS shelled price. We have tried to 
look at international prices, but we have found them to be 
infrequent, we are unable to determine whether they are just 
price quotes, or are they tied to an actual sale. We had an 
independent third-party consultant look at this sale and their 
observation was that the international prices were not reliable 
and that we should not focus on international prices.
    We have a different situation with rice and cotton in that 
there are more established international prices for them to 
rely on in terms of their calculation.
    We still come back to the fact that if we can get a price 
that reflects what farmers are receiving for their payments and 
obtain more robust price information, more frequently, on a 
weekly basis instead of a monthly basis, and have reported by 
type, as opposed to all general peanut price, we believe that 
that would help much improve the NASS price series. It would 
help in some instances keeping it from being overinflated 
because it does encompass all peanut types. The higher-value 
peanuts are factored in and it is very hard to factor out the 
value of the higher-value, for example, Virginia peanuts with 
the lower-priced runner peanuts.
    So if we could get prices differntiated by type, we could 
have a more accurate reflection of what the market price is and 
we would also obtain it on a more frequent basis so that when 
we do make adjustments, they are more timely and we would be 
more closely following the market. And I think that would help 
clear the market and we would not be in this conundrum of 
having potential forfeitures.
    Chairman Chambliss. I am assuming from what you said 
earlier that it is your thought, and I kind of agree with this, 
that if you have fewer loans, or fewer peanuts going into the 
loan, and more sales, then you are going to have more data from 
which to have a posted price. So the one is tied to the other.
    Mr. Gaibler. Yes. There is really some circularity there 
and then that makes it much more difficult. We also have 
actually brought in the industry to meet with experts from the 
Commodity Futures Trading Commission, the Chicago and New York 
Board of Trade, to see about the potential for establishing a 
futures price that could be another reference point that we 
could work with. I think that we are not there yet, but I think 
it is something that we should continue to explore, as well. So 
there are a whole number of avenues I think we need to continue 
to work on.
    Chairman Chambliss. I have talked with both the Board of 
Trade and the Chicago Mercantile folks over the last several 
years about the potential for having an option contract on 
peanuts, and particularly as we were talking about the change 
in 2002, and there doesn't seem to be a way to do that at this 
point in time. But as we look at the next farm bill, I think we 
ought to again explore that to see if there is the potential 
for that.
    Senator Lugar?
    Senator Lugar. Thank you very much, Mr. Chairman.
    I am curious. I think your testimony indicates that 
domestic demand for peanuts has increased in recent years, and 
since the 2002 farm bill, perhaps because of more innovative 
products and ways in which peanuts are marketed to consumers. 
In the same period of time, exports have declined from about 
half, by and large, and you attribute that essentially to the 
price being too high. Of course, prices go up and down in 
export markets over the years as they do domestically.
    But characterize overall just from your standpoint, what is 
the status of the industry? Is this a growth situation? Is it 
one of stability in which people who are involved in it now 
essentially will continue to be involved and produce about what 
is required? Can you give any feel for whether this is a--it is 
not a dynamic market, but what growth potential is there, 
either domestically or abroad?
    Mr. Gaibler. Yes, Senator Lugar, you are correct. The 
modifications made by the 2002 farm bill have produced, I 
believe a much more vibrant industry. Food use has typically 
been about 50 percent of the annual outtake of peanut 
production and we have seen that grow 15 percent since the 
implementation of the new program.
    I think it has created the opportunities for entrepreneurs 
like Mr. Bell here today, who would not have had the ability to 
come up with up to 20 new products that he is trying to 
develop, or has developed and is trying to expand the niche 
markets of these products. So we think that is very productive. 
We have also seen that the production has shifted and it has 
shifted to the areas where there is more productive soil. We 
have seen a very sharp increase in peanut yields. So it is a 
better allocation of economic resources that are being applied 
out there in terms of the production of peanuts.
    With respect to exports, again, peanuts have traditionally 
been a residual market for this industry. They average about 15 
percent of the total annual offtake, and we have seen that one 
of the positive things is that imports dropped to almost 
nothing as a result of that program. So while some of what we 
have lost on the international market, that has been offset, 
primarily because imports have dropped dramatically to less 
than 1 percent of their previous levels.
    I think there will always be an opportunity for the export 
markets, that we do have a strong competitor out there in 
China, and China has expanded their production and their 
exports. Their quality, as I understand it, is not quite as 
good as ours and a lot of what is traded on the world markets 
is the lower-value crushed peanuts for use in meal and oil 
markets. But again, Mr. Bell has the right idea, not only 
trying to introduce new products in the domestic market, but he 
is also trying to find opportunities in the export markets. He 
has come to the Department with a very concise marketing plan 
and we are going to try and help them. I think this should be 
an encouragement and fostering of the industry to do a lot more 
of those Kinds of initiatives. Given the potential amount of 
peanuts that Mr. Bell has told me he could utilize, marketing 
his products would represent a lot of the surplus that people 
are concerned about with today.
    Senator Lugar. How would you characterize the flow of 
information, cooperation, however you want to describe it, 
between growers and people like Mr. Bell, who are 
manufacturers, users of the product? In other words, is there a 
pretty good rapport so there is an understanding of what is 
best for the entire industry from the time of growth, the types 
of peanuts, that there are varieties, the location of them, the 
logistics of moving them? I am just wondering how much 
infrastructure of information there is.
    Mr. Gaibler. Well, I can't tell you a lot of the specifics, 
but I had the opportunity to meet Mr. Bell at an industry 
meeting that has involved a lot of the producers. He has set up 
a corporation of which farmers, peanut farmers are actually 
members. He has a very unique idea of trying to provide what he 
describes as an industrial rate of return, something beyond 
just a normal market-price returns. He has had a lot of 
interaction with the industry. I would have to defer to others 
as to how specific it is, but I think he is on the right track 
here.
    Senator Lugar. Let me just dwell on two points that you 
have made that are, I think, critical, and this is the price 
finding situation in one form or another. That seems not to be 
absent from the process now, but nevertheless, you have tried 
to tweak the system to get some indicators going at some point. 
And the other factor, storage costs, as you suggest, might be 
dispensed with under certain circumstances. How are the storage 
costs incorrect? Who has those costs? Who receives the money? 
What is the process currently?
    Mr. Gaibler. Under the 2002 farm bill, the provision was 
made to provide storage and handling costs to whoever would be 
storing and holding and warehousing the peanuts. Since there is 
little on-farm storage, those payments primarily go to the 
buying points or the warehouses of the peanut industry. The 
biggest portion of it is the handling charges. The storage 
charges are very minimal, I think in the neighborhood of $2.71 
a ton.
    And the fact that we have a 9-month loan, again, creates 
the opportunity for and the incentive, frankly, to keep them 
under loan longer than they might otherwise be and that has 
resulted in the costs going up much more than either the 
Department or the Congressional Budget Office has estimated. I 
think it has had some unintended consequences in terms of 
adding costs to the program but also impeding our ability to 
obtain the price discovery information that we need.
    Senator Lugar. The payments now being made in the chart you 
furnished to us for storage and handling are $124 million in 
the 2006 situation, which is a third of the whole cost of the 
program. The direct payments are $61 million, the 
countercyclical $165. So the storage and handling is a very 
large part of it.
    The point you are making is if, I gather, you have greater 
price discovery to begin with and less reliance on revenues 
from storage and handling, more of the peanuts would move so 
they would not be stored and handled and rehandled and so 
forth.
    Mr. Gaibler. Right.
    Senator Lugar. You sort of made that point gently, but an 
economist sort of looking into this situation who is not a 
friend of the family would say, well, this is sort of axiomatic 
in a market. You have to have price discovery. There has to be 
enough movement and activity so that you are not consumed, 
really, just in what amount to the administrative costs, which 
in this case happen to be the storage and handling situation.
    You have suggested several reasons, and I will not 
reiterate those, but it is essentially the burden of your 
testimony today that as we look at the farm bill coming up, 
this is the area in which we should concentrate and maybe spend 
more time trying to find out why the price discovery really 
doesn't work at home or abroad, for that matter, for us, at 
least, for our peanut growers, and likewise, how we can 
mitigate the storage and handling fees, because this is money 
that doesn't go for growth or for incentives or really for 
income maintenance particularly.
    Mr. Gaibler. Yes. Senator, these are issues that we have 
struggled with throughout the implementation period since the 
beginning of the farm bill and we have had robust and quite 
interesting conversations with the peanut industry on these 
issues. I think we still have some fundamental differences of 
opinion here on some of these issues. But we do think that we 
do need to try and correct and improve the ability to make 
these programs work as the Congress intended. So these are 
considerations that we will continue to work with the industry 
and Congress on.
    There are some considerations, I believe, that you could 
take into account as you reconsider the 2007 farm bill, but I 
don't want to give you the impression that these are formal 
policy recommendations that relate to the 2007 farm bill. These 
are just ongoing considerations that we have experienced and 
dealt with over the last 4 years.
    Senator Lugar. Thank you very much. Thank you, Mr. 
Chairman.
    Chairman Chambliss. You mentioned this, but I think it is 
significant to note that the imports have decreased 
dramatically and I think that truly is a positive sign and it 
is a sign that when we negotiated the 2002 farm bill between 
the three groups, that the manufacturers said that if we do 
this, you are going to see us using more domestic peanuts than 
we have in the past and that is exactly what has happened, 
which has been good.
    I think we have got to figure out a way to make sure that 
our manufacturers not only continue to grow their purchase of 
domestic peanuts, but that the purchase of those peanuts 
increases, particularly in light of the fact that this year, we 
are going to see an increase in the peanut planted acres. In my 
State, we are going to lose some cotton acres and see an 
increase in peanuts. I am not sure what the rest of the country 
is doing, but we have got to continue to try to make sure that 
the market is growing from a policy standpoint.
    We talked about shelled versus unshelled peanuts. I am told 
that, currently, the price for farmer stock peanuts is going up 
and the price for shelled peanuts has currently been dropping. 
Does that seem inconsistent in some way to you, particularly in 
light of what we are talking about relative to the loan issue?
    Mr. Gaibler. Well, yes, and this has occurred over time 
historically where we have seen the NASS price going in one 
direction in conflict with where the shelled price is going. So 
that has concerned us because when we look at the other market 
fundamentals of supply demand and reach a conclusion, 
obviously, one of those price factors is out of sync. It has 
been a perplexing challenge to us in terms of what price should 
we be focusing on, which one do we think is right, and which 
one should we try and improve upon and represent an accurate 
portrayal of where the market is heading and reflect that in an 
actual loan repayment rate.
    We have tried, again, very hard to look at what the 
industry has suggested with the AMS shelled price. We had a 
third-party consultant provide an analysis. They recommended 
using the shelled price. I actually had staff put the formula 
they suggested in place and recalculate the loan repayment rate 
under that formula. But what we found was that we ended up 
having a very huge outlay of marketing loan gains that would 
have occurred under that program. At the same time, we incurred 
106,000 tons of forfeited peanuts and the cost of disposing of 
the peanuts and the marketing loan gains was over $30 million 
less than what would have occurred under using the AMS shelled 
price formula.
    That gave us great pause, so we again came to the 
conclusion that we think the NASS price is probably the one 
that is probably best price to utilize. It is the price that we 
use to calculate our countercyclical payment for farmers and it 
is the price farmers receive. This is the program for farmers. 
We believe that is the correct price. And again, I think if we 
can achieve the robustness that we need from that in terms of 
weekly price information, and by type of peanut, I think we 
could go a long way toward getting away from this price 
discrepancy that shows up in different price series.
    Chairman Chambliss. I am not sure what the answer to this 
is. You have got some very smart folks down there at USDA, I 
know, that are thinking through this. As we go into the next 
farm bill, we need to see if we can set some policy in the farm 
bill that is going to help be able to establish this price.
    As I think about other commodities that you compare us to, 
in peanuts, we have got competition from Argentina and China on 
the world market. You are right, the quality of our peanuts is 
better than both those. Argentina is getting better and better, 
getting pretty close to our quality. But by the same token, you 
have got corn that is grown in Senator Lugar's State that is 
better in quality than, I think, the competition is putting out 
there, even though countries like Brazil are getting closer, 
but we have got other issues that factor into the corn market 
and yet we are able to establish a price there. A lot of that, 
I know, has to do with the futures markets and what not. But I 
hope we are able to help you from a policy perspective to 
establish those prices.
    In looking at the chart that you were talking about where 
we see the handling charges increase, you have got decrease in 
direct payments as you see increase in storage and handling. 
You have got some change in the countercyclical payments. You 
have got, again, the marketing loan changes that virtually go 
to this year you are going to have a little bit of expense. You 
have got a projected 2007 of zero. LDPs virtually are non-
existent.
    Is this the way that the--well, let me rephrase that. What 
is the best scenario in looking at these numbers that the 
Department would like to see? In other words, would you like 
for direct payments to correlate in some way to storage and 
handling fees? Would you like countercyclical payments. You 
have got, again, the marketing loan changes that virtually go 
to this year you are going to have a little bit of expense. You 
have got a projected 2007 of zero. LDPs virtually are non-
existent.
    Is this the way that the--well, let me rephrase that. What 
is the best scenario in looking at these numbers that the 
Department would like to see? In other words, would you like 
for direct payments to correlate in some way to storage and 
handling fees? Would you like countercyclical payments to be 
increased as you have other payments decrease? What is the best 
scenario from USDA's perspective?
    Mr. Gaibler. Well, Mr. Chairman, I think, again, as we 
mentioned in the testimony, we don't think we see any real 
problems with the direct payments. As you know, they are fixed. 
They are decoupled. So they are fairly static in the amount 
year in and year out for peanuts or any other of the program 
commodities.
    The countercyclical payment, again, is based off of the 
NASS prices. They use the season average price. I think that 
works fairly effectively.
    I think the problem is that we need to see more ability of 
the farmers to take advantage of the marketing loan programs. 
The marketing loan programs are designed to provide the 
opportunity for farmers to take advantage of putting a 
commodity under loan during harvest time if he or she prefers, 
or in lieu of putting it under a loan and capturing a loan 
deficiency payment when prices are typically depressed around 
harvest time. The other option is if you put it under a loan, 
to receive a marketing loan gain.
    Since peanuts are put under loan right away, there is very 
little use, then, of the ability for a loan deficiency payment 
and that is why you have such low numbers there. In terms of 
the marketing loan gains, under the option contracts, the 
producer gets a set price. He gets the loan rate plus an option 
payment above that, but then he transfers the right of 
redeeming that loan to the sheller so that any marketing loan 
gain that is captured is not captured by the farmer, it is 
captured by the sheller and that is not the intention of the 
commodity programs. They certainly don't operate that way for 
the wheat, corn, soybeans that I am familiar with from my farm 
in Nebraska.
    I think what we really need to see is, again, a better 
price discovery series and the ability for farmers to have more 
flexibility to make more decisions and to avail themselves of 
the ability to take a loan deficiency payment or a marketing 
loan gain. The fact that we don't have good price discovery, 
makes it very difficult to calculate what the magnatude of 
outlays and they are not going to be as variable as they are 
with other commodities.
    Chairman Chambliss. Last, one of the major considerations 
that we are going to be thinking about in writing the 2007 farm 
bill is what consideration we need to give to the WTO, 
particularly in light of the fact that it looks like it is 
going to be very difficult now to achieve even general 
modalities relative to agriculture. In looking at your chart 
again, there are certain of those payments in there that, 
without question, are in the green box. Some of them are in the 
amber box. Is the Department going to have any recommendations 
relative to any of the portions of the current program as it 
might potentially fly in the face of current WTO regulations?
    Mr. Gaibler. Well, I have to be circumspect here, Mr. 
Chairman, and not get too far out on a limb here. Obviously, 
the administration has put forward a very aggressive proposal, 
as you well know, before the WTO, and clearly, that proposal 
does make a dramatic cut in the amber box, the trade distorting 
subsidies that would involve the marketing loan programs. But 
that only will occur if we can get effective, real market 
access for our commodities, and without that, without getting a 
robust agreement in the WTO, that is going to change the 
reflection of how we approach the farm bill. Obviously, it will 
have the same reflection on how the committee is going to deal 
with the 2007 farm bill depending on what the outcome of the 
Doha Trade Development Agenda.
    But I think that if we are successful and we do reduce the 
trade distorting subsidies down from 19.1 to as much as 7.6 
million under our proposal, that would obviously force us to 
drastically rethink the structure of the price and income 
support programs that we would provide for farmers because we 
are simply not going to have enough room left to continue to 
include the costs of the marketing loan programs for all of our 
program commodities, nor the costs incurred by the sugar 
program and the dairy program that are counted as part of our 
total aggregate measure of support.
    Chairman Chambliss. As I said earlier, I am still somewhat 
hopeful that we can achieve some agreement within the WTO, but 
I think with the attitude of the EU being what it is today, the 
chances of that are not very good.
    Anything else, Senator Lugar?
    Senator Lugar. I would just underline again, Mr. Chairman, 
what really has been sort of the theme of the testimony, that 
whether we have a robust marketing loan program or an LDP after 
Doha or with Doha, both of those things really depend upon the 
price finding mechanism. It would be hard for me to imagine, as 
somebody who sort of avidly reads the ag newsletters every day 
as well as the Wall Street Journal or what have you and looking 
for the corn price or the soybean price, to be denied that 
opportunity if I were in the peanut business. This seems to me 
such a glaring difference and one that is not helpful if you 
are a grower, not to have those options. So part of our work, 
it seems to me, working with you and the staff of USDA, 
economists, others that you bring into play, is to figure out 
really how to make headway on this subject.
    But I appreciate very much the testimony of Mr. Gaibler and 
his service to the Department for some time. Thank you.
    Chairman Chambliss. Mr. Gaibler, thank you very much. We 
look forward to continuing to stay in touch as we go through 
this in preparation for the next farm bill.
    Mr. Gaibler. Thank you again, Mr. Chairman, Senator Lugar. 
I appreciate the opportunity to be here.
    Chairman Chambliss. Thank you.
    Chairman Chambliss. Our second panel that we will ask to 
come forward at this time is Dr. Stanley Fletcher, who is at 
the National Center for Peanut Competitiveness, the Department 
of Applied Economics, a professor at the University of Georgia. 
He is located in Griffin, Georgia. He is accompanied by Mr. 
Armond Morris on behalf of the Georgia Peanut Commission and 
Mr. Jimbo Grissom on behalf of the Western Peanut Growers 
Association.
    We have also Mr. Evans Plowden, General Counsel of the 
American Peanut Shellers Association, and Mr. Gary Rasor, 
consultant with the American Peanut Products Manufacturers, 
Inc., of the J.M. Smucker Company from Orville, Ohio.
    Gentlemen, we welcome you here today, and Dr. Fletcher, we 
will look forward to any comments from you. Mr. Plowden and Mr. 
Rasor, certainly Jimbo and Armond, any comments you all want to 
inject into it, you are welcome to. Welcome to all of you.
    Stanley, we are glad to have you back and we appreciate 
your comments here today.

  STATEMENT OF STANLEY M. FLETCHER, PROFESSOR, DEPARTMENT OF 
    APPLIED ECONOMICS, UNIVERSITY OF GEORGIA, AND DIRECTOR, 
 NATIONAL CENTER FOR PEANUT COMPETITIVENESS, GRIFFIN, GEORGIA; 
 ACCOMPANIED BY ARMOND MORRIS, ON BEHALF OF THE GEORGIA PEANUT 
 COMMISSION, TIFTON, GEORGIA; AND JIMBO GRISSOM, ON BEHALF OF 
    THE WESTERN PEANUT GROWERS ASSOCIATION, SEMINOLE, TEXAS

    Mr. Fletcher. Good morning, Chairman Chambliss and members 
of the committee. My name is Stanley Fletcher. I am a professor 
at the University of Georgia and the Director of the National 
Center for Peanut Competitiveness. I am truly honored today to 
be invited to present testimony on the implementation of the 
peanut provisions of the Farm Security and Rural Investment Act 
of 2002.
    First, like you stated in your testimony, Mr. Chairman, I 
wanted to commend you and the members of the committee for your 
willingness to work with your colleagues and a group of peanut 
leaders to develop a new and more globally market-oriented 
competitive peanut program. It was a true challenge, as you 
mentioned earlier, but I feel like I experienced many of the 
same things you did and I feel like we are on the right road.
    However, I am not here today to say that the implementation 
has been flawless. The new peanut program can be viewed as 
being successful on the domestic front. In fact, one can 
observe market forces at work in the peanut sector. There have 
been significant changes in cropping patterns. Areas have 
shifted from peanut production while other areas have expanded. 
We have new areas that have never grown peanuts before. As a 
matter of fact, when you look at some of the data, we have had 
some grown up in Idaho and Wisconsin, some of these other 
places, New Jersey. Basically, what that is, peanut producers 
are responding to market signals.
    During the 1990's, domestic peanut consumption was 
basically viewed as being relatively stagnant. However, the new 
peanut program, which included the lowering of the peanut 
price, has allowed the domestic peanut industry to be 
competitive in the marketplace. Since 2002, U.S. total peanut 
domestic consumption has increased by 16.5 percent.
    With the passage of the trade agreements in the 1990's, the 
peanut imports were increasing significantly, reaching a high 
of approximately 100,000 tons of farmer-stalked peanuts, which 
exceeded the production and sale of our peanut-producing States 
in 2001. The new peanut program allowed the domestic industry 
to compete with these imports. In 2005, our peanut import level 
dropped approximately 83 percent. This clearly indicates the 
U.S. peanut industry can compete and be successful.
    While the U.S. peanut industry can be successful in the 
domestic market, this does not hold true for the international 
market. The U.S. peanut industry used to have over 30 percent 
of the world peanut trade. In 2005, the industry had 
approximately 13 percent of the world trade. If one looks at 
the trends since 1992, the U.S. peanut export volume has 
dropped 54 percent.
    The problem does not lie with the peanut program itself. 
Rather, the problem exists due to the method USDA is using to 
implement the language of the law.
    U.S. peanut exports are highly dependent on a National 
Posted Price set by USDA. For the 2005 crop year, 98 percent of 
the crop moved through the loan program. The majority of the 
peanut crop moving through the loan has an option contract 
between the farmer and the sheller. If the sheller exercises 
the option, the price paid to the farmer is the loan repayment 
rate, which is the lesser of the National Posted Price or the 
loan rate. Thus, in reality, USDA is setting the market price 
for farmers.
    USDA commissioned a third-party study for recommendations 
on calculating the National Posted Price. This study 
recommending using the shelled peanut prices between shellers 
and processors as the key factor. The shelled peanut prices are 
the only prices determined from a competitive market 
environment.
    In contrast, the USDA NASS peanut prices reported have 
serious flaws. The prices they collect do not necessarily 
reflect the price that farmers actually receive for the peanut 
crop. Furthermore, there is no separation of prices by peanut 
type, which is critical.
    Thus, shelled peanut prices should be the major factor in 
the calculation as recommended by the USDA third-party study. 
This would be a step in the right direction in improving our 
recapturing our export market.
    How does the peanut program work in terms of a safety net 
for peanut farmers, which is a key component of the program? To 
address this issue, the Peanut Center has 11 peanut 
representing farms from the Southeast and is working with the 
Ag Food Policy Center at Texas A&M, utilizing their FLIPSIM 
model. On a side note, we have expanded it out to 19 farms 
representing all the peanut regions in the United States.
    In the fall of 2004, the overall economic viability of 
these farms over the period of 2005 through 2010 was relatively 
good. However, this past week, the Peanut Center reexamined 
these farms using the January 2006 baseline information that 
basically comes from FAPRI and eliminating storage and handling 
for the 2007 through 2010 crop years. Only one representative 
farm was in the ``good'' classification of overall economic 
viability. One farm was in ``moderate'' and nine farms were in 
``poor'' classifications. The primary factors were the 
elimination of storage and handling fees, energy costs, and 
interest rates. This does not paint a good picture for the 
long-term health of Southern agriculture and peanut farming.
    This concludes my testimony. Thank you very much.
    Chairman Chambliss. Thank you.
    [The prepared statement of Mr. Fletcher can be found in the 
appendix on page 48.]
    Chairman Chambliss. Mr. Plowden?

 STATEMENT OF EVANS J. PLOWDEN, JR., GENERAL COUNSEL, AMERICAN 
       PEANUT SHELLERS ASSOCIATION, INC., ALBANY, GEORGIA

    Mr. Plowden. Thank you, Mr. Chairman. I know everybody has 
talked about how good this program is in comparison to the last 
one and I don't want to be redundant, but I just am compelled 
to say to you particularly, because I know you played a large 
role in converting this industry from the old supply management 
program to a new viable program, we were before, as you know--
and when I say ``we,'' I talk about the entire industry, 
growers, buying points, shellers, and manufacturers--we were 
stagnant at best and dying at worst and we are no longer. We 
are viable. We are growing. We have had some good years with 
consumption and we feel very good about the industry. I think 
you deserve credit, this committee deserves credit and Congress 
does overall. It has been a real success story. So I don't want 
to minimize that.
    We have got a problem. Everybody has talked about the 
problem. Mr. Gaibler talked about it. Dr. Fletcher talked about 
it, and I can't but do but talk about it myself, and that is 
the National Posted Price. It is a problem.
    In the early years of this program, we had an empty 
pipeline. We had increasing domestic demand. The export market 
then in those years was not all that important. Our increasing 
demand, our empty pipeline that needed filling masked the 
problems with the National Posted Price at that time.
    We now have a full pipeline. In fact, some would say the 
pipeline is double-full. Demand has leveled. I don't mean to 
paint a poor picture of demand. Demand is good, but we could 
not expect the dramatic increases that we saw in the early 
years to continue. So the demand has leveled. The pipeline is 
over-full. Plantings have increased. Farmers have found that 
peanuts are a good crop for them to grow in areas that perhaps 
did not grow them before.
    So now, we don't have anything--we don't have these boom 
times that are covering up the difficulties with the National 
Posted Price. We have got to sell more peanuts. Farmers are 
growing more peanuts. That is a good situation. We don't want 
to be satisfied with a stagnant situation. Two-hundred-and-
fifty thousand tons in the export market, we are not satisfied 
to sit on 250,000 tons. We need to grow it. Farmers are growing 
peanuts. We have got to sell them here or overseas and we 
believe the National Posted Price is too high to do that.
    It is interesting, a number of us have followed the WTO 
negotiations, the Doha Round, and it is interesting that 
Ambassador Portman, Ambassador Crowder, Under Secretary Penn, 
Secretary Johanns are working tirelessly for market access for 
U.S. agricultural products. Well, fortunately, that is just not 
a problem with peanuts in our market. We have market access to 
our major and significant markets.
    Our problem, if you want to call it a market access 
problem, our problem is our price. We can't be as competitive 
as we need to be to move the peanuts that are being grown and 
we need a posted price that is going to allow that to grow. Our 
competitors, particularly China, have a market price that is 
less than ours and we simply have to be competitive.
    We believe, and I think this committee believes, that its 
language in the statute, that the posted price was to be one 
that would allow peanuts to be marketed competitively 
domestically and internationally, was a direction to do just 
that and we do not believe that it has accomplished what the 
statute seems to demand.
    The Chairman alluded to this a little earlier. The market 
price for shelled peanuts since about mid-January has been 
declining, in some weeks declining fairly dramatically. At the 
same time, the National Posted Price, which is the price, like 
it or not, that affects the end price, has been rising 
significantly. That is just a situation that won't work. I 
think you don't need an economics degree to know that won't 
work in the end.
    I don't attribute ill motives to anybody in setting the 
posted price. I know it is difficult. It would be easy if there 
were a futures market, but there is not. We have kind of got to 
take this industry as we find it. We can't simply change the 
entire system to suit the methodology of setting the posted 
price. We are going to have to adapt the methodology of setting 
the posted price to the system that exists. It may change over 
time, but we have got to dance with the one that brung us here 
today. This is the system that we have.
    Now, I am compelled to say one other thing, Mr. Chairman 
and Senator Lugar, that I think is simply incorrect that has 
been stated in this hearing today and that is two things about 
options that growers sign with buyers of peanuts. It has been 
stated repeatedly that the option requires growers to place 
their peanuts in the marketing loan and that the option gives 
the buyer the right to redeem the peanuts and pay off the loan. 
Both of those are simply incorrect.
    I have seen a number of options. I have been fortunate 
enough to be asked to draw one or two. And I have never seen an 
option that gives the buyer or the person holding the option 
the right to place the peanuts in the loan. Similarly, I have 
never seen an option that gives the buyer the right to redeem 
those peanuts. In fact, I would suspect that if a grower 
actually contractually agreed to place the peanuts in the loan, 
there would be a beneficial interest issue and, therefore, 
ineligible for market loans. So I don't want the committee to 
leave with the impression that these option contracts between 
growers and buyers require the growers to put peanuts into 
loans. That simply is not the case.
    I see my red light blinking, Mr. Chairman, and I will hush 
at this point.
    Chairman Chambliss. Thank you, before I raise the gavel on 
you. But being a lawyer like you and you being my dear friend, 
I appreciate your concluding your comments at this time. We 
will talk some more about that issue, though.
    [The prepared statement of Mr. Plowden can be found in the 
appendix on page 52.]
    Chairman Chambliss. Mr. Rasor?

STATEMENT OF GARY RASOR, CONSULTANT, ON BEHALF OF THE AMERICAN 
   PEANUT PRODUCT MANUFACTURERS, INC., AND THE J.M. SMUCKER 
                     COMPANY, RITTMAN, OHIO

    Mr. Rasor. Thank you. I don't wish to be redundant, either, 
but being the last person to give testimony, I am going to be 
redundant.
    The APPMI members who I represent here have always 
preferred to buy U.S.-owned peanuts and were appreciative of 
this new farm bill, which allows us to purchase these U.S. 
peanuts without limitation. We believe the new marketing loan 
program has worked extremely well and we strongly support this 
new program for peanuts. It was designed to make the U.S. 
peanut industry more competitive and we feel it has succeeded 
in doing so.
    We believe the program has served the entire peanut 
industry by making each segment more efficient. These 
efficiencies have allowed the manufacturers to maintain, and in 
some cases reduce, our prices in the face of sharp increases in 
other areas, such as energy and packaging. The program has also 
allowed the manufactures to expand advertising and promotion of 
peanut products and created a compelling incentive to develop 
new peanut products.
    The new program has led to remarkable increases in both 
U.S. peanut production and peanut consumption. According to 
USDA's Stocks and Processing Report, total peanut usage has 
increased by almost 32 percent since the implementation of the 
new program in 2002. Increased peanut product consumption is 
great news for our peanut industry. We believe the usage is up, 
at least in part due to the additional advertising of peanut 
products, the introduction of a number of new products using 
peanuts, and a more favorable impression of peanuts among 
consumers. Industry research and promotion have touted the 
nutritional benefits of peanuts and peanut butter and consumers 
are increasingly recognizing them and recognizing the halo over 
peanuts today.
    The peanut program has delivered clear benefits to the 
entire industry and the transition into this new program has 
gone smoother than any of us had anticipated. However, we want 
to also take this opportunity to discuss the issue of 
establishment of the repayment rate. We think this committee 
needs to closely examine the process that USDA is using to 
establish this since the current approach for setting the 
weekly price appears to be not including or not factoring in 
the world market price, as it does for cotton, rice, and other 
commodities.
    The approach has undermined the export market for U.S. 
peanuts, which has dropped by 40 percent since the 
implementation of this new program. The statute sets forth 
clear criteria for administering the repayment rate, and 
unfortunately, the Department has failed to recognize all of 
these key factors and its less-than-transparent approach has 
caused much frustration and confusion among all segments of the 
industry. We feel greater transparency in the method of 
establishing the National Posted Price would allow our industry 
to improve the decisionmaking process.
    Simply put, we feel we need an approach that is easily 
understood and of use to the entire peanut industry and we also 
would be willing to work with this committee, USDA, and the 
rest of the peanut industry to help develop a solution to what 
has become a 3-year concern about this repayment rate.
    The second area we would like to mention is our support for 
the extension of the payment of handling and storage costs. As 
you all know, the government payment for these costs expires at 
the beginning of the 2007 crop. Peanuts are a semi-perishable 
crop, requiring adequate storage to maintain their viability as 
an edible commodity. To protect the producers and allow orderly 
marketing, adequate storage and handling are necessary. The 
peanut handling and storage feature has been an important part 
of the loan program and we feel should be restored for the 2007 
crop and included in the peanut provisions of the next farm 
bill.
    In summary, we think this peanut program is an excellent 
program. It has sparked greater industry competition. It has 
spurred innovation for new products and increased overall 
peanut consumption. And all segments of the peanut industry--
the growers, the shellers, the manufacturers, and the allied 
partners--are unified in our support of each other and in our 
support of the current peanut program. We hope you will 
consider these minor modifications that we have suggested, as 
we all speak with one voice.
    Chairman Chambliss. Thank you, Mr. Rasor, and thanks, Mr. 
Plowden and Dr. Fletcher.
    [The prepared statement of Mr. Rasor can be found in the 
appendix on page 56.]
    Chairman Chambliss. You all talked around it a little bit, 
but I want to see if we can narrow this down and be specific 
relative to the factors that need to be considered in trying to 
establish this National Posted Price. Starting with you, Dr. 
Fletcher, can you just sort of succinctly give us your thoughts 
of really how is the best way to establish this National Posted 
Price?
    Mr. Fletcher. Mr. Chairman, I think that is why we have 
been kind of dancing around it. There is no clear formula. I 
have spent many years looking at this, trying to sort through 
this, and have been asked many times. In my testimony, I do not 
believe using the USDA's NASS price numbers are an accurate 
reflection. There are serious flaws in those numbers. They 
don't actually reflect what farmers are receiving.
    There is the data that came from the 1007s that tell you 
what the farmers received for their peanuts, you know, the 1007 
forms, but in the market situation, that, to me, is where I 
think those shelled market prices--which is what that third-
party study that USDA recommended, that they should go down 
that path. And the interesting thing is that during the trade 
negotiations in the United States International Trade 
Commission, which does the analysis for USTR, used shelled 
prices to convert back to what would be for farmer stock when 
they calculated the AMS to figure what would be in the green 
box.
    So, to me, those numbers should be the major weight because 
that is showing what is, you know--because the peanut is not 
homogeneous. It is a product that is being used in the process 
of manufacturing a food product. Either it can be--or it 
maintains its integrity like it is. That is the market where 
you get that information and that is where I think should be 
the key component of it.
    Looking at what the contracts, because those contracts are 
signed and which are reported on the 1007, the prices, those 
could be entered into them. For some reason, the USDA does not 
want to use the 1007s. And so I think that should be the key 
aspect in this. The ITC was using it with USTR in our trade 
negotiations. Then that should be a key basis to it.
    Chairman Chambliss. Evans?
    Mr. Plowden. Mr. Chairman, we think there are two 
possibilities that would greatly improve what is being done 
now. The first is if you have a true open, public market, known 
market, and we do have that in part of the time. CCC has 
contracted with an organization in Memphis, Tennessee, called 
the SEAM that, in fact, auctions to anybody wishing to 
participate in that auction, auctions CCC-owned peanuts. Those 
prices are competitive to all comers at the time. They are 
accurate at the time, not a year ago.
    We have seen those auctions in the fall. CCC decided for 
reasons I am not aware of to suspend them for a while and they 
began again in, I believe, January of this year and continued 
through perhaps March, when they had sold their peanuts, or 
sold all their stocks of peanuts. So that is an open market 
auction system that provides some pretty good data.
    Now, when that is not available within some reasonable time 
period, we believe that the Department could inquire of people 
that are in the business--the buyers of peanuts, people that 
buy peanuts from farmers, what they are paying at the time in a 
cash market if it existed, which it often doesn't, or what they 
would pay based on their judgment of the shelled market at the 
time, what they would pay for farmer stock peanuts at the time. 
So those are two methodologies that we think would greatly 
improve the current situation.
    I know you understand that we have a circumstance today 
where the National Posted Price is, in fact, the farmer stock 
price, and it will always be that unless the market gets above 
the loan rate. So to report the NASS price is not the true 
reflection of what the market is today. It is a reflection of 
what the Department of Agriculture has set the National Posted 
Price, but we can get into a dog chasing its tail there and 
that is about what we have.
    In summary, we would suggest that the SEAM be significant 
credit when those--we use the SEAM prices in a significant 
manner when those prices are available within some reasonable 
time period, and if they are not, we inquire of buyers of 
peanuts what they would pay in their view of the current 
market.
    Chairman Chambliss. Mr. Rasor?
    Mr. Rasor. I don't think I have anything additional to add. 
The SEAM does seem to be the most logical approach if that 
information is available. The second part, trying to get the 
shellers to report what actual trades are with the growers, is 
the ideal, but I imagine that has got its difficulties, too.
    Chairman Chambliss. Dr. Fletcher, you talked about the 
decrease in the percentage of export market going from 30 
percent to 13 percent. Maybe I should be, but I am not as 
alarmed over that number as I might otherwise be because of the 
change in the program and because of the fact that we now have 
less imports coming in. I think that has got to have a direct 
impact on our percentage of the export market. Plus, how much 
of that is attributable to just the fact that the export market 
worldwide has grown? You have got China and Argentina as major 
players in that market now.
    Mr. Fletcher. The market has expanded, and while you may 
say the percentage, I was looking at, like when you talk about 
the volumes, our volume is not as much as it used to be back in 
the 1980's and 1990's.
    I do think, as I try to track the world prices, it always 
seems to be that Argentina and China always stay a certain 
percentage below our price so they can work in. But when you 
deal with a good quality product, you have to be competitive 
out there and it basically comes down to price. A lot of the 
European buyers, I have heard many of them say that, you know, 
if they were a little bit cheaper. They are looking at their 
bottom line, just like corporate America is. So we are 
basically priced out of the markets.
    I think that has hurt us where we could be expanding, 
because basically there have been studies by ARS on peanut 
quality, as you mentioned earlier about U.S. quality. They have 
shown that even the European consumers prefer U.S. peanuts over 
Argentina or China. So we have that, but if we keep our prices 
where we can't enter into it, we lose them, and once you lose a 
market, it is hard to recapture it.
    Chairman Chambliss. If we saw a reduction in the price of 
our peanuts worldwide, do you see that as, under the current 
system, as being a benefit to farmers?
    Mr. Fletcher. The way the current program is, the price 
being lowered given what it is today, it probably will not 
impact the farmers any more one way or the other, but it will 
help improve our shares, and if we get the markets out there 
where there is more demand, and some of the companies over in 
Europe found out that, really, the U.S., they need to stay with 
it because just like the domestic manufacturers say they prefer 
U.S. peanuts because there is a certain quality and a known, 
reliable supply that reduces their total manufacturing costs. 
Once we get that recaptured, then hopefully that will build a 
market where then the demand will increase enough that there 
will be an increase in price down in the long run.
    Chairman Chambliss. Who are our primary countries that we 
now export peanuts to?
    Mr. Fletcher. Our primary ones are Canada, Mexico, and 
Europe. Those are the three primary ones----
    Chairman Chambliss. Has that changed since the 2002 farm 
bill?
    Mr. Fletcher. Our Mexican imports have increased more. I 
think our Canadian exports have increased some where we have 
pushed out with our pricing now that we have for domestic. We 
were allowed to recapture some of that, just like we are 
recapturing our domestic market. Canada was using a lot of 
foreign peanuts, but now they have kind of shifted back into 
the U.S. because of the pricing and knowing arrival supply and 
the quality of it.
    Chairman Chambliss. Mr. Plowden, you talked about the fact 
that contracts don't give the buyer the right to redeem the 
peanuts out of the loan, and I understand that that probably is 
not in the contract, but let us look at this as a practical 
matter. Is that, in fact, what is actually happening, though, 
and is an unintended consequence of the program?
    Mr. Plowden. I am not sure I would classify it as a 
consequence of the program, Mr. Chairman, but in fact, what 
farmers often do is give powers of attorney to somebody else to 
handle the paperwork associated with the loan or other FSA 
matters. And so we do often see a farmer choose to give a power 
of attorney to a buyer of the peanuts to repay that loan. Yes, 
that is often the case. But it is not a contractual 
requirement. If the farmer chooses not to give a power of 
attorney, then that is fine. The farmer then has to do his own 
redemption.
    Chairman Chambliss. Who are the buyers at these CCC sales 
and are they different than the buyers in the normal open 
market?
    Mr. Plowden. I think that they are similar, Mr. Chairman. 
If there are any buyers other than the typical buyers, I am not 
aware of it. Now, let me say that we have seen in the peanut 
industry droughts and shortages. I think we would see other 
buyers enter the market with the SEAM if that should occur. But 
under SEAM sales ever since August of 2005, I think the buyers 
from the SEAM are similar to the buyers--or the same, frankly. 
Now, that does not mean that a buyer buys the same peanuts that 
are in a warehouse associated with that buyer. There is a lot 
of cross--a lot of people buying different peanuts stored in 
different places. But the buyers are the same, yes.
    Chairman Chambliss. The storage and handling fee is an 
issue that we have talked a lot about here today, particularly 
Mr. Gaibler gave a reference to it significantly in his 
testimony and says that he thinks maybe the elimination of that 
for the 2006-2007 crop as currently contemplated by the farm 
bill is the direction to go. If that does happen, let us talk 
about, from a practical standpoint, what will happen. Today, 
the storage and handling fee is paid under the program and it 
is paid basically to the buyer. Would that be a fair statement?
    Mr. Plowden. It is paid to the warehouse operator, Mr. 
Chairman. To the degree that the buyer operates the warehouse, 
that would be the same. To the degree that the warehouse is 
operated by an independent entity, then that independent entity 
ends up with it one way or another. The payment may, in fact, 
go to the buyer of the peanuts and then they settle in some 
fashion with the independent warehouse operator.
    Chairman Chambliss. And if that payment is not made under 
the program in the next 2 years, what is going to happen to the 
price that the buyer is willing to pay for peanuts to the 
farmer?
    Mr. Plowden. Mr. Chairman, storage and handling are real 
costs. This is not some fuzzy ghost cost out there. It is a 
real cost, a significant portion of which goes to Federal 
inspectors to inspect the peanuts. The grading system in 
peanuts is costly, so there are significant real costs with 
handling. There are significant real costs with storage. These 
warehouses are expensive, as you know. So somebody has got to 
pay those costs.
    It would seem to me, just from Economics 101, that if we 
are in a surplus market, that it is going to be more likely 
that the seller of the peanuts, in this case the farmer, is 
going to have to incur some of those costs. The warehouse 
operator is not going to store them for free, not going to pay 
the inspectors out of their own pocket. So if we have got a 
growing market for peanuts that are in a surplus situation and 
we are not expanding our export markets, then I think the 
economic situation would say that the grower is going to incur 
those costs.
    Now, if that produces a situation that the grower finds 
uneconomical, then I suppose the grower will stop producing 
peanuts, which may at some time in the future create a shorter 
market, in which case goodness knows who will pay that. 
Shellers may pay it. Manufacturers may pay it. It is very 
difficult to predict. But the consequences of that would be one 
of those supply situations that we had before.
    I don't want to wear out my time, Mr. Chairman, but I don't 
want to give an incomplete answer, either. What we don't want 
to see is a supply situation that lurches from shortages to 
surpluses. One of the things that is so helpful in our gaining 
consumption in this country, and Mr. Rasor is more qualified to 
talk about it than I am, but is some assurance of supply so we 
are not going to lurch from these shortages to surpluses that 
we have sometimes incurred in the past.
    I say that, yes, if we are in a surplus market, probably 
the pressure is going to be on the farmer to pay some of that. 
But we don't want to get the farmer down to an uneconomical 
situation so that the supply is in danger.
    Chairman Chambliss. Dr. Fletcher, you heard Mr. Gaibler 
talk about a recommendation coming out of the Department to 
reduce the storage time from, or the loan time from 9 months to 
6 months. What effect do you think that would have on the 
market if that were to be the case?
    Mr. Fletcher. Basically, I don't think that is going to 
really have a major impact on the market. I think it is just 
the way the crop is put in, that they will just adjust to it 
and just the seam within where the forfeitures, if they come, 
will come at an earlier time. I don't see, you know, it may 
help some of the warehousemen where they have to, like in the 
old program if you clean out the warehouse and be ready so they 
can move that crop out of there so they can be ready for the 
new one. But I don't see it is going to add a lot of economic, 
you know, in terms of budget savings, because basically the 
average loan on some of our surveys has been about five or 6 
months anyway for peanuts, or the average length of time from 
the surveys we have done, you know, the Peanut Center has. So I 
don't see a lot of impact.
    Chairman Chambliss. Mr. Plowden, any comments from your 
segment of the industry on that?
    Mr. Plowden. I would simply add that cleaning out the 
warehouses may be more theoretical than actual. What we have 
seen is when peanuts are forfeited, the CCC does not 
necessarily move quickly to sell them. The peanuts that were 
sold in March were undoubtedly forfeited many, many months ago. 
So moving the deadline to June 30 or wherever it might be 
simply means that the peanuts are no longer owned by the farmer 
if they forfeited. They are owned by the CCC. The CCC requires 
a contract with every warehouse operator that gives them the 
right to keep the peanuts there for a very long time. So it may 
clean out and it may not. History has not been particularly 
favorable that they will move out expeditiously.
    Chairman Chambliss. And the CCC, I assume, has got to make 
those storage payments in the interim?
    Mr. Plowden. That is correct.
    Chairman Chambliss. Mr. Rasor, do you see a reduction from 
9 months to 6 months having any impact on the manufacturing 
side?
    Mr. Rasor. No. I struggle with the problem still seems to 
be the fact that the peanuts are sitting in the loan, sitting 
there too long, and I think that the repayment rate issue, and 
I think the sooner you can move those peanuts out and recapture 
our foreign market, the better off the whole industry is going 
to be. So I think if you can get that repayment rate realistic 
early enough in the year and get the peanuts back in the export 
market.
    Chairman Chambliss. But from the manufacturers' standpoint, 
supply and demand is going to dictate when you buy peanuts and 
how much you buy----
    Mr. Rasor. That is correct.
    Chairman Chambliss [continuing]. Irrespective of the time 
for the loan.
    Mr. Rasor. That is correct.
    Chairman Chambliss. Dr. Fletcher, in your written 
statement, you stated that the peanut consumption in the U.S. 
has risen by 16.5 percent since 2002. Do you think that is 
strictly a result of the lower domestic prices or the other 
influencing factors, and do you see any trends?
    Mr. Fletcher. Yes. The price had a significant impact, 
which helped make the products competitive and helped the 
manufacturers be competitive with their products. Also, what it 
did was it freed up where there was more research and 
development going on by the manufacturers and other sectors of 
new peanut products. We have had many new peanut products out 
there for the consumer to consume.
    Also, at the same time, there has been a lot more research 
that has been done that has been coming out about the benefits, 
the health benefits of peanuts. We have had the National Peanut 
Board with the generic promotion that has put a lot of effort 
about getting peanuts back on the mind of the consumers. But 
basically, if it is not out there in the minds of consumers, 
they are not going to consume the product. But price was 
considered the key significant aspect that has helped turn this 
thing around, plus the other aspects of the program that opened 
it up so we could compete.
    Chairman Chambliss. Mr. Rasor, you mentioned that, in your 
opinion, the storage and handling issue is a critical issue and 
it should be continued. From a manufacturer's perspective, is 
there any level of confidence in purchasing peanuts, any 
greater level of confidence in purchasing peanuts that have 
been stored in a warehouse versus peanuts that have been stored 
on the farm?
    Mr. Rasor. Definitely, yes. I don't think it is realistic 
to even think that you could have on-farm storage of a 
perishable commodity like peanuts.
    Chairman Chambliss. I am inclined to agree with you.
    Gentlemen, I may have some more written questions that I 
want to submit to you. Unfortunately, we have got a vote on and 
I have got about 2 minutes left to get over there. So at this 
time, I think we are going to conclude the hearing.
    Let me say to each of you that, again, I appreciate your 
willingness to come up and take your time and give us your 
opinions about how we can improve the program once again as we 
move into the 2007 farm bill. We do have some challenges here 
and you guys are on the ground every day with this, as are 
Armond and Jimbo, and we want to continue to dialog with you 
and make sure that we continue to do the right things relative 
to the peanut program.
    So I thank you for being here, and at this time, this 
hearing will be concluded.
    [Whereupon, at 11:15 a.m., the committee was adjourned.]
      
=======================================================================


                            A P P E N D I X

                              May 2, 2006



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

[GRAPHIC] [TIFF OMITTED] T0238.001

[GRAPHIC] [TIFF OMITTED] T0238.002

[GRAPHIC] [TIFF OMITTED] T0238.003

[GRAPHIC] [TIFF OMITTED] T0238.004

[GRAPHIC] [TIFF OMITTED] T0238.005

[GRAPHIC] [TIFF OMITTED] T0238.006

[GRAPHIC] [TIFF OMITTED] T0238.007

[GRAPHIC] [TIFF OMITTED] T0238.008

[GRAPHIC] [TIFF OMITTED] T0238.009

[GRAPHIC] [TIFF OMITTED] T0238.010

[GRAPHIC] [TIFF OMITTED] T0238.011

[GRAPHIC] [TIFF OMITTED] T0238.012

[GRAPHIC] [TIFF OMITTED] T0238.013

[GRAPHIC] [TIFF OMITTED] T0238.014

[GRAPHIC] [TIFF OMITTED] T0238.015

[GRAPHIC] [TIFF OMITTED] T0238.016

[GRAPHIC] [TIFF OMITTED] T0238.017

[GRAPHIC] [TIFF OMITTED] T0238.018

[GRAPHIC] [TIFF OMITTED] T0238.019

[GRAPHIC] [TIFF OMITTED] T0238.020

[GRAPHIC] [TIFF OMITTED] T0238.021

[GRAPHIC] [TIFF OMITTED] T0238.022

[GRAPHIC] [TIFF OMITTED] T0238.023

[GRAPHIC] [TIFF OMITTED] T0238.024

[GRAPHIC] [TIFF OMITTED] T0238.025

[GRAPHIC] [TIFF OMITTED] T0238.026

[GRAPHIC] [TIFF OMITTED] T0238.027

[GRAPHIC] [TIFF OMITTED] T0238.028

[GRAPHIC] [TIFF OMITTED] T0238.029

[GRAPHIC] [TIFF OMITTED] T0238.030

[GRAPHIC] [TIFF OMITTED] T0238.031

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


                   DOCUMENTS SUBMITTED FOR THE RECORD

                              May 2, 2006



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

[GRAPHIC] [TIFF OMITTED] T0238.032

[GRAPHIC] [TIFF OMITTED] T0238.033

[GRAPHIC] [TIFF OMITTED] T0238.034

[GRAPHIC] [TIFF OMITTED] T0238.035

[GRAPHIC] [TIFF OMITTED] T0238.036

[GRAPHIC] [TIFF OMITTED] T0238.037

[GRAPHIC] [TIFF OMITTED] T0238.038

[GRAPHIC] [TIFF OMITTED] T0238.039

[GRAPHIC] [TIFF OMITTED] T0238.040

                                 
