[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
      REVIEW OF THE IMPACT OF FEED COSTS ON THE LIVESTOCK INDUSTRY

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


                                HEARING

                               before the

             SUBCOMMITTEE ON LIVESTOCK, DAIRY, AND POULTRY

                                 of the

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 8, 2007

                               __________

                           Serial No. 110-04


          Printed for the use of the Committee on Agriculture
                         agriculture.house.gov



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                        COMMITTEE ON AGRICULTURE

                COLLIN C. PETERSON, Minnesota, Chairman
TIM HOLDEN, Pennsylvania,            BOB GOODLATTE, Virginia,
  Vice Chairman                        Ranking Minority Member
MIKE McINTYRE, North Carolina        TERRY EVERETT, Alabama
BOB ETHERIDGE, North Carolina        FRANK D. LUCAS, Oklahoma
LEONARD L. BOSWELL, Iowa             JERRY MORAN, Kansas
JOE BACA, California                 ROBIN HAYES, North Carolina
DENNIS A. CARDOZA, California        TIMOTHY V. JOHNSON, Illinois
DAVID SCOTT, Georgia                 SAM GRAVES, Missouri
JIM MARSHALL, Georgia                JO BONNER, Alabama
STEPHANIE HERSETH, South Dakota      MIKE ROGERS, Alabama
HENRY CUELLAR, Texas                 STEVE KING, Iowa
JIM COSTA, California                MARILYN N. MUSGRAVE, Colorado
JOHN T. SALAZAR, Colorado            RANDY NEUGEBAUER, Texas
BRAD ELLSWORTH, Indiana              CHARLES W. BOUSTANY, Jr., 
NANCY E. BOYDA, Kansas                   Louisiana
ZACHARY T. SPACE, Ohio               JOHN R. ``RANDY'' KUHL, Jr., New 
TIMOTHY J. WALZ, Minnesota               York
KIRSTEN E. GILLIBRAND, New York      VIRGINIA FOXX, North Carolina
STEVE KAGEN, Wisconsin               K. MICHAEL CONAWAY, Texas
EARL POMEROY, North Dakota           JEFF FORTENBERRY, Nebraska
LINCOLN DAVIS, Tennessee             JEAN SCHMIDT, Ohio
JOHN BARROW, Georgia                 ADRIAN SMITH, Nebraska
NICK LAMPSON, Texas                  KEVIN McCARTHY, California
JOE DONNELLY, Indiana                TIM WALBERG, Michigan
TIM MAHONEY, Florida
                                 ------                                

                           Professional Staff

                    Robert L. Larew, Chief of Staff
                     Andrew W. Baker, Chief Counsel
           William E. O'Conner, Jr., Minority Staff Director
                                 ------                                

             Subcommittee on Livestock, Dairy, and Poultry

                   LEONARD L. BOSWELL, Iowa, Chairman
KIRSTEN E. GILLIBRAND, New York      ROBIN HAYES, North Carolina,
STEVE KAGEN, Wisconsin                 Ranking Minority Member
TIM HOLDEN, Pennsylvania             MIKE ROGERS, Alabama
JOE BACA, California                 STEVE KING, Iowa
DENNIS A. CARDOZA, California        VIRGINIA FOXX, North Carolina
NICK LAMPSON, Texas                  K. MICHAEL CONAWAY, Texas
JOE DONNELLY, Indiana                JEAN SCHMIDT, Ohio
JIM COSTA, California                ADRIAN SMITH, Nebraska
TIM MAHONEY, Florida                 TIM WALBERG, Michigan
                                 ------                                
              Chandler Goule, Subcommittee Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Boswell, Hon. Leonard L., a Representative in Congress from the 
  State of Iowa, Opening statement...............................     1
    Prepared statement...........................................    40
Hayes, Hon. Robin, a Representative in Congress from the State of 
  North Carolina, Opening statement..............................     3
Peterson, Hon. Collin C., a Representative in Congress from the 
  State of Minnesota, Opening statement..........................     5
Goodlatte, Hon. Bob, a Representative in Congress from the State 
  of Virginia, Opening statement.................................     6
Baca, Hon. Joe, a Representative in Congress from the State of 
  California, Prepared statement.................................    46
Kagen, Hon. Steve, a Representative in Congress from the State of 
  Wisconsin, Prepared statement..................................    43
Lampson, Hon. Nick, a Representative in Congress from the State 
  of Texas, Prepared statement...................................    48

                               WITNESSES

Conner, Hon. Chuck, Deputy Secretary, U.S. Department of 
  Agriculture, accompanied by Dr. Joe Glauber, Deputy Chief 
  Economist, U.S. Department of Agriculture, Oral statement......     8
    Prepared statement...........................................    78
Morales, Ernie, Member, National Cattlemen's Beef Association, 
  Texas Cattle Feeders Association, Devine, Texas, Oral statement    21
    Prepared statement...........................................    95
Wonderlich, Rob, Dairy Farmers of America, Ollie, Iowa, Oral 
  statement......................................................    23
    Prepared statement...........................................   100
Philippi, Joy, Immediate Past President, National Pork Producers 
  Council, Bruning, Nebraska, Oral statement.....................    24
    Prepared statement...........................................   105
Seger, Ted, Farbest Foods, Inc., Huntingburg, Indiana, Oral 
  statement......................................................    26
    Prepared statement...........................................   115
Herman, Matthew, Complex Manager, Tyson Foods, on behalf of 
  National Chicken Council and North Carolina Poultry Federation, 
  Monroe, North Carolina, Oral statement.........................    28
    Prepared statement...........................................   122
Truex, Ron, President and General Manager, Creighton Brothers, 
  LLC, on behalf of United Egg Producers, Atwood, Indiana, Oral 
  statement......................................................    29
    Prepared statement...........................................   130
Shurson, Gerald, Professor, Department of Animal Science, 
  University of Minnesota, St. Paul, Minnesota, Oral statement...    31
    Prepared statement...........................................   134

                           SUBMITTED MATERIAL

The American Feed Industry Association, Renewable Fuels 
  Association, and National Corn Growers Association from 
  Arlington, Virginia, submitted material........................    59


  HEARING TO REVIEW THE IMPACT OF FEED COSTS ON THE LIVESTOCK INDUSTRY

                              ----------                              


                        THURSDAY, MARCH 8, 2007

                  House of Representatives,
      Subcommittee on Livestock, Dairy and Poultry,
                                  Committee on Agriculture,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
room 1302 of the Longworth House Office Building, Hon. Leonard 
L. Boswell [chairman of the Subcommittee] presiding.
    Members present: Representatives Boswell, Kagen, Holden, 
Baca, Cardoza, Lampson, Donnelly, Costa, Mahoney, Peterson (ex 
officio), Hayes, King, Schmidt, Smith, Walberg, and Goodlatte 
(ex officio).
    Staff present: Chandler Goule, Scott Kuschmider, Rob Larew, 
John Riley, Sharon Rusnak, April Slayton, Debbie Smith, Kristin 
Sosanie, John Goldberg, Alise Kowalski, Josh Maxwell, Pam 
Miller, Pete Thomson, and Jamie Weyer.

   STATEMENT OF HON. LEONARD L. BOSWELL, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF IOWA

    Mr. Boswell. We will call the meeting to order and I see we 
have got quite a gallery out there today that we welcome, and 
there is so much going on today, you may be a little bit 
chagrined about where is everybody? Well, there is more stuff 
going on, whether it is Walter Reed or here or wherever and it 
is quite a bit of activity. And as you know, everything is 
recorded and available to our members and they will have access 
to what you have to say and what the give and take will be and 
so on. But I just want to start off with welcoming you here, 
Mr. Secretary, and I am going to make a few comments and then 
of course we will call on my friend and colleague, Mr. Hayes, 
as the ranking member, to share and then we will hear what you 
have to say and go from there.
    But I appreciate everybody for being here. It is a 
challenging time and I find when I go back to my district 
across the country and talking to people at USDA, as I have 
before and now and we will continue this, and talking with 
dairy farmer, who is going on the next panel, Mr. Wonderlich is 
here and I have been to his farm. He is doing things quite a 
bit different than my dairy experience, but we will talk about 
that later. We did it the way we did it in those days, but it 
has changed. The feed costs have gone up so dramatically and as 
expected, it has got us all stirred up. People out there wonder 
how in the world they are going to be able to make it work and 
et cetera and so on. So we just felt like it was appropriate 
talking with Congressman Hayes about this. It kind of helps for 
me and I think, for him. I will let him speak for himself, of 
course, but we are friends. We have sat together in the cockpit 
a time or two and we will do it, I am sure, in the future. We 
have set out and took a shot at a bird together a time or two. 
We have sat on the Aviation Committee together and other things 
and we are friends and so we are going to make every effort to 
work together and make this bipartisan. And I would hope that 
we are so good at it that when people come in and visit our 
committee, they won't know who are the Republicans and who the 
Democrats are, because we are working together. That is my 
goal.
    But the issue on the feed costs is causing quite a stir and 
it would be interesting to hear what you have got to say about 
it as feeders and producers. Many people that are producing 
also invested in ethanol plants, I find, and so it will be 
interesting how we discuss that today. I think all will agree 
that renewable energy and having a chance to grow it out of the 
ground and do it the way we do it, that a lot of people, 
including myself, have been working on this for years. And I 
will just share this with you. I was wearing the uniform and 
still in the service in Portugal in the early 1970s when we had 
the first fuel crisis, and good people that I have known for a 
long time, just watching what happened in the community, and I 
don't think their community is different than ours, what chaos 
took place when they couldn't get gas to run their car or the 
truck or delivery wagons and so on. It was unbelievable and it 
made me realize for the time that we are, in fact, in bondage 
in the grasp of OPEC and I have been thinking about that ever 
since. That was back in the early 1970s. Well, a lot of States, 
and mine included and others, have done a lot of work on it.
    So we are coming to this new era in agriculture and it 
seems to me that we have got a situation that is certainly a 
challenge, but I think it is a good challenge in the sense that 
it is causing us to sit down and figure out how we get this all 
sorted out and that is why we are here today. I think there is 
light at the end of the tunnel, it will work out, but we want 
to do it as painlessly as we possibly can and we want to be 
aware and responsive as best we can to the needs of everybody 
that is involved in this, because we are in the agriculture 
business together.
    And there is just one other last thought before I turn it 
over to Robin that I wanted to share with you. I would spend a 
lot of time with, and I know Robin does too, with my colleagues 
from the city, if you will. Good friends. New York, Los 
Angeles, Dallas, Houston, wherever. They too, in a sense, are 
involved in agriculture because we have got to eat and I find 
it interesting when I talk to people about the subsidies or the 
benefits or whatever, the program, if you will. Oh, you 
farmers. And I say hold everything. Just reflect a little bit 
and if you don't know this you need to know it, because it 
affects everybody in your community and your constituency, and 
that is the cost and the availability and the safety of food. 
And I know, Mr. Secretary, you may have figures, I am not 
asking for them, but you might have. The last time I checked, 
the percentage of disposable income for food that is the safest 
and most plentiful in the world and the biggest variety, is the 
least in this country than anywhere else in the world. It has 
been that way for quite a while. It runs 14 to 17 percent, as 
you put all the populations together. Compared to modern Europe 
over there, and I have spent a lot of years over there and some 
of you have, too, I am sure, it is 25 percent more. Up to the 
undeveloped countries, it is 100 percent. So you know, 
Congressman or Congresswoman from the big city, you are 
invested in agriculture. And so it is not just those producers 
out there, it is all of us, as a population, that should and 
must have an interest in this and if we do it by doing a good 
farm bill, the things we are called on to do, then we all are 
better off.
    So I think that that is important for us. It is a 
continuing education thing and I am going to keep it up and I 
know that my colleague and partner here will too, and others 
and we have just got to all remember this. But today we wanted 
to start with the Secretary here and the Department telling us 
about the impacts of high feed costs and how we may look at 
ways to increase production or deal with the challenge of the 
problem. So I look forward to those comments and at this time, 
I would like to recognize my Ranking Member, Mr. Robin Hayes 
from North Carolina.

  STATEMENT OF HON. ROBIN HAYES, A REPRESENTATIVE IN CONGRESS 
                FROM THE STATE OF NORTH CAROLINA

    Mr. Hayes. Thank you, Mr. Chairman, and I thank all of you 
all for being in here. Leonard and our very good friends enjoy 
working together. I look forward to being here this morning, 
being and working with him on a mutually important project and 
again, it is a lot more fun when you really work well together 
and I appreciate his kind words. I want to thank all of our 
witnesses for making the great effort to be here today. I 
particularly want to thank Matthew Herman from Monroe, North 
Carolina, for being able to come and testify and making his way 
through the snow yesterday. Matthew is an 8th District 
constituent and serves as Complex Manager for Tyson Foods. I 
look forward to hearing from you and the others to get a better 
understanding of the impact that feed costs are having on 
livestock production in North Carolina and across the country.
    I can assure you that I have heard from many of my 
constituents and producers about the effects of feed costs on 
the livestock producers' bottom line. The district is one of 
the top poultry producing districts in the Nation. I have heard 
a great deal from pork producers as well, and turkey, chickens, 
hogs, not able to utilize the ethanol byproducts as efficiently 
as cattle and dairy cows. There are serious concerns in the 
livestock sector that need to be heard and taken into 
consideration.
    Furthermore, I want to commend the North Carolina pork 
industry and the North Carolina poultry industry for taking 
proactive steps to consider various technologies that may 
convert waste into energy. Folks, times have changed. We are 
now converting excess animal nutrients into energy and let us 
don't forget those changes because it is important. With pork 
and poultry being the largest livestock sectors in North 
Carolina, it is important for the constituents to have access 
to and utilize all these technologies which add value. I know 
more needs to be done in the area, but again, I appreciate the 
industry looking ahead to the future and how they can play a 
role as America strives for energy independence, which has a 
tremendous positive impact on our foreign policy as well as our 
everyday lives.
    Well, I look forward to hearing from you all to get a 
better national perspective and also sympathize with you on 
other important issues your industry may face that could 
dramatically increase your cost of production. This farm bill 
will be important for all of America's producers and my goal is 
to ensure that we do not place costly burdens and mandates on 
our livestock producers. But again, Leonard and I are committed 
to making sure that government, in its nimble way of doing 
things, does not put those costs on you that are really hard to 
get back. If you look at the costs associated with such issues 
as mandatory country of origin labeling, ban on packer 
ownership and onerous environmental regulations, the industry 
has many volatile issues at the forefront that could have a 
major impact on production costs and the livelihood of the 
industry. Certainly, we sympathize with your concerns about 
production costs that you face today and the hurdles that you 
will face in the future.
    Mr. Chairman, again, thank you for holding this hearing and 
allowing the livestock industry to be heard on this issue. I 
look forward to working with you on this issue and others, 
since the farm bill is on the near horizon. I look forward to 
today's testimony and the insight that each witness will 
provide on this issue. I appreciate all of you being here so we 
can learn more about the effects on each sector of the industry 
and again, having the chance to meet some good folks I have not 
known before and the fine gentleman from Iowa. That you all are 
so important to our industry and our future and our economy, I 
charge the Secretary with providing the balance and he can do 
it. To some it is a cost, to some it is a price. We are in the 
same bin together. I want to take those perceived differences 
and instead of being price and cost, let us be value, how we 
can add value to the industry and the producer in a sustainable 
upward movement that is good for everyone. Folks pay very, very 
little for the food that they eat. If you live in Washington, 
you pay a lot more, but in Iowa or North Carolina, it is not 
quite as bad. But thank you all for being here.
    Mr. Boswell. Thank you, Congressman Hayes. Just a little 
bit for us up here. As I told you earlier in my opening 
comments, we are scattered all over this campus today for the 
various things going on and there will be people coming and 
going. I will have to repeat this to our committee, but it is 
sort of a housekeeping thing. We are going to run the thing in 
this way if everybody is cooperative and I know they will be. 
But when we gavel in, by seniority, whoever is here, that is 
who we will recognize in that order and as they come in the 
order they come. And we are always very appreciative when we 
have the ex-officios here, if you will, and that is of course 
the chairman, who is present with us today, and the ranking 
member. And so when they come, we are honored to have them here 
and we will of course offer them an opportunity to say what 
they would like to say. As far as the rest of the panel is 
concerned, I am going to request that you address the questions 
when the time comes and not make lengthy opening remarks, 
unless something is really burning inside of you. Then you, of 
course, come and talk to us and we will consider. But we 
certainly want your written comments and questions and it will 
be part of the record. So having said that, I would like to, at 
this point, recognize our committee chairman, Mr. Peterson, if 
he wants to make any comments.

STATEMENT OF HON. COLIN PETERSON, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF MINNESOTA

    Mr. Peterson. Well, I thank the chairman and thank you for 
providing the leadership on this committee and on this issue, 
and also Ranking Member Hayes, for holding this hearing today, 
and I appreciate the Deputy Secretary and Dr. Glauber for being 
with us today, as well as all of the folks that have an 
interest in this issue and to share their views with the 
subcommittee.
    One of the biggest developments that agriculture in rural 
America has seen in many years has been the growing demand and 
expanding market for agriculturally-based energy sources such 
as ethanol and biodiesel. This demand for ethanol continues to 
grow and it is supported, not just in farm country, but by 
those in the suburbs and the cities who are overwhelmingly in 
favor of utilizing homegrown renewable fuels as a way to reduce 
our Nation's dependence on foreign energy once and for all. 
This demand has highlighted the issue of feed costs and their 
impact on the livestock industry, as corn prices have climbed 
near historic high levels. And I think it is important to look 
at corn prices and their effect on livestock with some 
historical perspective. When corn was under $2 a bushel, that 
low price had an effect on beef and poultry and pork 
industries, just as high prices do today. Those industries were 
able to benefit, not only with major input costs being priced 
low and a lot of times below the cost of production, but also 
with the Federal farm safety net for grains, like corn and 
soybeans, that allowed us to have this kind of a system. The 
2007 Farm Bill our committee will consider this year will 
maintain this safety net, but it will also include an energy 
title that will help us meet the growing demand for the next 
generation of ethanol beyond corn and that is cellulosic 
ethanol and also work on feed stocks for biodiesel. Federal 
loan guarantee programs that we hope to get in place will speed 
up the commercialization of cellulosic ethanol and biodiesel, 
which can take the pressure off of corn and I believe that this 
is a real key moving forward, not only to achieving energy 
independence, but to stabilize this whole situation.
    One issue that will come up as the farm bill, the way it 
progresses, is the idea of removing acres from the popular CRP 
and placing them into production. We are looking at this issue. 
I think that some people have overstated the amount of acres 
that are actually available and one of the things that I don't 
want to have happen is for us to put acres into production that 
are going to cause more disaster problems, more crop insurance 
problems, and so I think I we need to be very careful. And also 
understand that CRP has been a great boon to wildlife and you 
know, it has protected a lot of this marginal and highly 
erodable land that probably shouldn't have been farmed in the 
first place.
    So I look forward today to this hearing about the excellent 
research that is being done in the field of distillers dried 
grain, an ethanol co-product that is being used by our 
different livestock industries. Ethanol plants in my home State 
of Minnesota and neighboring South Dakota are producing about a 
quarter of the three and a half of the DDGs that are being 
produced annually in North America. And we are doing some good 
research on looking at fractionating corn and splitting it into 
protein and oil and fiber before we put it in the ethanol 
process and I think this has a lot of potential to alleviate 
some of this feed problem. And we need to do research, 
additional research. We have people in our State that are doing 
this and I am looking forward to the testimony of Dr. Shurson 
from the Department of Animal Science at the University of 
Minnesota, to hear about some of the work that they are doing. 
And we will, as I say, try to increase research funding so that 
we can do more work in this area. So I just want to assure 
everybody that this committee is going to be very vigilant. We 
do not want to harm the animal agriculture industry. This is 
the premier value-added industry that we have in this country 
and it is important and we need to make sure that we not only 
maintain it, but that we allow it to grow. So again, I 
appreciate, Mr. Chairman, your leadership, and the ranking 
member, and look forward to the testimony from the witnesses. 
Thank you.
    Mr. Boswell. Thank you, Mr. Chairman. I would like to 
recognize Mr. Goodlatte for what remarks he might want to make.

 STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF VIRGINIA

    Mr. Goodlatte. Well, thank you, Mr. Chairman, and I want to 
thank you and the ranking member for showing concern about this 
issue and I very much appreciate having Secretary Conner and 
Dr. Glauber and our other witnesses here today, because this is 
a matter of grave concern to me. So I would like to thank you 
for calling today's hearing. And let me state from the outset 
that I support all of our efforts to develop new market 
opportunities for the Nation's agricultural producers, no 
matter what the commodity or product.
    As I visit with the livestock producers of the 6th District 
of Virginia, poultry and eggs, cattle and calves, hogs and 
pigs, milk and dairy, the one recurring concern I hear about is 
the high cost of feed. High feed prices are naturally a concern 
to all livestock producers and it is important that this 
subcommittee examine the long- and short-term implications of 
policies that affect production costs. For livestock producers, 
corn is an absolute necessity for which there is no substitute. 
However, there are a number of other factors that are adding to 
the increased cost of production for livestock producers that 
cannot be ignored.
    While today we are specifically discussing the effect of 
feed prices on livestock production, we must recognize that 
there are a variety of other factors in play as well. We should 
perhaps view today's hearing as a cautionary tale illustrating 
the impact of unintended consequences. Today we are discussing 
how increased ethanol production leads to higher grain costs, 
which can in turn mean higher feed costs for livestock 
producers and lower profitability. However, I think what we 
will hear today is that when you add costs, any costs, to the 
livestock production system, you injure livestock producers. It 
makes no difference if these costs are higher grain prices, 
investments forced by mandatory animal identification, 
production costs associated with country of origin labeling, 
market disruptions caused by packer/ownership bans, or 
regulatory burdens associated with environmental policies, the 
outcome is the same. When we take actions that add costs to the 
animal agriculture sector, we hurt livestock producers.
    Recent policies enacted by Congress have created much 
excitement in the development of renewable energy. The creation 
of a Renewable Fuels Standard in the Energy Policy Act of 2005, 
along with several production tax credits and the phase out of 
methyl tert-butyl ether (MTBE), have helped fuel investment in 
new ethanol and biodiesel plants and created more markets for 
agricultural products. In the State of the Union address, the 
President outlined his 20 and 10 proposal to reduce domestic 
fuel consumption by 20 percent by 2017. This initiative is 
extremely ambitious and can only be achieved with contributions 
from all components of the agriculture sector, including grains 
and soybeans, plant and wood waste, vegetable oil and animal 
fat and waste.
    However, last year, 20 percent of the U.S. corn crop was 
used for ethanol production and that amount is expected to rise 
significantly over the next few years. Currently, corn is the 
leading commodity used to produce renewable fuels. Corn is also 
the staple feed stock for livestock producers and increased 
demand for corn has resulted in the highest corn prices we have 
seen in more than a decade. The high price of corn, coupled 
with increases in other input costs, has put producers in a 
tough spot financially. Livestock producers have always been 
the most reliable consumers of corn and soybeans. We must be 
cautious that our policies do not cause unintended economic 
distortions to either grain or livestock producers as the 
renewable fuel market continues to grow. As input costs 
continue to rise and we work to reduce our dependency on 
foreign sources of energy, we must do all we can to promote the 
development of alternative fuels as well as working to create 
new market opportunities for our agricultural producers.
    At the same time, however, we must also ensure that we 
continue have a reliable and affordable feed supply for our 
livestock industry. Reduced reliance on foreign energy sources, 
stable energy prices, and the creation of new markets for 
agricultural products are all positive benefits of the growth 
of the renewable fuels industry. However, there must be 
balance. The needs of the renewable fuels market and the 
livestock industry can be met simultaneously without 
significant price or supply distortions.
    Mr. Chairman, again, I thank you for holding this hearing 
on this very important issue and I look forward to hearing the 
testimony from today's witnesses.
    Mr. Boswell. Thank you for being with us this morning. You 
will always be welcome, of course. So we would like to welcome 
our first panel to the table, the Honorable Chuck Conner, 
Deputy Secretary of the USDA, accompanied by Dr. Glauber. Am I 
saying it correct?
    Mr. Glauber. It is Glauber.
    Mr. Boswell. Glauber. Okay, I got that. The Deputy Chief 
Economist. We are glad to have you here. Secretary Conner, we 
are anxious to hear what you have got to share. Please begin.

STATEMENT OF HON. CHUCK CONNER, DEPUTY SECRETARY, UNITED STATES 
  DEPARTMENT OF AGRICULTURE, ACCOMPANIED BY DR. JOE GLAUBER, 
DEPUTY CHIEF ECONOMIST, UNITED STATES DEPARTMENT OF AGRICULTURE

    Mr. Conner. Chairman Boswell and Ranking Member Hayes, I do 
really appreciate the opportunity for the Department of 
Agriculture to be a part of this hearing today. Mr. Chairman, I 
especially appreciate the outreach and the statements you made 
about your relationship with Mr. Hayes, as well, and the 
bipartisanship of this subcommittee, and I will just tell you 
that the U.S. Department of Agriculture wants to be part of 
that bipartisanship as well. I think we have challenges ahead 
of us in this field of energy and feed costs. There is no 
question about that. But I think we need to keep in mind that 
those challenges are the result of some unprecedented 
opportunities that we have in American agriculture that many of 
us and many of you have strived for, you know, for much of your 
career. And so I think we need to keep that in mind as we 
review these challenges that we have in front of us today. I am 
joined today by Dr. Joe Glauber, our USDA Deputy Chief 
Economist, and we will provide a brief status report on the 
rapid growth in biofuels and its implications on the livestock 
and poultry industry. I have a much longer and more detailed 
statement, Mr. Chairman, that I would ask be made a part of the 
record as well, and I will summarize that statement.
    High oil prices and government programs, technology 
advances and private investment have indeed generated a rapid 
growth in biofuels production. Biofuels production is creating 
rural income and employment growth that we have not seen in a 
long time, while providing environmental and energy 
diversification benefits. It is also changing farm management, 
production and related industries across the agricultural 
sector. The rapid pace of biofuels production has been simply 
amazing. For the 2006 crop year, we forecast that about six 
billion gallons of ethanol will be produced, utilizing about 20 
percent of the corn harvest. For the coming 2007 crop year, we 
now project nearly nine billion gallons will be produced, using 
approximately 26 percent of our corn crop. Similarly, biodiesel 
production has increased at a dramatic rate as well.
    The strong demand for ethanol, lower corn production and 
increased corn exports have pushed corn farm prices to very 
near record levels. USDA forecast farm prices for the 2006 crop 
will average $3.20 per bushel and rise to a record $3.60 per 
bushel for the 2007 crop. Prices for other feed grains and 
soybean meal, of course, have also risen as well. Higher feed 
prices have raised the cost of producing livestock, poultry and 
livestock products and led to concerns among livestock 
producers about the future profitability of their business. 
Although producers are facing higher feed costs, firm consumer 
demand for meat and poultry, growing exports, and reasonably 
attractive prices are expected to help support our producers 
during this period of adjustment.
    Total U.S. production of meat and poultry and exports are 
forecast to be record highs in 2007. These increases are 
expected to boost livestock receipts to a record $125 billion 
this year. With a modest increase in beef production expected 
this year, fed cattle prices should remain stable. Feeder 
cattle prices are expected to decline from their recently very 
strong levels, as feedlots reduce their bids for feeder cattle 
to offset the increase in feed costs. Higher pork production is 
expected to lead to lower hog prices, while tighter domestic 
supplies for broiler meat could support higher broiler prices 
going forward. Retail meat prices are expected to increase by 
less than one percent in 2007. Milk prices, as you know, are 
rebounding from their decline experienced in the early part of 
last year and are expected to be up nearly 15 percent in 2007.
    Poultry producers can adjust more rapidly to changing feed 
costs than other livestock producers. As a result of lower 
prices in 2006 and higher feed costs, they have slowed 
production and that is now being reflected in higher broiler 
prices. Adjustments for cattle, hog and dairy producers do take 
longer and further changes in feed prices will play an 
important role in their production decisions in 2007 and beyond 
that. With sustained higher feed costs, longer-term adjustments 
for beef, pork and poultry are generally similar. Each 
production sector experiences a decline in returns as feed 
prices are not immediately offset by higher livestock product 
prices. Falling returns, of course, eventually lead to less 
production and a return to higher prices.
    Several important factors, Mr. Chairman, will affect the 
adjustment in livestock markets. First, forage supplies will be 
critically important for cattle. Compared with a year ago, the 
portion of the Nation's cow inventory in drought areas has 
declined sharply and forecasters expect improving pasture 
conditions in the Plains States this spring. Second, as ethanol 
production increases, there will be more dried distillers grain 
available for feeding. While hogs and poultry are more limited 
in their ability to use DDGs than cattle, this co-product feed 
will certainly augment our total livestock feed supply. Third, 
continued U.S. income growth and record livestock exports 
should maintain strong meat prices and meat demand, supporting 
livestock returns during this period. And fourth, the high corn 
prices will likely result in a substantial increase in corn 
production in 2007 and will lower our corn exports. Our 
analysts do believe that the corn-planted area will increase by 
nearly nine million acres, resulting in the largest corn-
planted area in nearly 60 years. This increase should help corn 
supplies meet the needs for fuel, food and of course, feed.
    To further evaluate the short- and long-term potential 
impacts of increased corn demand for ethanol, Secretary Johanns 
and I have established a livestock and poultry feed working 
group. Under Secretary Mark Keenum will be tapped to lead this 
effort. This group will work to ensure that the Secretary and I 
have a full understanding of the feed grains complex as the 
market adjusts in the short term to incorporate this new and 
powerful dynamic. And of course we will, Mr. Chairman, share 
all of the results of this working group with this subcommittee 
as we move forward.
    At USDA, we believe that biofuels will be an essential part 
of the strategy to reduce the Nation's dependence on the 
imported oil. Even so, there are many uncertainties in how 
biofuels and agricultural markets will unfold in the coming 
years, including global economic growth, the price of crude 
oil, gasoline and ethanol, the rates at which cellulosic 
ethanol and other alternative energy sources are 
commercialized, and the emergence of technologies that improve 
the use of ethanol co-product feeds, and finally, the increases 
in yields of corn, soybeans and other crops, to name several 
factors. We believe our corn supplies are limited in their 
ability to support continued expansion of biofuels. They are 
limited. Cellulosic feed stocks, such as residues, waste, 
forest materials and grasses, can fuel the Nation's vehicles 
and relieve some of the pressures now placed solely on the corn 
market. The President's proposal to reduce gasoline use by 20 
percent in 10 years is based upon the expectation that 
cellulosic ethanol will play a key role in achieving this goal. 
The Administration's 2007 Farm Bill proposal includes funding, 
about $1.6 billion over the next 10 years, to support research 
and commercialization of cellulosic ethanol.
    One thing seems clear, Mr. Chairman, the growth of biofuels 
in the United States has the potential to greatly reduce our 
reliance on imported oil and in doing so, transform U.S. 
agriculture and we believe this is a good thing. In the near 
term, livestock producers are facing higher feed costs and a 
notable period of adjustment. More corn acreage, higher corn 
yields, better use of DDGs, and strong global demand for 
livestock products, we believe will help cushion this 
adjustment going forward. In addition, as we progress down the 
road to commercial-scale cellulosic ethanol, feed stocks other 
than corn we believe will increasingly be used in our biofuels 
production complex.
    That completes my oral statement, Mr. Chairman. Again, we 
have provided a lot more analysis in my written statement that 
is part of the record and we will certainly be happy to answer 
questions or comments from the subcommittee at this point.
    [The prepared statement of Mr. Conner appears at the 
conclusion of the hearing.]
    Mr. Boswell. Thank you very much, Mr. Secretary, we 
appreciate that and we will have questions. And I just might 
remind the members that weren't here when I made the opening 
statement, that we will recognize them by seniority, who were 
here when the gavel fell and then after that as they arrive, 
and I appreciate you understanding that. And of course, we are 
not asking for opening remarks from Members. We ask that you 
submit what you might want for the record and we want adequate 
time for the questions and the give-and-take process. So with 
that, I would like to recognize Mr. Donnelly from Indiana for 
five minutes.
    Mr. Donnelly. Thank you, Mr. Chairman. Obviously, in my 
district in Indiana, we are feeling the same pinch. I have had 
meetings with farmers throughout my district. We have 12 
counties and in one of the first or second meetings, it was 
after the meeting that about three fellows came up to me and 
quietly said, we are the livestock guys. We have got to sit 
down and talk. And their concern is palpable and 
understandable. And so my question is, how do you see fixing 
this quandary or where we go in the future? And some of the 
farmers have said, well, you know, our concern is that our feed 
costs are going up, but we are not going to be able to pass 
this along to the marketplace. And sitting next to them is a 
grain producer who says, I have been struggling through $2 corn 
for most of my life. And so they are saying this is our chance 
to try to catch up. And the livestock producer, as I said, is 
saying to us, well, we are not sure we can pass it on to the 
marketplace. And the grain producers are saying, well, you 
know, the consumer will have to be the one to judge whether 
they can pay some more for pork chops or for chicken or 
whatever. So I am just wondering where you see this quandary. 
We are looking for that balance and how do we get there. And I 
know that is the magic question.
    Mr. Conner. Yes, it is. Well, Mr. Donnelly, I am very 
familiar with your district in Indiana and I know you have got 
mixed points of view, because you have got some tremendous corn 
producing areas in there, as well as the important livestock 
sector.
    Mr. Donnelly. Right.
    Mr. Conner. And this is a balance. Let me just say that, 
generally speaking, you know, this is a good problem for us to 
be trying to address at this point. In working many, many years 
on these types of issues before this committee and before the 
Senate, I will tell you that our goal of value-added 
agriculture was an illusive goal for a very, very long period 
of time and we are seeing that goal, you know, come together. 
And obviously, I think it would be unanimous around this 
subcommittee and the full committee that the notion of us 
growing more of our energy needs is a very, very positive thing 
for this country and reducing our reliance as well.
    Mr. Donnelly. One of the other comments we have had is this 
is the first time a lot of the folks have had a spring in their 
step for a long, long time.
    Mr. Conner. Absolutely. So it is a balance. As I noted in 
my statement, Mr. Donnelly, we do anticipate that farmers are 
going to react to the market signals that are being sent to 
them right now. You know, historically, we talked about a corn/
soybean price ratio of about 2.5 to one. That changed a little 
bit and we started talking about a 2.2 to one. Well, the 
current corn/soybean ratio, you know, in the Midwest is quite 
bit less than two to one right now. Our estimates do show that, 
producers will respond to market signals. We are estimating, 
again, as much as nine million additional acres of corn to be 
made available out there. We are anticipating that farmers are 
going to be able to justify going for those higher yields now 
and, we think the market will respond to this. Our first crop 
report is on March 30, where we will actually go out and survey 
producers, in terms of their planting intentions. That is a 
very important report for our future and certainly for the 
future of this subcommittee, as we carefully analyze and 
monitor this situation. But again, our expectation is that that 
report is going to show that the market is working here and 
that the price signal that the corn market is sending is going 
to be something the producers are going to take full advantage 
of.
    Mr. Donnelly. Thank you, Mr. Chairman.
    Mr. Boswell. Thank you. Mr. Goodlatte, did you have 
questions you would like to ask? I recognize that you may have 
other things you want to do.
    Mr. Goodlatte. Well, thank you, Mr. Chairman. I very much 
appreciate it. Secretary Conner, we very much appreciate your 
testimony and I certainly agree with you, that times are good 
for American agriculture. However, there are many, many parts 
of the country that are not like the gentleman from Indiana's 
district, where there is a choice between crop production and 
value-added livestock production and that is true of virtually 
the entire east coast of the United States, more and more so. 
Certainly true in my district in the Shenandoah Valley of 
Virginia, which I have had the honor of having you come and 
visit to see what we do there. For many, many years, back over 
100 years ago, the Shenandoah Valley was known as the 
breadbasket of the Confederacy. It was the production of wheat 
and things like that. But we have expansion westward and other 
lands being farmed that are more suitable for that. The rolling 
hills of the Shenandoah Valley are not very suitable for large-
scale row crop production and almost all of the corn and so on 
produced in the area comes from and is used for feeding 
livestock. So beef cattle and dairy and poultry, which is by 
far the largest industry, allow people to maintain that 
farmland. Poultry farmers have a very good living on a small 
amount of land, but when they are squeezed as they are today by 
the price of corn, we risk losing that type of land, not just 
in my district, but all across the entire east coast of the 
United States, if we do this. Their option is between livestock 
production and selling out to developers. So there is a lot of 
support from surprising groups of people who want to make sure 
that we maintain those farms that are a buffer against the 
sprawl that has hit many parts of our region of the country. 
What do you say to those folks who can't use dried distiller 
grains, who have a major industry is up against it because they 
simply don't have the ability to make the alternative? They 
don't see the other side of that coin that somebody in Indiana 
might see because of the great opportunity that ethanol does 
present to row crop farmers.
    Mr. Conner. Well, Mr. Goodlatte, let me just address that 
generally and then if Joe has any specific comments to add to 
this. I think how you address them is certainly you can't say 
in any way that, going from virtually none of your corn for 
ethanol production a few short years ago to 30 percent of, some 
very, very large corn crops going for ethanol, that change 
cannot occur without, resulting in some fundamental changes in 
other sectors of American agriculture.
    Mr. Goodlatte. Do you think we should have price support 
systems for livestock production like we do for grain 
production?
    Mr. Conner. Well, I suspect if I suggested that, Mr. 
Goodlatte, I would probably get egged by some of my Indiana 
friends that the subcommittee is going to hear from next. I 
don't think anyone in the livestock sector is soliciting that 
type of thing at this point. But you know, let me just say 
that, again, there is going to be change in the livestock 
sector and I think we would be foolhardy if we were to sit here 
and suggest that all of this occurring in the corn and the feed 
sector is not going to have some fundamental change. We have 
done a pretty detailed analysis of the impact of ethanol on the 
livestock sector, so we want to start with some good 
information as we analyze what we believe is still a relatively 
short-term problem here, albeit a very, very important problem. 
We released the results of that study at our outlook 
conference, which focused on energy, last week. Dr. Glauber, if 
you want, can go through the details. We will certainly make 
that document, USDA agricultural projections through 2016, 
available for the subcommittee and the full committee to 
review, but it, in very specific detail, analyzes that impact.
    Mr. Goodlatte. Well, let me ask you a few other questions.
    Mr. Conner. Yes.
    Mr. Goodlatte. Because my time, I am sure, is limited. But 
one of the things I mentioned in my comments were the other 
things that we can add to the cost that livestock producers 
face, like mandatory animal identification, like mandatory 
country of origin labeling, like increased environmental 
regulations. What is the Administration's position on what they 
can do in those areas to help buffer the increased costs that 
they are going to face in feed prices?
    Mr. Conner. Well, I think you raise a good point, Mr. 
Goodlatte, and obviously, I think this subcommittee and the 
full committee need to be very, very mindful of any legislative 
initiatives at this point that would add cost to the livestock 
sector, albeit perhaps even some well-intentioned efforts. But 
you know, this is not a time to be adding any cost to the 
system during period that we are in right now. As you know, Mr. 
Goodlatte, we do favor a voluntary animal ID system for this 
country. I believe are we making great progress in terms of 
getting premises registered on that and are headed down that 
right path on that. On mandatory country of origin labeling, 
the law requires us to have that implemented in the not too 
distant future. As you know, the Administration's policy 
position is against mandatory country of origin labeling. Our 
economic analysis, from a couple of years ago did suggest that 
there would be sizable costs. This adds into the livestock 
sector system, which we felt was inappropriate at the time and 
certainly during these kind of times, because it makes it very, 
very difficult. So you know, we hope to work with the committee 
in our farm bill effort to make sure that we are not adding on 
even additional costs to the system with this type of 
regulation. Obviously, on the environmental front, very 
quickly, as you know, we don't want to add environmental costs 
to the system. That is one of the reasons we did choose in our 
farm bill proposal to increase the equip dollars by over $4 
billion. Most of that money goes to the livestock sector to 
help them meet environmental requirements without costing them 
an arm and a leg in doing so.
    Mr. Goodlatte. Mr. Chairman, I wonder if I might have leave 
to ask one more question of the witness. The National Chicken 
Council, the National Pork Producers Council, the National 
Turkey Federation, and the National Cattlemen's Beef 
Association all favor allowing the exiting blenders tax credit 
and ethanol import tariff to sunset. And I am wondering your 
opinion about whether ethanol can be produced economically in 
the United States without the current subsidy and what impact 
would the expiration of the ethanol subsidy have on feed 
availability.
    Mr. Conner. Well, Mr. Goodlatte, that particular analysis 
is actually included in some of the data on the document that I 
just made reference to, put together by Keith Collins and Dr. 
Glauber and our folks in the Chief Economist's Office, so I 
refer you, specifically to that, because it does go through it 
and in some detail analyze the impact on that. As you know, Mr. 
Goodlatte, the Administration's position is that we favor the 
continuation of the tax credit through its 2010 date and the 
Administration has said, at some point, we will work with 
Congress. This is obviously something we can't change. It has 
to be legislated. We will work with Congress at a later time to 
analyze the full impact of this situation to determine what is 
the appropriate steps going forward at this point.
    Mr. Goodlatte. Let me just say that this Administration 
won't be this Administration in 2010 and in the meantime, I 
think we need to be taking into account the long-term impact 
that this is having in the near term, and if we don't review 
these policies sooner than 2010, by 2010 we may have 
dramatically affected sectors of our economy in ways that I am 
not sure are necessary. I do hope you will continue to look at 
the problem that particularly poultry and hog producers have, 
and there are not a lot of answers for them right now.
    Mr. Conner. Yes.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Mr. Boswell. Thank you, Mr. Goodlatte. I am going to step 
out of order a little bit because, when Mr. Peterson comes 
back, we will recognize him, because of their schedules, and 
recognize at this moment, with everybody's concurrence, thank 
you, Mr. Hayes will be next.
    Mr. Hayes. Thank you, Mr. Chairman. And gentlemen, thanks 
for being here. A couple quick questions and short answers will 
be fine. Chairman Peterson asked about CRP. What is the short 
answer to which way you are looking? And we do want to protect 
the wildlife habitat. CRP, up, down, sideways?
    Mr. Conner. Mr. Chairman, as you know, we are in the middle 
of a reenrollment process on our CRP acreage, where we are 
offering producers the opportunity to reenroll certain acreage 
in the CRP. That reenrollment has ranged from two years up to 
15 years, depending upon on the environmental benefits provided 
by that land. Now, in very short order, when I say short order, 
I would anticipate, within the next probably 24 to 48 hours, we 
are going release the results of that reenrollment process and 
based upon those results, I can tell you that we believe there 
is a significant quantity of acreage, several million acres to 
be exact, that we will show where producers are, at least at 
this time, expressing an interest in getting out of the CRP. 
Now, we don't know what their intended purposes are in getting 
out, but I think you can safely assume that some of that will 
be intended for production, obviously. And again, we will be 
releasing those results very soon.
    Mr. Hayes. What percentage of your acreage on corn and 
soybeans is used for livestock feed, roughly?
    Mr. Glauber. Roughly, for current feed use, about 58 
percent of corn goes into feed, but that is declining and 
projected to decline. As we have larger and larger corn crops, 
more of that is going to ethanol. So although the feed use 
itself that we are projecting is fairly constant at around six 
billion bushels, the percent of total use is declining. And in 
our 10 year projections, we see that declining to around 42 
percent or 43 percent. In terms of soybean, there the situation 
is, you know, we crush domestically about 1.7 billion bushels. 
That is projected to increase. And of that, most of that is 
feed. Most of the soybean meal goes into feed here. A little 
bit is exported. As we see going forward, we are probably going 
to be crushing a larger percentage of the U.S. crop. Some of 
that is due to the fact that the soybean crop is going down 
because of the soybean areas going into corn area. But the 
other thing is we are probably going to be exporting and we are 
projected to export fewer soybeans. More of it will remain home 
and crushed. So we are seeing actual domestic crush increasing 
over time, and as a percent of the total U.S. crop, also 
increasing.
    Mr. Hayes. Okay. What about percentage for corn and soy on 
ethanol and biodiesel production, respectively?
    Mr. Conner. Go ahead, Joe.
    Mr. Glauber. The corn data, again, that has been the real, 
the dramatic increase we have seen there has gone from, as 
Deputy Conner mentioned, six percent in 2000. It is currently 
around 20 percent of the corn crop and we expect, in really 
short order, probably by 2009, 2010, to be up around 30 percent 
and plateauing off after that. That is for corn. The biodiesel, 
currently we have a little less than 300 million gallons of 
biodiesel production. That has been a dramatic growth from 
where it was. It was almost nothing in 2000. And we are 
projecting that to increase to about 700 million gallons, which 
is about five billion pounds soybean oil. So a lot of that 
crush is going to be going. We are projecting that a 
significant portion of that will be going into biodiesel.
    Mr. Hayes. Okay, the next question. A number of significant 
grants have been made to our State and related institutions to 
study the economic effects of increased ethanol and biofuel 
production on the Midwestern economy. Some grants have been 
made to major livestock producing States outside of the 
Midwest, such as, I will pick one by random, North Carolina, to 
study these economic effects. And the last question, we are 
running out of time, speak in the answer to, are we 
anticipating transportation needs as ethanol and corn and 
soybeans, as that increases over the years. Thank you.
    Mr. Conner. If I could, Congressman Hayes, my folks advise 
me that, on October 11 of 2006, Secretary Johanns and Bodman 
did announce nearly $17.5 million for 17 biomass research and 
development projects. One of those grants, I believe, close to 
a half a million dollars, was awarded to North Carolina, a 
State university, for the purpose of strategic positioning of 
biofuels in the context of future agriculture and oil needs.
    Mr. Hayes. That is nice, $500,000 and $17 million.
    Mr. Conner. Well, let me just, on the transportation 
situation, I will tell you that there are equal challenges 
there as well. As the chairman knows, transportation challenges 
in agriculture in general, through rails, is always there. This 
is something we have worked on for a number of years and every 
time there is a very large crop out there, the question of 
availability of railcars and the transportation situation is 
always a huge factor on this. I will tell you that, the results 
of what we are hearing out there from folks around the 
countryside is that there has been a pretty remarkable reaction 
and positioning, in terms of the railroad industry, to meet the 
needs that are occurring out there and those needs are very, 
very substantial and they are changing dramatically every day. 
And I am not saying we are not going to always have those 
traditional problems that we have in agricultural, being a 
bulk, agricultural producer that we are, low value-type 
product, we are always going to, you know, face challenges for 
railroad competition. But I think, at this point, our sense is 
and our analysis is that needs are being met out there at this 
stage.
    Mr. Boswell. Thank you, Mr. Hayes. The Chair recognizes Mr. 
Lampson for five minutes.
    Mr. Lampson. Thank you, Mr. Chairman. I was only teasing 
when I asked for 10. It is an honor to have you both here. 
Thank you very, very much to come and to educate us and to 
discuss with us some of the current problems that we face. I 
have been a long-time proponent of bioenergy and I am very 
pleased and excited that we have long overdue political and 
public support for this necessary and absolutely exciting 
transition, and I am deeply concerned about, however, the 
strain placed on ranchers and producers throughout the 
agriculture community due to the rapid growth of both, well, 
all sorts of biofuels, ethanol and biodiesel. And although 
consumers are not currently feeling the same squeeze that our 
producers are, it is only a matter of time before they do.
    And as you said, we know that the USDA is forecasting a 25 
percent or so increase in the corn crop consumed by ethanol 
producers. It is our responsibility here in Congress to conduct 
a thorough evaluation and hopefully come up with suggestions of 
how to solve some of the problems of the harmful effects of 
skyrocketing demand that it is has already had and will 
continue to have for the foreseeable future on our producers 
and in turn our nation's food supply. I have spoken often about 
the diversification of biomass for energy production and I 
think that we can all understand that we are not quite there 
yet. Until we are, then obviously livestock is going to be 
competing with ethanol for corn. Hopefully we will have and be 
able to ease the burden this growing demand is placing on our 
producers. I am chairman of the Subcommittee on Energy and 
Environment and one of the things that I believe we can do is 
provide a huge amount from our land for the biofuel needs. But 
we can't do it as long as we are going to be competing with 
crops that provide our food. What is being done to promote the 
research necessary to develop new crops that typically are not 
used for food, the things like jatropha that is indigenous to 
India? Are other kinds of crops that we may know about here, 
even down to the point of using algae, which has a significant 
concentration of oil that can be turned into biodiesel.
    Mr. Conner. Well, I appreciate the question, Congressman. 
It is a very, very important topic you raised. Let me just, if 
I could, refer you to some of the proposals that we have 
suggested in our 2007 Farm Bill recommendations, because I 
think they do go to the heart of your question. For example, 
one of the items that we are suggesting is the creation of a 
subset within the Conversation Reserve Program, a subset 
meaning acreage set aside that would be used to grow crops like 
you suggest and those crops would be targeted specifically for 
biomass production. The producer would obviously get a 
conservation payment, a long-term conversation payment 
associated with that, but as well, he would be required to meet 
conservation requirements, as part of that land, consistent 
with, you know, the Conversation Reserve. So that is one 
suggestion that we have got in terms of helping producers 
transition to grow those types of crops that will be needed for 
biomass production.
    I would also point you to a new program that we have 
created that is a bit of an offshoot of an old program called 
the Cellulosic Bioenergy Program. We have set aside $100 
million for that. The purpose of that program, again, is to 
reduce the cost a little bit of those inputs, those cellulosic 
inputs, because we know that there is a difficult transition 
here in terms of those producers getting a foothold to grow 
those products economically going forward and competing against 
the traditional crops that they might be considering. So that 
program as well. Obviously, you are interested in research. We 
have got a very, very strong research and development section 
in this title, all focused towards biomass cellulosic 
production and finally, then, of course the loan guarantees to 
help us build the plants to continue down that path. So it is a 
very extensive effort in our farm bill.
    Mr. Lampson. But it seems like the huge preponderance of it 
is we are picking something, we are picking cellulosic ethanol 
as a good opportunity. There are many other opportunities and 
are we putting comparable emphasis on the development of those 
other or the seeking out of those other crops that could 
provide potentially as big if not a greater potential.
    Mr. Conner. Yes, let me just say that we are, I will tell 
you, to answer very, very quickly and I would be happy to, if 
you want me to provide a very detailed briefing for you and 
your staff on some of the changes that we are making within our 
Agricultural Research Service. We sort of see our ARS modifying 
its programs into really sort of four pillars. The first of 
those pillars is exactly as you mentioned, cellulosic feed 
stock design, that very notion of what is the right crops to be 
produced out there. You know, is it switch grass? Is it 
something else that, you know, people haven't even thought 
about? I think there needs to be, you know, R and D in that. 
Very, very quickly, because I know your time is running out as 
well. The other three parts of that is cellulosic feed stock 
production, the production of that product itself, the research 
once you determine what it is, then finally cellulosic feed 
stock logistics. It has got to be grown in a way that it can 
get to the plant in an economical way and that is a challenge 
for us as well. And then finally, just the conversion itself. 
What is the right enzyme, for example, to break down that algae 
that you may have mentioned or something like it? It may not be 
the traditional enzymes we have used in ethanol production. We 
need research and development to focus on that.
    Mr. Lampson. My point is that you have emphasized. You made 
my point for me. You emphasized ethanol. You talked only about 
ethanol in your answer. There are other biofuels. Biodiesel 
comes from, right now, soy. And we need other kinds of crops 
from which we can take oil, or we need to be doing, and I know 
my time is up. We need to be doing the research to identify 
many of those other crops because they are available and then 
helping farmers make that transition to the new crops, and I 
would indeed like to pursue this to a greater extent.
    Mr. Conner. Absolutely.
    Mr. Lampson. Thank you, Mr. Chairman.
    Mr. Boswell. Thank you. Mr. Smith, please. Five minutes.
    Mr. Smith. Thank you, Mr. Chairman, and thank you for 
appearing here today. It has been an interesting journey, if 
you will, hearing from various folks on the frontlines of the 
ethanol industry and the livestock industry. I hear a concern 
that there is not enough corn, period, at any price and 
certainly available corn at a high price can hit the bottom 
line, but no available corn is certainly another issue. That 
being said, the drought impact, if Dr. Glauber could perhaps 
respond to that, what we might be able to experience with 
change in weather, you know, that is bound to happen, but the 
overall drought impact, if you could comment on that.
    Mr. Glauber. Sure. Well, thanks. You are absolutely right 
about the--you know, we are looking at stocks this year, being 
for corn, that is, close to five percent of estimated use. Very 
low levels, the lowest level since we had in the mid-1990s. And 
you are seeing that reflected in the futures market. They are 
highly volatile. Deputy Conner mentioned the March plantings 
report that is coming out at the end of the month. I think the 
market will be closely watching that. And then I think from 
then on out we are going to be watching the weather and I think 
you are absolutely right. With a tight stock situation, you 
know, there will be a lot of volatility in markets until we 
know what the weather, you know, how that is going to transform 
into the yields at the end of the year. So you are right, 
weather is always an issue, but it is particularly an issue 
when you have low stocks.
    Mr. Smith. Okay. Thank you very much. Thank you, Mr. 
Chairman.
    Mr. Boswell. Thank you. The chair recognizes at the time, 
let us see, it looks like everybody has come and gone here. 
Would you check and see for Mr. Peterson? He said he might have 
a question or two before we get to the closure. Well, I will 
just say this while we have this opportunity, Mr. Secretary. We 
will see if Mr. Peterson can come back. Looking at your 
testimony today, it seems like a number of times a recurring 
theme is let the biodiesel tax credit and the ethanol import 
tariff expire and I wonder if you have any data or projections 
on how this will affect livestock and ethanol industries should 
that happen, and what research has been done on the impact on 
the feed costs should this be allowed to run out, what it might 
be.
    Mr. Conner. Yes. Mr. Chairman, if I could, I made reference 
earlier to a publication that we released in our outlook 
conference, entitled USDA Agricultural Projections through 
2016. I am going to ask Dr. Glauber to specifically refer to 
some of those, that data that you referred to, but we will make 
sure that the committee has copies of this document, because it 
does go into some detail of our projections for the future, 
both with and without extension of the tax credit.
    Mr. Glauber. As we have just mentioned, there is a lot of 
detail in here and I will just go through a quick summary. In 
our baseline we are showing ethanol production to increase to 
about 12 billion gallons. A lot of that is driven obviously by 
the high oil prices that we foresee over the next 10 years and 
the continued high oil prices. Our analysis shows that if the 
credits were removed, that you would see a drop in ethanol 
production, but not by a whole lot. It would drop from around 
12 to around 10 billion gallons, which of course would mean 
slightly lower corn area and slightly lower corn prices over 
the period, and the adjustments throughout the rest of the 
sector. I would say, though, that these, again, are predicated 
on the assumption of fairly high oil prices. If oil prices were 
to drop, for example, down to the, you know, $40 range or where 
we saw them only five years ago, or something like that, then 
obviously the blender tax credit becomes all the more important 
in terms of the overall profitability of the ethanol industry.
    Mr. Boswell. Thank you very much. The chair recognizes Mr. 
Kagen for five minutes.
    Mr. Kagen. Thank you, Mr. Chairman, and welcome, Deputy 
Secretary Conner. It is not Conners, not Chuck Conners, it is 
Conner.
    Mr. Conner. No rifleman. That is correct, sir.
    Mr. Kagen. In your opening remarks and your written 
statement, you indicated that there was a divergent effect of 
ethanol expansion on the different species of livestock and in 
different regions of the country, which could result in 
structural changes in some parts. Would you expand on what you 
mean by structural changes?
    Mr. Conner. As I noted, Congressman, in my opening 
statement, you know, the ability of different species of 
livestock to utilize the dried distillers grain, the byproduct 
of the ethanol process, does very considerably and I think it 
is fair to say that, within the cattle feeding sector, there is 
a very good ability to use these dried distillers grains to 
substitute for what may have been regular feed corn prior to 
that. Obviously, it has been noted as well, particularly within 
the pork industry, that ability is more limited, far more 
limited, as a matter of fact. In terms of the structural 
changes, real quickly, let me just say that I think, you know, 
part of the situation is some of the structural change you 
could see, for example, because of the beef industry's ability 
to use these dried distiller grains.
    And I would note, the ability to use the dried distiller 
grains, even in their wet form, coming right out of the plant, 
what we are seeing in terms of structure is, you know, feeding 
operations occurring close by to where these ethanol facilities 
are. The ability then to feed that wet product, you know, close 
by, you don't have to go through the expense of drying it, 
which is necessary if you transport it large distances, this 
type of thing. You know, those are the types of structural 
changes that we are seeing producers contemplate and in fact, 
actually implement in some cases where some cases the feeding 
of the livestock is moving, you know, to where the ethanol is 
being produced in order to get access to what is, you know, for 
some species, not all, but for some species, a fairly low-cost 
feed stock.
    Mr. Kagen. But to have access to those distiller products, 
you have to be rather close, don't you, within 150 miles?
    Mr. Conner. Well, as has been advised to me, there are two 
forms of those dried distillers grains. There is the wet form, 
which is how they come out of the plant. Those products then 
can be dried, which obviously does add to the expense of the 
product, and then transport it much as you would regular feed 
at that point.
    Mr. Kagen. And before I ask my other question, I want to 
make a comment or two that this morning I haven't heard, I have 
read all of the written remarks about the costs of doing 
business in agriculture, but no one mentioned healthcare and 
being a physician, I have got to tell you, everywhere I have 
been in my district, healthcare was number one. It is their 
number one expense. Energy and feed. So I would appreciate, in 
your other testimony, if you would include healthcare first 
because, unless we solve that national crisis, all our 
businesses, not just agriculture, are going to suffer. You also 
noted that there were high prices and a strong export market 
for many of our products, mostly livestock commodities. So what 
can the USDA do to help keep our export markets viable and 
competitive without any threat for collapse?
    Mr. Conner. If I could, I will address your healthcare 
point first. I would refer you, Congressman, to some of the 
provisions dealing with rural healthcare in our farm bill. Over 
1200 rural critical access hospitals that we are proposing to 
fully revitalize within the dollars that we have made available 
within our farm bill and we are very, very excited about that 
provision. We believe it really represents kind of a 
fundamental quality of life issue in rural America. You know, 
you obviously have to have access to critical healthcare 
facilities. Those hospitals have been designated. They just 
simply haven't been upgraded at this point. We provide the 
resources to upgrade them and I believe we do have a number of 
those in your State as well, and again, a very important 
provision to us. In terms of your second question, and I 
apologize that I am forgetting what that question was.
    Mr. Kagen. It had to do with what the USDA could do to help 
keep the export market stable and viable and competitive.
    Mr. Conner. Absolutely. Well, let me just say, obviously, 
we continue to believe strongly in the export market. As I 
noted in my oral testimony, Congressman, the good news for the 
livestock sector really has been on the export front during 
this period, you know, while they are struggling with higher 
feed prices. Certainly our exports of a number of a different 
commodities has been very, very strong. I believe we will set 
another record, which I believe 17 years running we have 
increased our level of pork exports. We will continue that 
trend this year with another remarkable growth in those 
exports. Broilers, again, have come back strong in terms of 
export activity. The beef situation, you know, we could talk 
about that a long time but we continue to plug away on that as 
well. So I think continue to do that, obviously the beef 
situation is critical to us in terms of moving those products 
and I think we need to just stay focused on that, whether it is 
the Koreans or the Japanese or whatever the case may be.
    Mr. Kagen. Thank you very much. I yield back.
    Mr. Boswell. Well, that brings us to closure. I say this, 
Mr. Secretary, as you go away. Well, I appreciate you being 
here and obviously, we are going to have continuing dialogue.
    Mr. Conner. Yes.
    Mr. Boswell. So we look forward to that and your quick 
response would be much appreciated. Chairman Peterson has said 
that he wants to have something on the table by August break, 
so let us move right along. We are going to have to work 
together and we look forward to your help and thank you for 
coming up today and we will be in touch. So this will close the 
first panel. Again, thank you.
    Mr. Conner. Thank you, Mr. Chairman. You will have our full 
cooperation and whatever you need from us now.
    Mr. Boswell. And I think just to get started right away, I 
noticed that you were here when we had the first panel, so that 
is good. That will save a little time and we will just start 
off with you Mr. Morales, for five minutes and we will go right 
down line and then we will go to questions in direct to all of 
you. So with that, welcome. We are very, very glad to have you 
here.

   STATEMENT OF ERNIE MORALES, MEMBER, NATIONAL CATTLEMEN'S 
         ASSOCIATION, TEXAS CATTLE FEEDERS ASSOCIATION

    Mr. Morales. Good morning. Mr. Chairman and members of the 
committee, my name is Ernie Morales. I am a rancher and a 
cattle feeder from Devine, Texas. I appreciate the opportunity 
to be here today and talk about high feed prices and the impact 
we are feeling in the cattle industry.
    Our industry is currently facing multiple feed pressures. 
Due to widespread drought, last year's wildfires and the recent 
severe winter weather, we have seen our hay and forage supplies 
dwindle. From emergency grazing of CRP acres to hay hotlines, 
our industry has been working hard trying to find enough supply 
to meet our demand, because we have been forced to utilize 
lesser-quality forage as a result. We will continue to see high 
hay demand and prices as drought persists in other areas of the 
country, as we see some hay acres converted to corn.
    As with most of my counterparts who feed cattle, corn is 
our primary feed stock, accounting for about 80 of every 100 
pounds of cattle feed. We will feed about two billion bushels 
of corn this year, out of nearly six billion bushels of feed to 
livestock. The livestock industry remains the largest consumer 
of corn by utilizing almost 58 percent of the total corn used 
over the past decade. From the cattle feeder's perspective, 
every $1 per bushel increase of corn means we must pay 
approximately $22 a hundred weight less for a 550 pound calf, 
just to have a chance to make the same income. For the cow-calf 
producer, that roughly is $121 per head reduction in price. So 
in reality, cattle feeders absorb a portion of the higher corn 
prices in the form of increased operating costs, and the cow-
calf producer absorbs a portion in the form of reduced prices 
for the calves.
    From January 1 to February 16 of this year, the average 
Omaha cash corn price was $3.68 a bushel. The average price 
from the same time period last year was only $1.91 a bushel. 
This is over a 92 percent increase in just one year. This 
increase in corn has moved our cost of gains from an average of 
55 cents a pound in 2006 to 75 cents a pound in 2007. Analysts 
at Cattle-Fax predict that this number may even move into the 
80s as corn demand increases. This is not a cost that the 
producer, nor I as a feeder, can pass along to consumers, 
because consumer demand for our beef is fairly inelastic. There 
is only so much the consumer is willing to pay before they 
begin to choose other protein options. This means that, in the 
short run, the majority of these higher feed costs are borne by 
cattle feeders and cow-calf producers.
    So how is the cattle industry supposed to respond? One way 
is to look at alternative feed sources. Ethanol production 
results distillers grains as a co-product. These co-products 
can be used in our feed rations. In all of the livestock 
species, cattle are the ones that can best utilize these co-
products. On the average, about 30 percent of cattle ration can 
be switched to these ethanol co-products. However, at these 
levels there is concern about cattle performance. The 
variability of the co-products has made it hard to get 
consistent product to blend into our feed. With increased input 
costs and the inherent risk of cattle feeding, the last thing 
we want to see is a cattle not eating and not gaining weight.
    I should also point out that, while wet distillers grains 
actually makes a better feed than dried distillers grains, a 
feedlot must be within 150 miles of the production source in 
order to manage or handle a wet co-product. Wet distillers are 
extremely hard to mechanically handle and are susceptible to 
spoilage. Dried distillers grains, or DDGs, are better to 
handle, but it is still hard to mechanically convey since it 
doesn't flow through hoppers and equipment, like corn.
    NCBA supports our Nation's commitment to reduce dependence 
on foreign energy by developing forms of renewable energy such 
as ethanol. We recognize that Federal support of this ethanol 
industry has been necessary to encourage development of basic 
production technology. However, we as cattlemen believe in a 
market-based economy and there is a concern amongst our 
industry about the influence of renewable energy policy on the 
price of feed stuff such as corn. This is why we support 
transition to a market-based approach for production and usage 
of ethanol produced from corn. NCBA supports allowing the 
existing blenders tax credit and ethanol import tariff to 
sunset as scheduled in 2010 and 2009, respectively. The Center 
for Agriculture and Rural Development at Iowa State University 
produced a comparison of corn prices with and without the 
blenders credit. At a price of $50 a barrel of oil, the price 
of corn in the credit was $2.67 a bushel. Without the credit, 
the price fell to $1.83 per bushel. We believe the U.S. beef 
industry can and will remain competitive as long as we have the 
ability to compete on a level playing field with the ethanol 
industry for that bushel of corn.
    Mr. Chairman, thank you for the opportunity to testify here 
today. Our industry looks forward to working with you and the 
committee in finding ways to develop renewable fuels that will 
not put an undue burden on any agriculture sector. Thank you.
    [The prepared statement of Mr. Morales appears at the 
conclusion of the hearing.]
    Mr. Boswell. Thank you for your comments. We will go to Mr. 
Wonderlich from Dairy Farmers of America, but before you start, 
though, Rob, I give my best to Corinna and Jacob and Rachael.
    Mr. Wonderlich. Okay. Thank you.
    Mr. Boswell. And I am glad to have you here.

     STATEMENT OF ROB WONDERLICH, DAIRY FARMERS OF AMERICA

    Mr. Wonderlich. Thank you, Mr. Chairman and the rest of the 
committee. I am Rob Wonderlich, a dairy farmer from Ollie, 
Iowa. My wife, Corinna, and I operate a 270 cow dairy that 
produces more than 6.5 million pounds of milk annually, or 
760,000 gallons. In addition, we farm 520 acres of cropland. We 
have been in the dairy business for 27 years. I serve on the 
board of directors of Dairy Farmers of America, a national milk 
marketing cooperative based on Kansas City, Missouri, with 
dairy farmer member-owners in 49 states. I also serve as a 
director on DFA's Central Area Council. I appreciate the 
opportunity to testify today.
    Today, I am here before all of you to express my concerns 
about the effect of increased costs associated with dairy 
operations. Specifically, I will speak to you about increased 
feed and fuel costs and how these two items negatively impact, 
not only my operation, but the other 62,000 dairy farmers 
across the United States, even in North Carolina.
    As many of you are well aware, commodity grain prices, 
particularly corn, have dramatically increased over the past 
seven months to price levels not seen since the mid-1990s. Many 
economists are attributing this to a growing demand from the 
ethanol industry, which uses corn as its primary feed stock. 
While this is great for the U.S. grain farmers that have 
experienced several consecutive years of depressed prices, it 
is tragically affecting the financial viability of dairy farms. 
Feed costs are the greatest costs for most dairies and greatly 
impact farm finance. On my personal farm, I have calculated 
that the recent increase in grain prices has increased my cost 
of production by $1.90 per hundred weight. That is a 45 percent 
increase, which is extremely close to the U.S. average feed 
cost increase of $1.89 per hundred weight. I would like to note 
before proceeding, that on my operation I purchase only 50 
percent of my feed. Many other dairies, however, are extremely 
dependent and purchase feed from outside entities and are even 
more susceptible to increased feed costs.
    Increased operating costs are not the only factor of my 
profit equation that is being affected by higher feed costs. My 
farm revenues are being stressed as the value of bull calves 
born from my dairy cows has been drastically reduced by almost 
half. As bull calves require higher grain diets and typically 
require large quantities of corn in preparation for slaughter, 
the calves' value has dropped due to calf feeders' 
unwillingness to buy corn-hungry calves. Therefore my personal 
revenue from bull calves sales has declined by $100 per calf or 
a 50 percent decrease.
    Not only have feed costs been burdensome to dairy farm 
profit margins, but increased energy costs have been as well. 
Based on my farm's financial reports, my energy costs have 
doubled since 2004, which, on a hundred weight basis, is an 
operating cost increase of 40 to 50 cents per hundred weight. 
USDA reported a similar finding as the average energy increase. 
For a U.S. dairy, it has increased by 30 cents per hundred 
weight since 2004.
    Partially due to increased operating costs from feed and 
energy, the value of milk has started to increase after being 
substantially lower for the past 12 months. However, the gains 
in milk prices have not fully offset the increased operating 
costs. According to USDA, the all milk priced received in Iowa 
during January 2007 was $14.40 per hundred weight. That is 
$1.90 per hundred weight higher than June 2006. Of note, I 
would like to add that milk prices in June 2006 were not good 
prices for dairy farmers. The milk-feed ratio, which is a 
statistic that is the price of a hundred weight of milk divided 
by the price of a hundred weight of feed, for February 2007 
shows a ratio of 2.32, the lowest since June of 2003. In June 
2003, this ratio was higher due to an MLIC payment, which was 
not available in February 2007 because the milk price was too 
high. The increase in milk prices are returning me to average 
revenue. From 2003 through 2006, the average all milk price 
received in Iowa was $14.62 per hundred weight. The current 
milk price is just under the State's average price receipt. As 
you can see, higher operating costs are strangling 
opportunities for my farm to produce a reasonable profit. And 
that does not only affect my farm, it is also affecting the 
62,000 other dairy farms in the United States.
    In closing, ladies and gentlemen, I want to thank Chairman 
Boswell and the House Subcommittee on Livestock, Dairy and 
Poultry of the Committee on Agriculture for hearing my 
testimony. Despite any perception formulated from my comments 
today, I am a firm believer in renewable fuels derived from 
agricultural commodities. And further, I applaud the United 
States in trying to decrease its dependence on foreign oil. 
However, this biofuel revolution occurred very quickly and did 
not allow for farmers such as myself, and in the other various 
livestock industries, to properly adapt, which has sent a 
shockwave across the industries in the form of increased 
operating costs. Again, I thank each and every one of you for 
your time, and thank you again.
    [The prepared statement of Mr. Wonderlich appears at the 
conclusion of the hearing.]
    Mr. Boswell. Thank you for your testimony. We will now 
recognize Ms. Philippi from the Pork Producers.

 STATEMENT OF JOY PHILIPPI, IMMEDIATE PAST PRESIDENT, NATIONAL 
                     PORK PRODUCERS COUNCIL

    Ms. Philippi. Chairman Boswell, Ranking Member Hayes and 
members of the committee, I am Joy Philippi. I am a pork 
producer from Bruning, Nebraska. I also have a row crop and as 
of last Saturday, I am the Immediate Past President of the 
National Pork Producers Council. We represent 44 affiliated 
States with 67,000 producers. We also work very hard to make 
sure that we bring their issues to you in a manner that you 
will understand from the viewpoint of the producer. I would 
like to thank you for the opportunity to be here today and I 
applaud you for holding this hearing and I believe it is one of 
the top issues for us to be considering as we look at the farm 
bill.
    Economist Dan Otto and John Lawrence at Iowa State 
University estimate that our industry creates nearly 35,000 
full-time jobs and is responsible for more than 500,000 other 
jobs, and all of these are in the rural areas. In 2005 the pork 
producers of this country marketed more 103 million hogs. That 
amounts to $34.5 billion dollars that was contributed back into 
our U.S. economy. Mr. Chairman, I want to be very clear. U.S. 
pork producers support the development and the use of 
alternative and renewable fuels as a way to reduce America's 
dependence on foreign oil, but we continue to have the jitters 
over the rapid rise of corn ethanol production in our country. 
We have concerns about the availability to find corn to feed 
our pigs.
    In 2006 the United States produced approximately 10.75 
billion bushels of corn. The entire livestock industry consumes 
more than six billion bushels of that. The pork industry uses 
just over one billion bushels of corn. Then nearly 1.5 billion 
bushels are processed for food and industrial uses. And about 
two billion bushels are exported. The ethanol industry in 2006 
used close to two billion bushels, so you can understand why we 
have concerns about having corn available. And right now, this 
morning in Bruning, Nebraska, you cannot buy a bushel of corn 
at any price. It is not available. The ethanol industry is 
expected to use 2.75 billion bushels this year, and considering 
plants under construction and on the drawing board, former USDA 
Ag Economist Bill Tierney estimates that by 2010, it will use 
10 billion bushels of corn.
    In addition to the corn availability issues, the current 
demand for corn already has resulted in higher corn prices. 
Right now, if you are going to buy corn, it is going to cost 
you $4 a bushel. A year ago now, it cost between $1.85 and $2 a 
bushel. That is almost double what we had to pay last year and 
it has doubled our cost of production, especially feed inputs 
from $35 a pig to $65 right now. The ethanol industry is 
growing because of the high price of crude oil, and with the 
blenders tax credit, it adds even more to the cost of that. The 
credit is equivalent to a $1.40 per bushel of corn and that 
also receives a 10 percent per gallon income tax credit, but 
when you add on other State and Federal incentives, it all adds 
up to about $2 a bushel.
    Now, certainly the pork industry will adjust to these 
changes in costs. We did it in the past and we will do it 
again. But according to Iowa State University Center for Ag and 
Rural Development, pork production will need to decline by 10 
to 15 percent to allow the industry to recoup these higher 
prices. CARD also estimates that these higher production costs 
are going to result in a smaller livestock industry in the 
United States, higher retail prices and food price inflation. 
We must recognize that jobs in rural America may also be 
adversely affected. John Lawrence of Iowa State has calculated 
that a 100-million gallon ethanol plant creates about 80 jobs. 
But if the bushels of corn required to produce that much 
ethanol are diverted from use in pork production, there will be 
800 jobs lost.
    It has been also suggested that corn availability problems 
are just irrelevant because of the distillers grains. As we 
told the Senate Ag Committee on January 10, distillers dried 
grains, or DDGs, are just not easily fed to pigs. And I am 
going to defer to Dr. Shurson to expound on that today. Most 
importantly, though, DDGs are so much more useful in beef and 
dairy rations than they are on our hog rations, that those 
industries will probably always be able to bid them away from 
us.
    Now as I said at the beginning of my testimony, U.S. pork 
producers do support alternative and renewable fuels, but we 
believe our industry faces significant challenges because of 
the expansion of the corn ethanol industry. Given all of those 
challenges, last week at our annual meeting our producers set 
policy that we will use as we work to set policy with you on 
the energy issues. Our delegates supported allowing the 
sunsetting of the 51 cent ethanol blenders tax credit and of 
course the tariff. We also believe that if the tax credit has 
to be extended, that we should look at developing a 
countercyclical program, something that would make it work on a 
sliding scale with the oil price. They showed their support for 
renewable fuels by asking that we increase our use of 
biodiesel. And again, we are looking to the future and asking 
for incentives to figure out how we can use methane and 
digesting these things into fuel. One of the other things that 
they, and I believe it is a strong signal of our support for 
using renewable fuels, is that we use the CARD study that was 
mentioned earlier in our foundation. That gives some good data 
as to how this will affect us.
    As I sum up, I appreciate the fact that members of the 
committee have noticed that there is other issues in front of 
us, not just the renewable fuels issue. We look forward to 
working with you as we work to protect our domestic and global 
competitiveness. Mr. Chairman and members of the committee, we 
stand ready to work with you to craft a free market-based fuels 
policy that will protect the fuel, food and feed security of 
our country. I thank you again for the opportunity to be here 
today and I will answer any questions at the appropriate time.
    [The prepared statement of Ms. Philippi appears at the 
conclusion of the hearing.]
    Mr. Boswell. We thank you. And we do have a vote on, but I 
think that we can go to Mr. Seger and I don't think I will have 
to interrupt you, but we would like to go ahead and take your 
testimony and then we will probably take a short recess. Mr. 
Seger.

          STATEMENT OF TED SEGER, FARBEST FOODS, INC.

    Mr. Seger. Good morning, Chairman Boswell and Ranking 
Member Hayes. Thank you for the opportunity to testify today. 
My name is Ted Seger and I am president and part owner of 
Farbest Foods, Incorporated in Huntingburg, Indiana. Farbest 
soon will be the Nation's fourth largest integrated turkey 
company, contracting with 150 producers and employment more 
than 700 people. We are involved in grain procurement, feed 
manufacturing, growing, processing and marketing of turkey meat 
around the world. I also serve as chairman of the National 
Turkey Federation, which represents all segments of the $8 
billion U.S. turkey industry.
    Our industry has significant concerns about the growing 
impact of Federal renewable fuels policy on the demand for corn 
and soybeans. These two commodities account for nearly three 
fourths of a turkey's daily feed ration. The price of corn has 
increased more than $2 per bushel in the last 12 months. Corn 
supplies are tightening and most new corn acres are expected to 
come at the expense of existing soybean acres. There have been 
many forecasts about the effects of ethanol production. In 
almost all cases, findings indicate the availability of feed 
grains will be limited tremendously over the next two to three 
years. USDA's own forecast indicates that the corn stocks use 
ratio will fall below six percent in the 2007-2008 crop year. 
This is the lowest ratio since 1995-1996, when corn prices 
reached a record $5 per bushel. Turkey production fell by more 
than 10 percent and our industry consolidated significantly in 
that time.
    Our low ending stock is especially alarming, given three 
straight years of record corn production. More than one third 
of the cost of a tom turkey is generated by corn and soybean 
meal alone. Increasing corn and soybean meal and other feed 
ingredient prices from just one year ago has raised the feed 
cost per tom turkey by about eight cents per pound, a 35-
percent increase. That equals $576 million more in feed costs 
on annual basis to the industry. Turkey companies will have to 
cover this increased cost through higher values for exports as 
well as domestic products. In the long run, this will mean 
higher food costs for consumers. Existing sales contract 
commitments have held prices down, shrinking turkey company 
profits to near zero and it is likely the industry will absorb 
losses in the short run. Eventually, though, high feed prices 
will result in a decrease in poultry and meat production. It 
also will result in food service and retail contracts that 
shift the cost burden to consumers. There are indications that 
this already is happening. The Consumer Price Index for food 
released in January showed an alarming 0.9 percent increase in 
one month alone, from December 2006 to January 2007, for all 
food.
    The commodity grain market futures are trading today on the 
assumption that we will have the largest corn crop in history. 
Our industry's concern is what happens if we produce 11 billion 
bushels instead of the 12.2 billion bushels projected? Keep in 
mind that 11 billion bushels would still be the second largest 
crop ever, yet it would leave the balance sheet with negative 
carryover of more than 200 million bushels. The current dilemma 
is that demand is far outstripping supply, and demand is 
continuing to grow rapidly. The Renewable Fuel Association 
reports today's capacity at 5.6 billion gallons per year and 
almost certain to reach 11.8 billion gallons by 2008. These 
plants will consume at least 3.9 to 4.2 billion bushels of corn 
for 2009. This is one billion bushels more than the 2008 USDA 
projection of 3.2 billion bushels used for ethanol. Again, even 
with a best case scenario, two record crops in a row, we will 
still likely be in a deficit carryover situation. The reality 
for many turkey companies is that there is no economically 
feasible substitute for a grain-based diet. Feeding more wheat, 
barley, sorghum or soybean meal has no advantage because these 
products trade at energy equivalent values to corn. DDGs can 
only be used on a limited basis. Ten percent is about the 
maximum for turkeys. DDGs cannot replace corn on anything 
approaching a one-to-one basis.
    NTF's first recommendation is to support the highest level 
of funding possible for all farms of cellulose-based research 
and full funding of already approved cellulose-based 
demonstration projects. As you write the farm bill and if the 
committee has input on the new energy bill, NTF has several 
other recommendations we believe will help speed energy 
independence and minimize the impact of a renewable fuels 
policy on poultry and meat producers. Our recommendations 
include providing maximum funding for research into ways corn 
yields can be increased; allowing farmers whose CRP contracts 
are close to expiring to opt out early with no penalty. This 
would be similar to the program implemented in 1996 and 1997; 
eliminating the 51 cent per gallon blenders credit for ethanol, 
or at least indexing it to the price of oil; eliminating the 54 
cent per gallon duty on ethanol imported from the Caribbean, 
Central America and South America; promoting the production of 
a more consistent, higher quality DDG by ethanol plants.
    Thank you again for the opportunity to testify and I hope 
that I have been able to convey the impact on feed prices and 
food prices for you, and I will look forward to answering any 
questions.
    [The prepared statement of Mr. Seger appears at the 
conclusion of the hearing.]
    Mr. Boswell. Thank you very much. I am sorry that we have 
to interrupt now, but we do have two votes, so I will be back 
as quick as I can and ask for your indulgence and your patience 
and we will continue just as soon as we get back. So we will 
take a momentary recess.
    [Recess.]
    Mr. Boswell. Okay. Thank you very much for the interruption 
and we will continue on. Let us see. Mr. Seger, you had just 
finished, so we would like to go now to Mr. Herman. Thank you 
for being here. Five minutes, please.

  STATEMENT OF MATTHEW HERMAN, COMPLEX MANAGER, TYSON FOODS, 
 BEHALF OF NATIONAL CHICKEN COUNCIL AND NORTH CAROLINA POULTRY 
                           FEDERATION

    Mr. Herman. Good afternoon, Chairman Boswell, Congressman 
Hayes and members of the subcommittee. On behalf of the 
National Chicken Council and the North Carolina Poultry 
Federation, I appreciate your invitation to provide the chicken 
industry's comments on the impact of the new cost environment 
for feed grains and oilseeds. My name is Matthew Herman, 
Complex Manager for Tyson Foods in Monroe, North Carolina, 
which includes a slaughter plant, a hatchery and two other 
facilities. We contract with 190 family farmers to grow our 
broilers, and 42 family farmers to produce our hatching eggs. 
Each week, my complex produces more than 1.3 million chickens 
or approximately eight million live pounds.
    In 2006, the industry nationwide produced almost 48.5 
billion pounds live weight of chickens, using more than 53.5 
million tons of feed. The industry purchased 1.3 billion 
bushels of corn to make this feed. Before the price of corn 
began to escalate rapidly in mid October, the average cost of 
feed was $139.20 per ton. Last month the same ton of feed cost 
34 percent more, almost entirely because of the rising cost of 
corn. Last year the chicken industry's total feed bill was $7.5 
billion. This year the total feed cost to the chicken industry 
will very likely be over $10.5 billion, a 40-percent increase.
    Certain analysts have suggested that we have been here 
before. That is, animal agriculture has weathered high prices 
for feed grains and oilseeds in years past. In the past, 
however, this has been a short-term supply-driven problem. 
Today's situation is demand-driven, with no end in sight. U.S. 
animal agriculture has not been here before.
    In response to an inquiry from the National Chicken Council 
this week, Dr. Bruce Babcock, Director of the Center for 
Agriculture and Rural Development at Iowa State University, 
analyzed the impact of corn costs on the grower industry. He 
concluded that rising costs will result in a period of low or 
even no growth in poultry production, with rising prices at 
both the wholesale and retail levels. Dr. Babcock's conclusion 
assumes a near-adequate supply of corn, but will there be a 
near-adequate supply of corn in the years ahead?
    Assuming average yields for the corn harvest in 2007 and 
2008, 21 million additional acres must be shifted to corn 
production over the next two years to meet the expected needs 
for food, fuel and export. Such a major shift is virtually 
impossible. We, as a Nation, need to decide the proper balance 
between grain for feed and food and grain for bioenergy. This 
is a discussion that is long overdue. Foremost in a national 
discussion on the issue is the need for a credible plan of 
action in the event of a significant shortfall in the corn 
crop. What happens if there are not enough acres shifted to 
corn and yields are measurably below the trend line?
    In addition, we need more focus on non-grain-based 
solutions and the contributions animal agriculture can make to 
energy independence. For example, animal fats are an excellent 
feed stock for emerging renewable diesel technologies. While 
animal agriculture is prepared to participate in the growth of 
renewable fuels in the United States, it is vital that these 
types of developing technologies be supported so that 
agriculture capabilities are more fully utilized.
    In addition to initiating a national discussion about the 
proper balance and pathway for the United States to move toward 
more energy independence, Congress can do several things to 
meet the needs for both food and fuel. Let me mention just two 
of them: permit non-environmentally sensitive cropland in 
USDA's Conservation Reserve Program to be released without 
penalty and loss of program benefits; permit non-
environmentally sensitive cropland in the Conservation Reserve 
Program to produce grain and oilseed crops if the harvest is 
designated for use to produce bioenergy.
    Achieving greater energy independence is a very worthy 
national goal that we all can support. Achieving that goal must 
be pursued in a reasonable, rational way. Moving forward at a 
measured pace that allows agriculture producers to adequately 
react to market signals and at a pace that minimizes 
disruptions to food production and consumption should be a 
priority.
    I would like to again thank the subcommittee for the 
opportunity to testify today. I would be happy to receive any 
questions.
    [The prepared statement of Mr. Herman appears at the 
conclusion of the hearing.]
    Mr. Boswell. Thank you very much. We appreciate your 
testimony and we will have questions. Mr. Truex, thank you for 
being here. We are looking forward to your testimony.

    STATEMENT OF RON TRUEX, PRESIDENT AND GENERAL MANAGER, 
 CREIGHTON BROTHERS, LLC, ON BEHALF OF THE UNITED EGG PRODUCERS

    Mr. Truex. Good morning, Mr. Chairman and Mr. Hayes and 
members of the subcommittee. My name is Ron Truex and I am the 
President and General Manager of Creighton Brothers in Warsaw, 
Indiana. We are a midsized egg producing operation and employ 
approximately 300 people in northern Indiana. I appreciate the 
opportunity to testify on behalf of the United Egg Producers. 
About 90 percent of all the eggs in the United States are 
produced by UEP members. Thank you for holding this hearing. 
There is no doubt that ethanol is booming, but unfortunately, 
every boom has its downside. For people in the livestock and 
poultry sector, feed costs have risen dramatically and there 
are some very real consequences that Congress needs to 
consider.
    Ethanol and other biofuels will benefit the United States 
in many ways. By expanding our use of the renewable energy 
sources, we can reduce our dependence on imported oil and cut 
our overall use of fossil fuels. However, half of the U.S. farm 
economy is livestock, dairy and poultry, and anyone who must 
buy animal feed has been hurt by the dramatic increases in the 
cost of production. About 55 percent of the cost of producing a 
dozen eggs is feed. Sixty-three percent of a typical layer 
ration is corn. When corn prices are $4 a bushel, egg 
producers' costs skyrocket. A typical Midwest egg operation saw 
feed increases per ton increase about 58 percent from September 
of 2006 through the end of February 2007. Feed went from $106 
per ton for a layer ration in September to $168 per ton in 
February of this year. For my operation, the cost of feed in 
each dozen eggs increased from a range of approximately 16 
cents per dozen during most of 2006 to nearly 29 cents per 
dozen today, over a 10 cent per dozen increase.
    Of course, costs in other areas of the country are higher 
than in the Midwest. It is good to be from Indiana. Their grain 
transportation and other similar factors costs them more, so 
other regions of the United States have been hit even harder 
than producers in my area. USDA published long-term projections 
just two weeks ago that back up these numbers. The Department 
projects that not only was egg production unprofitable during 
2006, which many of us can attest to, but according to the 
Department, egg producers will lose money in each of the next 
several years through 2009, largely because of higher feed 
costs. What will happen is producers sustain losses and are 
unable to continue their operations. In some cases, production 
will pass into stronger hands, meaning more consolidation. 
Midsized operations like mine will find it harder and harder to 
compete. In other cases, some production will may move outside 
the United States. In that case, the domestic demand base for 
U.S. feed grains and oilseeds will shrink.
    Mr. Chairman, I would like to conclude with several 
specific policy recommendations for your consideration. First, 
if Congress expands the Renewable Fuels Standard, the expansion 
should be limited to fuels that are made from non-corn feed 
stocks. Any increase in the RFS should focus on cellulosic feed 
stocks. And if this is not yet realistic, the RFS expansion 
should be delayed until it is. Second, Congress needs to ask 
whether the current 51 cent per gallon excise tax credit is 
really a necessary incentive when oil prices are high. Does 
ethanol really need the same level of support when oil is $60 
per barrel as it did when oil was $30 per barrel? We suggest 
that Congress explore a countercyclical tax credit that is 
greater when oil prices are low, but less when oil prices are 
high. Third, Congress should encourage the Secretary of 
Agriculture to use his authorities to permit early release of 
some land in the Conservation Reserve Program. Internal USDA 
estimates suggest that several million acres could potentially 
be added to corn plantings in this way. Of course, the land 
needs to be selected in an environmentally responsible manner. 
Fourth, we encourage Congress to expand research in several 
areas: commercialization of technologies to make ethanol from 
cellulosic biomass; modification of DDGs to expand their 
potential use in non-ruminant rations; and the development of 
other renewable energy sources, such as power generation using 
manure and mortality. Fifth, we believe there should be greater 
parity of production incentives. Any tax credits or similar 
benefits available to ethanol or biodiesel should also be 
available for other sources of renewable fuels, including 
products of the livestock and poultry industries, like fats, 
tallow, waste and mortality.
    Mr. Chairman, I know the strong support of many members of 
this subcommittee are for renewable energy. I am also in favor 
of renewable energy, but I do not believe my industry should be 
sacrificed so we can mandate the next billion gallons of corn-
based ethanol. Everyone says that the future of ethanol is in 
cellulose rather than starch. Our policies, including the 
Energy Title of the 2007 Farm Bill, should reflect this 
commitment. We would like to work with you to make sure they 
do. Thank you very much.
    [The prepared statement of Mr. Truex appears at the 
conclusion of the hearing.]
    Mr. Boswell. Thank you very much. Dr. Shurson, we would 
like to hear from you at this time. Thank you for being here.

 STATEMENT OF GERALD SHURSON, PROFESSOR, DEPARTMENT OF ANIMAL 
                SCIENCE, UNIVERSITY OF MINNESOTA

    Mr. Shurson. Thank you very much. It is my pleasure. 
Chairman Boswell, ranking member, Mr. Hayes and other members 
of the subcommittee, I think the first point I would like to 
make, and I will be very brief and hopefully we will have some 
time for questions, is that we need to recognize that 
distillers byproducts are really an imperfect substitute for 
corn, no matter what livestock or poultry species we talk 
about. And so distillers byproducts can partially replace some 
of the corn, soybean meal, some of the inorganic phosphorus in 
our animal feeds, and as a researcher and educator, I guess our 
position has been, at the University of Minnesota, to really 
accept the fact that the ethanol industry is here to stay and 
we are going to have increasing amounts of these byproducts. 
And I guess, from our point of view, what we are trying to do 
is understand the benefits as well as the limitations so we 
know how to manage using these byproducts most effectively, 
where they have the greatest value in various animal species.
    I am really from a nutritional point of view, and a very 
simple way of thinking about things is that distillers 
byproducts are really nothing more than a package of nutrients, 
just like any other ingredient. But the economic value, the 
amount that we can feed the various animal species, as well as 
some of the benefits and limitations that are inherent with 
these byproducts, those vary depending on the type of animal 
that we are trying to feed. For example, and I think the 
reference has been made a couple of times here this morning, 
that these distillers byproducts, because of their proportions 
of nutrients and the form that these nutrients are in, are 
always going to be worth more in dairy cattle diets, followed 
by beef feedlot diets, then probably poultry diets, with swine 
diets probably having the most difficulty in being able to 
utilize the package of nutrients that DDGs or some of these 
byproducts provide. And so there are different abilities of 
different livestock commodity groups to pay more or less for 
some of these byproducts.
    And again, kind of focusing on what our research and 
educational program has been really about here over the last 10 
years or so is really trying to understand some of the 
limitations and if we understand those, we can then begin to 
try to manage feeding programs around them. And again, I think, 
just to reiterate some points that other people have made this 
morning, variation in nutrient content and digestibility 
continues to be a big issue. Our ability to pellet diets, 
particularly for some of the swine integrators and some of the 
poultry integrators in the Southeast, is another limitation and 
one of the problems we run into is reductions in meal 
throughput, even fairly low inclusion rates in some of these 
monogastric diets. And clearly, some ethanol plants have issues 
with flowability, which has implications in terms of unloading 
it out trucks and railcars, and those are some issues that 
really need to be addressed to enhance utilization of these 
byproducts, especially the dried byproducts, more effectively 
here in the livestock industry.
    A couple of other specifics. One of the limitations is when 
we feed DDGs, or wet distillers grains, to lactating dairy 
cows, one of the problems that we could run into at inclusion 
rates greater than 20 percent is a depression in milk fat. And 
maybe some of the newer fractionated byproducts coming on the 
market that are lower in fat will allow us to go to higher 
inclusion rates, which would be a good thing, but we need to 
learn more about some of these feeding applications as this 
growing number of new variations of distillers byproducts 
continue to evolve.
    We are also feeding quite a bit of it in dairy cow rations 
as well as beef feedlot rations, but one of the things we have 
to recognize from a broader perspective is that this ingredient 
is going in as primarily an energy source and by treating it 
strictly kind of as an energy source. We end up overfeeding 
protein or nitrogen as well as phosphorus, and certainly that 
has implications in terms of manure management plans and 
dealing with nitrogen and phosphorus excretion in manure, 
particularly as we move as an industry toward phosphorus-based 
manure standards. Amino acid balance. That is an issue for 
swine and poultry. Corn is not a very high-quality protein 
source, relative to the amino acids that make up protein, and 
that is a limitation as well.
    On the pork side, which is an area that I am probably most 
familiar with, because that is what I specialize in, we are 
currently doing some research right now trying to understand 
how we can manage some of the potential negative impacts that 
feeding a high corn oil-based byproduct, like DDGs, might have 
on pork fat quality. And probably one of the hottest topics 
right now that I know FDA is addressing to some extent, and 
other feed industry groups, is this issue about the potential 
for antimicrobial residues, knowing that myosin, penicillin in 
particular, are a couple of those that are used fairly 
regularly in the ethanol industry to control bacterial 
infections during fermentation. And at this point, there really 
aren't any significant amounts that are causing issues that we 
know of, but certainly some more surveillance and research is 
needed to verify that some of these production issues are not a 
major concern for food animal production.
    And so again, kind of just to summarize here a little bit, 
we do need to continue working on understanding some of the 
different nutritional attributes of this ingredient. There are 
some very positive benefits that our research has identified, 
not only in swine feeding applications, but certainly other 
research groups around the country that have been working 
closely with this byproduct have also been able to identify, 
and by overcoming some of those limitations, clearly, we will 
be able to move more of this set of byproducts into greater 
usage rates in livestock feeds.
    I think one of the real key questions, though, that we are 
dealing with is, will the rate of increased distillers grains 
use in various sectors of the livestock and poultry industry 
keep up with the rate of increased production? And I think a 
lot of that really depends on how good a job some of us at land 
grant universities do in terms of conducting research on 
relevant topics, relevant issues and how well we do in terms of 
educating end users, as far as how to use these byproducts most 
effectively. One of the approaches that we have done at the 
University of Minnesota is to create a website exclusively 
devoted toward sharing relevant, practical scientific-based 
information on feeding applications of distillers byproducts to 
the feed industry, the livestock and poultry industry and I am 
proud to say that, in the last four years, that website has had 
over a million hits, which tells me that there is a lot of 
interest out there and hopefully the information we are 
providing is benefiting people. And clearly, more efforts are 
needed along those lines as well, because, quite frankly, for a 
lot of States, a lot of producers around the country in maybe 
non-traditional corn producing areas, this becomes a little bit 
of an issue.
    I am going to stop there and just thank you for the 
opportunity to be here today and I look forward to any 
questions you may have.
    [The prepared statement of Mr. Shurson appears at the 
conclusion of the hearing.]
    Mr. Boswell. Well, thank you very much. A few questions and 
I think we will have plenty of time, but I don't want to drag 
this out too long because of the time of day. But back to you, 
Mr. Morales. I think you said in your statement that, in fact, 
wet distillers grain is actually a better feed than dry?
    Mr. Morales. Yes, sir.
    Mr. Boswell. But your feedlot has to be within a close 
proximity of the availability of that?
    Mr. Morales. That is correct.
    Mr. Boswell. And it is more of a statement and I am not 
here to quarrel with you about it, but in my district, I drive 
through Eddyville frequently and see what is going on there and 
I kind of stop and check on them once in a while, the big plant 
there and all of the stuff coming out of there, and I think 
they are up to like four railcars that will take the wet 
distillers grain all the way to Amarillo. And so I believe that 
they have got four cars in action already. I don't know if they 
are going to do more. Are you aware of that?
    Mr. Morales. Are those specifically wet distillers grains 
from ethanol plants, or could that be--and maybe, doctor, you 
could help me with that. That could be a byproduct that we use, 
called corn gluten. It is?
    Mr. Boswell. Okay.
    Mr. Morales. And corn gluten is used very limited in our 
Nation. We can only use up to 10 percent of corn gluten. But 
that is not the same thing as what we are talking about as wet 
distillers grain.
    Mr. Boswell. That is different.
    Mr. Morales. Yes, sir, that is correct.
    Mr. Boswell. That is a good clarification on that. Okay. I 
appreciate that. Mr. Wonderlich, milk prices increased 
recently. What caused that?
    Mr. Wonderlich. We have had several things that have helped 
to increase the price of milk that the farmers are receiving. 
Some of the things, we have an organization called National 
Milk Producers Federation and we have had a self-help program 
that we initiated, called Cooperatives Working Together, or 
CWT. For this program, it is self-funded by the dairy farmers 
and we have used monies collected from the dairy farmers at 
five cents a hundred weight, and now up to 10 cents a hundred 
weight, and used that money to help to export cheese. We have 
also had herd retirement programs, which we are having another 
herd retirement program coming up, where we will pay farmers, 
based on their previous year's milk production, so much. They 
have to bid into the program at a hundred weight basis what 
they would take to exit the business. They could also, again, 
resume being a milk producer after those cows have been shipped 
to slaughter.
    Another thing that has helped significantly is the price of 
whey on the international market, and other dairy proteins. 
There has been a strong demand from the international community 
for U.S. diary products, especially the whey and protein 
ingredients. These have significantly impacted the price of 
milk over the last several months and helped to bring it up. 
Also, on the future market, speculators are looking at the corn 
prices and contemplating what that is going to do to the dairy 
sector over time, and in the futures market, they are 
responding on down the line with higher prices yet for dairy 
commodities, but we have to get to that point. We, in the dairy 
industry, have had the year of 2006 as a relatively low-priced 
year and now with the advent of the high feed costs, it is 
negatively impacting our operation. The Deputy Secretary for 
Agriculture stated that the USDA looks for the milk price to 
increase by 15 percent over this coming year of 2007, while at 
the same time our feed costs are increasing in the 40 to 50 
percent range.
    Mr. Boswell. Thank you very much. I may have another 
question for you, but I am going to stay by own rules here. But 
I want to ask Ms. Philippi, sometime we are a victim of what we 
read and you can't always believe everything you read. We all 
know that. But nevertheless, I am going to pose this question. 
The article on feed stuff recently, a writer by the name of 
Scott Tapper, with the Iowa pork producers, said that ``good 
producers will still make money, even with higher corn prices. 
We will have to cut back on the market weights of our hogs and 
start using more dried distillers grains.'' Would you please 
respond to that statement? And would you say it is accurate, or 
whatever comments you might make. And I realize that you have 
got to have the corn. You already told me that a little while 
ago.
    Ms. Philippi. Right, right.
    Mr. Boswell. But you got to be able to find it and I 
understand, out in your territory, there is none available. I 
understand that. But set that aside and respond, please.
    Ms. Philippi. Okay. I think the issue that we see, and you 
bring up a good one, you know, if we can't make any money at 
it, we are not going to stay in the business. The other thing 
is, if it isn't fair, they are not going to stay in the 
business. And I spoke with one of the Iowa folks at their 
annual meeting, where we talked a lot of about, you know, how 
do we keep this thing in a balance out there, because they like 
ethanol and all of these things. Yet, they laid it out pretty 
clearly that if we can't find corn, we can't raise pigs. And if 
we can't raise pigs, that is not good for ethanol, either.
    Mr. Boswell. Well, I understand that and I appreciate you 
taking that position, but getting back to this statement. Some 
of you didn't have the drought conditions and corn was 
available at the price. Is he making an accurate statement or 
not, in your opinion?
    Ms. Philippi. Yes.
    Mr. Boswell. You think it is accurate? You can still make a 
profit?
    Ms. Philippi. Would you repeat?
    Mr. Boswell. Yes, sure. I am just referring to the article 
on feed stuffs by Scott Tapper, I believe it is. His statement 
was `` good producers will still make money, even with higher 
corn prices. We will have to cut back on the market weights of 
our hogs and start using more dried distillers grains.'' And 
that was his statement. What is your response to that?
    Ms. Philippi. Well, we can always adapt to different corn 
prices. The retailers got to be involved in helping us get more 
for that. But the next two years are going to be tough because 
we weren't prepared for it. And you know, like, it took $15,000 
more per 2,000 head, just to produce the last pigs that we put 
out. So you know, you got to have those things. You got to work 
it into it. A year from now it will be easier than it was now.
    Mr. Boswell. Okay. Mr. Hayes.
    Mr. Hayes. Thank you, sir. And again, thanks to all of you 
for being here. And believe me, it makes a difference to have 
you all here getting this information out, particularly your 
personal experiences. Mr. Herman, North Carolina is a corn 
deficit State. You talked in today's testimony about the 40 
percent increase. What, if anything, is the poultry industry 
considering as an alternative, and are there viable 
alternatives at this point in time?
    Mr. Herman. Yes, there are. I guess, as a company, at 
Tyson, we have established a renewable energy program or 
division, currently exploring the use of animal fats for 
alternative fuels. Also, I guess DDGs are not used in chicken 
rations currently, due to their high fiber content. But if we 
had research to help single-stomach animals such as chickens, 
that would be very helpful for us.
    Mr. Hayes. But no real alternatives for feed at the moment 
that would take the place of corn?
    Mr. Herman. No, sir.
    Mr. Hayes. People are concerned about corn prices adding to 
the cost of our exports. It makes us less competitive with 
Brazil. Has this trend begun or is it something that is coming? 
What is the status on pricing poultry?
    Mr. Herman. Congressman, I am not sure exactly. I will have 
to look----
    Mr. Hayes. Okay. Mr. Seger.
    Mr. Seger. If you will, I can take a shot at that one.
    Mr. Hayes. Sure.
    Mr. Seger. Because we are into marketing all across the 
world. And I will speak for turkey right now and I think that 
chicken leg quarters are in a similar position today, exports 
right now for turkey and chicken. In 2006, export markets, we 
exported just a little bit less than we did in 2005, but the 
value of those exports were up just a little bit, so it offset 
some of the increased cost, but a small portion. Today, the 
situation is, in Turkey, for example, we export and our primary 
export is Mexico and our prices of turkey drumsticks and turkey 
thigh meat are relatively high. And I can tell you, though, 
that as we sit here and speak, there is a very large resistance 
from Mexico to continue to purchase turkey drumstick meat from 
us right now. I know leg quarters are 45 cents a pound, I 
believe, and that is obviously their largest export market, but 
I can't tell you how that reaction is today. But I think, over 
time, as I said in my remarks, that we will lose export markets 
as an industry, if we continue to try to raise those, as I put 
it, our dark meat values too much. We can push it to a certain 
limit, but after that, then they will start switching to other 
alternatives, assuming that they have other alternatives.
    Mr. Hayes. Thank you, sir. Dr. Shurson, you talked about 
DDGs and if you were a poultry or hog producer right now, pork 
or poultry, would you use DDGs to feed your stock?
    Mr. Shurson. The quick answer is yes and it is being used.
    Mr. Hayes. Good. How are we doing with the whole idea of 
using excess animal nutrients and methane for energy? What is 
happening there? Anything good to report today? Either or both 
of you.
    Mr. Shurson. Well, I can just comment that there is a 
growing interest in using methane as an energy source, or 
collecting methane. Economics, some of the technologies still 
need further development. We are in the process at the 
University of Minnesota-St. Paul campus of looking at that 
issue, methane generation, very closely. In terms of excess 
nutrients generated by feeding distillers byproducts, one of 
the things you can argue is a benefit in swine and poultry 
diets is that, when we run corn through an ethanol plant, we 
take a fairly low-digestible level of phosphorus in corn and 
make it very highly digestible. That is good news, because now 
we can start taking some of the inorganic phosphate out of our 
diet, which is a fairly expensive nutrient that we have to 
supplement anyway, and we can actually minimize excretion of 
phosphorus by using distillers grains, particularly if we throw 
in the enzyme, phytase. So on the monogastric side, distillers 
grains has a benefit in terms of phosphorus excretion. We still 
have problems with excess nitrogen coming out. Hopefully that 
kind of answers your question.
    Mr. Hayes. Very good. Thank you.
    Mr. Boswell. Mr. Smith, please.
    Mr. Smith. Thank you, Mr. Chairman, and thank you for all 
of your testimony today. I think it highlights the fact that we 
have a very stable industry and I hope we can keep it that way. 
And I also appreciate, I think, a high level of feedback from 
you that is not a bunch of finger pointing and obviously you 
recognize the fact that there are some pretty excited corn 
growers around the country and they have paid a price over the 
years as well. If anyone would choose to briefly highlight 
perhaps the dialogue, the interactivity with the corn growers, 
perhaps, whether it is planning ahead, what can we expect from 
this point forward, maybe a brief history on the relationship, 
but certainly I appreciate the testimony to date. And perhaps 
if anyone would choose to elaborate? Ms. Philippi.
    Ms. Philippi. I guess I will start out with that one. We 
have had ongoing dialogue with the corn growers, because the 
majority of our members are diversified and they have asked us 
to do that. We try to make sure they understand what we are 
doing and we want to know what they could do and how they can 
help us as well. We just recently, Monday, I spoke with their 
chairman and we talked about the policies we passed, the 
policies they passed, and then how we can work together on many 
other issues.
    Mr. Smith. Okay. Thank you. And then, obviously, from your 
testimony, I think you pointed out that, livestock is still a 
much larger consumer of corn and we don't want to jeopardize 
that. The next question that I have is, and I hear about the 
promise, perhaps, if that is the correct description, of 
biodiesel and the future that biodiesel has, might we find 
ourselves in a similar situation with a similar growth, 
perhaps, in the future of biodiesel?
    Mr. Wonderlich. Maybe I will take a stab at that. I think 
you are correct in that assumption, but also the fact that the 
increase in the corn acres that we are going to see this year, 
that is already going to negatively impact, for livestock 
producers, the price of soybeans and soybean meal mixture. 
Another area of concern for cattle producers and dairy 
producers is there will be probably large numbers of acres of 
alfalfa and hay ground that will come out of that type of 
production and go into corn production. But I think it is going 
to have a revolving effect that we are going to see from this 
whole thing, this whole biofuel revolution.
    Mr. Smith. Okay. Thank you. And I yield back the balance of 
my time. Thank you.
    Mr. Boswell. Thank you very much. I am wondering, Mr. 
Truex, do you know Mr. Van Zenten from out----
    Mr. Truex. Yes, I do.
    Mr. Boswell. Well, give him my regards and since I have 
known him for a number of years and tell him I expect to hear 
from him.
    Mr. Truex. I will do that.
    Mr. Boswell. On this matter.
    Mr. Truex. Okay, I will tell him.
    Mr. Boswell. And I appreciate that very much. And I just 
have to talk about all of you, whether you are coming in 
forthrightness. I think you presented us more problems than you 
have solutions, but this is the beginning and I appreciate that 
and it is going to be interesting to see, as the news reports, 
your suggestions to stop the subsidies and open up the foreign 
market. It will be interesting how that is responded to as we 
go out across the country. So we will let that play its way 
out. But I just feel like we have done a good thing here today, 
because I have learned and I think you have. I think you agree 
with me, the man from Nebraska. And Mr. Hayes said to be sure 
and tell you this, as he went to another committee. They are 
doing a markup, I believe, on armed forces, which of course we 
all heard about. But I want to thank you for your time and I 
know we have heard a lot of information. I believe that the 
committee gained some knowledge here today and that is what we 
are all about, and hopefully some possible avenues where we can 
go forward. We will continue to look for more and I want you to 
consider this is an open invitation to keep this communication 
channel open and let us keep going there.
    I think we have heard today discussions from our 
researcher, a professor and some of you, that there is a lot 
being done on trying to assist us in how to use the distillers 
grains better. I want to help myself and the rest of our 
producers to be able to meet these demands and I think we can 
and I have a lot of hope that we will. I would guess that those 
of you are direct producers sitting out there, and I know some 
of you are, if not all of you, that you must be an eternal 
optimist or you wouldn't be doing what you are doing. So I feel 
the same way. So I am going to pledge to you today that we are 
going to keep the communication channel open and we want to 
hear from you and we will continue to work with you and 
hopefully, again, we will have solutions to these challenges 
before us. But it is truly a new era in agriculture and I am 
very excited about being part of it and I hope you are too. We 
have got challenges? Yes, we talked about that in the 
beginning. But together we can work our way through it and we 
are going to be okay.
    So I am going to call this meeting to a close, unless there 
is anybody on the panel who wants to make one last comment. I 
will give you this opportunity. I see that Bob has got 
something that he wants to say and I welcome him to say it.
    Mr. Wonderlich. Well, I would just like to mention about 
much has been said about DDG, and in the dairy business, it is 
my experience that if I feed more than seven or eight percent 
of that in my diet to my dairy cows, that we have a decrease 
fat production.
    Mr. Boswell. Say again the percentage.
    Mr. Wonderlich. If I feed more than seven to eight percent 
of DDG in my dairy rations, that it negatively impacts the fat 
production of my dairy cows. And also the fact that the price 
of DDG has gone up dramatically too. It is not a bargain to be 
feeding that. I purchased last year, FOB from the ethanol 
plant, DDG for $75 per ton. That price has since risen into the 
$140 to $150 range. So it has gone up, percentage-wise, 
basically like the corn price has.
    Mr. Boswell. Well, I appreciate that and thank you for 
sharing that information. I think everybody you are telling 
that is at your kitchen table, but I appreciate that very much 
and I think the rest of us need to understand that, that just 
to feed more doesn't necessarily solve it, particularly in the 
area where it is an influence on the fat and so on.
    All right, under the rules of the committee, the record of 
today's hearing will remain open for 10 days to receive 
additional material and supplementary written responses from 
witnesses to any question posed by a member of the panel. The 
hearing of the Subcommittee on Livestock, Dairy and Poultry is 
adjourned and I thank you very much.
    [Whereupon, at 12:44 p.m., the subcommittee was adjourned.]
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