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



 
  HEARING TO REVIEW THE PROPOSALS TO AMEND THE PROGRAM CROP PROVISIONS
         OF THE FARM SECURITY AND RURAL INVESTMENT ACT OF 2002

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                        GENERAL FARM COMMODITIES
                          AND RISK MANAGEMENT

                                 OF THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 28, 2007

                               __________

                            Serial No. 110-9


          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, Ranking 
    Vice Chairman                    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

                 April Slayton, Communications Director

           William E. O'Conner, Jr., Minority Staff Director

                                 ______

      Subcommittee on General Farm Commodities and Risk Management

                BOB ETHERIDGE, North Carolina, Chairman

DAVID SCOTT, Georgia                 JERRY MORAN, Kansas, Ranking 
JIM MARSHALL, Georgia                Minority Member
JOHN T. SALAZAR, Colorado            TIMOTHY V. JOHNSON, Illinois
NANCY E. BOYDA, Kansas               SAM GRAVES, Missouri
STEPHANIE HERSETH, South Dakota      CHARLES W. BOUSTANY, Jr., 
BRAD ELLSWORTH, Indiana              Louisiana
ZACHARY T. SPACE, Ohio               K. MICHAEL CONAWAY, Texas
TIMOTHY J. WALZ, Minnesota           FRANK D. LUCAS, Oklahoma
EARL POMEROY, North Dakota           RANDY NEUGEBAUER, Texas
                                     KEVIN McCARTHY, California

               Clark Ogilvie, Subcommittee Staff Director

                                  (ii)


                             C O N T E N T S

                              ----------                              
                                                                   Page
Etheridge, Hon. Bob, a Representative in Congress from North 
  Carolina, opening statement....................................     1
    Prepared statement...........................................     2
Goodlatte, Hon. Bob, a Representative in Congress from Virginia, 
  prepared statement.............................................     5
Graves, Hon. Sam, a Representative in Congress from Missouri, 
  prepared statement.............................................     6
Moran, Hon. Jerry, a Representative in Congress from Kansas, 
  opening statement..............................................     3
    Prepared statement...........................................     4
Neugebauer, Hon. Randy, a Representative in Congress from Texas, 
  prepared statement.............................................     6
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, prepared statement..................................     4

                               Witnesses

Pucheu, Jr., John E., Chairman, National Cotton Council of 
  America; Partner, Pucheu Brothers Ranch, Tranquility, CA.......     7
    Prepared statement...........................................     9
McCauley, Ken, President, National Corn Growers Association; Corn 
  and Soybean Farmer, White Cloud, KS............................    15
    Prepared statement...........................................    17
Gertson, Jr., Peter D. ``Dan'', Chairman, U.S. Rice Producers 
  Association; Rice Farmer, Lissie, TX; on Behalf of USA Rice 
  Federation.....................................................    19
    Prepared statement...........................................    21
Ostlie, Richard, President, American Soybean Association, 
  Northwood, ND..................................................    25
    Prepared statement...........................................    26
Russell, Lance, President, Kansas Sunflower Commission; Member, 
  Board of Directors, National Sunflower Association; Sunflower 
  Farmer, Hays, KS...............................................    29
    Prepared statement...........................................    31
Thaemert, John C., President, National Association of Wheat 
  Growers; Owner/Operator, JT Farms, Inc., Sylvan Grove, KS......    34
    Prepared statement...........................................    36
Mitchell, Larry, CEO, American Corn Growers Association..........    57
    Prepared statement...........................................    59
Hayes, Evan, President, National Barley Growers Association; 
  Commissioner, Idaho Barley Commission; Barley and Wheat Farmer, 
  American Falls, ID.............................................   132
    Prepared statement...........................................   133
Evans, James, Chairman, USA Dry Pea and Lentil Council; Wheat, 
  Barley, Dry Peas, Lentils, and Chickpea Farmer, Genesee, ID....   134
    Prepared statement...........................................   136
Shelor, Gregory, President, Kansas Grain Sorghum Producers 
  Association; Past President, National Sorghum Producers; 
  Farmer, Minneola, KS...........................................   140
    Prepared statement...........................................   141

                          Submitted Statements

Submitted questions..............................................   155


  HEARING TO REVIEW THE PROPOSALS TO AMEND THE PROGRAM CROP PROVISIONS



         OF THE FARM SECURITY AND RURAL INVESTMENT ACT OF 2002

                              ----------                              


                       WEDNESDAY, MARCH 28, 2007

                  House of Representatives,
 Subcommittee on General Farm Commodities and Risk 
                                        Management,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 10 a.m., in Room 
1302 of the Longworth House Office Building, Hon. Bob Etheridge 
[Chairman of the Subcommittee] presiding.
    Members present: Representatives Etheridge, Salazar, 
Marshall, Boyda, Herseth, Ellsworth, Costa, Walz, Pomeroy, 
Peterson (ex officio), Moran, Johnson, Graves, Boustany, 
Conaway, and McCarthy.
    Staff present: Craig Jagger, Scott Kuschmider, Clark 
Ogilvie, John Riley, Sharon Rusnak, Anne Simmons, Debbie Smith, 
Bryan Dierlam, and Jamie Weyer.

 OPENING STATEMENT OF HON. BOB ETHERIDGE, A REPRESENTATIVE IN 
                  CONGRESS FROM NORTH CAROLINA

    The Chairman. This hearing of the Subcommittee on General 
Farm Commodities and Risk Management to review proposals to 
amend the program crops of the Farm Security and Rural 
Investment Act of 2002 will come to order. Let me welcome all 
of the Members and the witnesses and other guests to the 
Subcommittee's first hearing of the 110th Congress. I apologize 
to all of you for the cramped conditions we find ourselves in 
today, and that so many people were unable to get into the 
hearing room. The main hearing room is not quite ready for 
prime time. It should be very shortly, so we are just going to 
have to make do today as we get started.
    Almost 6 months from today, most of the provisions of the 
Farm Security and Rural Investment Act of 2002 will expire. 
Full Committee Chairman Peterson has made it our goal to 
complete work on the next farm bill before that point arrives 
and occurs. This Subcommittee is tasked with the responsibility 
of crafting those provisions of the next farm bill that impact 
what is commonly called program crops, and as most of you know, 
it includes things like cotton, corn, wheat, rice, soybeans, 
minor oilseeds, barley, sorghum, dry peas and lentils. The farm 
bill programs for these commodities comprise the primary safety 
net for those who grow these crops for American consumers. As 
such, the 2002 Farm Bill is not as perfect or as comprehensive 
a safety net as I would like to see or many others would. 
However, I believe that these farm programs, by and large, 
endorse strong support in farm county. At least that is the 
message that I took away from the series of excellent field 
hearings held in the last Congress by both the full Committee, 
under the Chairmanship of Bob Goodlatte, my good friend and 
colleague, then-Subcommittee Chairman, Jerry Moran, as we held 
several hearings across the country.
    Since these hearings, the Administration has put forth a 
number of, well, let me call them interesting ideas for the 
next farm bill. Additionally, a number of farm organizations 
have, since that time, held their annual meetings; and as a 
result have approved specific proposals and suggestions for the 
next farm bill, which we will start dealing with. And finally, 
we received the January and now the March estimates from the 
Congressional Budget Office of what our baseline in the next 
farm bill is going to be. These estimates point to the same 
inescapable conclusion: we don't have a lot of extra money for 
the next farm bill. So the purpose of today's hearing is to 
take testimony from farm groups and to hear in detail what 
specific ideas their members would like to see in the next farm 
bill.
    I also expect that, in that process, we will also hear what 
each of you think about each other's specific proposals as well 
as the Administration's proposal. And as you give your 
testimony, I do hope that you will keep in mind this 
Committee's tight fiscal constraints that are being imposed on 
it by the full Committee as we write the next farm bill, and 
that, of course, is being imposed by the current financial 
conditions we have placed all across various government 
programs under our budget.
    [The prepared statement of Mr. Etheridge follows:]

Prepared Statement of Hon. Bob Etheridge, a Representative in Congress 
                          From North Carolina
    I want to welcome all the Members, witnesses, and other guests to 
the Subcommittee's first hearing in the 110th Congress.
    I apologize that we are going to be a little cramped here today and 
that so many people are not able to get into the hearing room, but the 
main hearing room in 1300 is almost, but not quite ready for prime time 
yet. So we have to make do.
    Almost 6 months from today, most of the provisions of the Farm 
Security and Rural Investment Act of 2002 will expire. Full Committee 
Chairman Peterson has made it our goal to complete work on the next 
farm bill before that occurs.
    This Subcommittee is tasked with the responsibility of crafting 
those provisions of the next farm bill that impact what are commonly 
called program crops: among them are cotton, corn, wheat, rice, 
soybeans, minor oilseeds, barley, sorghum, dry peas, and lentils.
    The farm bill programs for these commodities comprise the primary 
safety net for those who grow these crops. As such, the 2002 Farm Bill 
is not as perfect or as comprehensive a safety net as I would like to 
see. However, I believe these farm programs--by and large--enjoy strong 
support in farm country.
    At least, that is the message I took away from the series of 
excellent field hearings held last Congress by both then-Full Committee 
Chairman Bob Goodlatte and my good friend and colleague, then-
Subcommittee Chairman Jerry Moran.
    Since those hearings, a few things have happened.
    The Administration, to its credit, has put forth a number of; well, 
let's call them interesting ideas for the next farm bill. Additionally, 
a number of farm organizations have since held their annual meetings 
and, as a result, approved specific proposals and suggestions for the 
next farm bill.
    Finally, we have received the January and then March estimates from 
the Congressional Budget Office of what our budget baseline for the 
next farm bill is. These estimates point to the same inescapable 
conclusion.
    We don't have a lot of extra dollars for the next farm bill.
    The purpose of today's hearing is to take testimony from farm 
groups and hear in detail what specific ideas their members want to see 
in the next farm bill. I also expect in that process that we will also 
hear what they think of each other's specific proposals as well as the 
Administration's proposal.
    As you give your testimony, I hope you will keep in mind the tight 
fiscal restraints that are imposed on this Subcommittee and the Full 
Committee in writing the next farm bill.
    Because we have quite a few witnesses, I will end my comments here 
and recognize the Ranking Member of the Subcommittee, Congressman Jerry 
Moran, for any opening statement he would like to make.

    The Chairman. Because we have quite a few witnesses, I will 
end my comments here and recognize my good friend and Ranking 
Member of the Subcommittee, Congressman Jerry Moran, for 
whatever opening statements he might have. Jerry.

  OPENING STATEMENT OF HON. JERRY MORAN, A REPRESENTATIVE IN 
                      CONGRESS FROM KANSAS

    Mr. Moran. Mr. Chairman, thank you very much. With your 
consent, I will submit my opening statement for the record and 
just make a few comments.
    First of all, I would like to congratulate you on 
succeeding as the Chairman of this Subcommittee and I pledge my 
efforts to work with you to see that we develop good farm 
policy in this country on behalf of all of agriculture, whether 
they happen to grow crops in North Carolina or Kansas. I did 
take some discomfort at your statement about the then-Chairman 
of this Subcommittee. It seemed like you overemphasized the 
word then, but I am certain that we can work out our 
differences today, and in the future, and again pursue policies 
that matter to American agriculture for the benefits of farmers 
and ranchers, but really for the benefit of the U.S. economy 
and feeding and clothing a world that needs our products.
    I would also like to welcome to our Subcommittee my 
colleague from Kansas, Mrs. Nancy Boyda, who joins this 
Subcommittee. I welcome her to Congress, but especially I am 
pleased to have a Kansan join me in the efforts as we develop 
this farm policy, and I look forward to working with her. This 
is a hearing that is an important one. This really does set the 
stage for us to pursue. As we conclude our budget debates and 
determine what the baseline is, it is now really time to get 
down to work. And this Subcommittee and the full Agriculture 
Committee has had a long series of hearings here in Washington, 
D.C. and across the country as we try to figure out what the 
right questions are.
    And I think it is fortunate that most of us recognize the 
experts are the people in this room, as well as those they 
represent back home that run the combines and plow the fields 
and earn a living every day on the farm. I am especially 
delighted today to have four Kansans, who are farmers and who 
earn their living on the land, who join us, three on this panel 
and one later. Greg Shelor, the Past President of the National 
Sorghum Producers will testify on the second panel. But with us 
today is Mr. Ken McCauley, who is the President of the National 
Corn Growers Association; Mr. John Thaemert, who is the 
President of the National Association of Wheat Growers; and 
from my hometown, Mr. Lance Russell, who is the President of 
the Kansas Sunflower Commission. So as we get perspective 
today, we will have a particular Kansas flavor and I am 
grateful for that, but I know this Committee will do its work 
on behalf of all farmers across the country. Again, I thank you 
for the hospitality and kindness you have extended to me and 
look forward to working with you.
    [The prepared statement of Mr. Moran follows:]

 Prepared Statement of Hon. Jerry Moran, a Representative in Congress 
                              From Kansas
    Thank you, Mr. Chairman. It is a pleasure for me to be here with 
you and the rest of the Subcommittee today as we hear proposals from 
the industry on how to amend the commodity title of the 2002 Farm Bill. 
I would like to thank all the representatives from the commodity groups 
who are testifying before us today. We have ten witnesses representing 
ten different crops. It is good to see such a diverse representation of 
American agriculture in one place. I am especially pleased to see so 
many Kansans testifying today.
    Last year this Subcommittee, as well as the full Committee, began 
gathering producer input at field hearings across the nation. Our 
intent is to use that information in writing the 2007 Farm Bill. Soon 
we will have a budget resolution and the Committee will set to work 
drafting the next farm bill. Therefore, it is appropriate that our 
series of fact finding hearings culminate with this broad panel of 
agricultural producers.
    While I am sure that each organization may have a different 
perspective on how to improve the commodity title, we can all agree 
that maintaining a strong and vibrant agriculture industry in the 
United States is essential to our nation's well-being. Agriculture 
across this nation is diverse. A wheat producer in Kansas may not have 
the same concerns as a cotton producer in Texas. It is this 
Subcommittee's duty to listen to the problems faced by all producers 
and try to develop policy that will ensure the United States continues 
to have a safe and abundant supply of food, fiber and, as of recently, 
energy.
    It is also important that we write a farm bill that allows 
producers to remain profitable. During our field hearings last year, 
many producers informed this Subcommittee that the 2002 Farm Bill had 
relatively good success in providing a safety net for producers. 
However, I am sure many of today's witnesses will tell us there may be 
some ways we can improve our current programs. I welcome all the 
witnesses' perspectives as we move forward with the 2007 Farm Bill.
    Again, thank you, Mr. Chairman, for holding this hearing and I look 
forward to the testimony of today's witnesses.

    The Chairman. Jerry, I would say that the leadership from 
Kansas is still present. I looked down the list earlier and I 
said, ``Good gracious, Kansas is still running the show.'' 
Thank you and I look forward to working with you. And let me 
ask the other Members, if they would, for any opening 
statements they might have for the record, so that the 
witnesses may begin their testimony and so that we make sure 
there is ample time for questions, because there is going to be 
a full Committee today.
    [The prepared statements of Messrs. Peterson, Goodlatte, 
Graves, and Neugebauer follow:]

  Prepared Statement of Hon. Collin C. Peterson, a Representative in 
                        Congress From Minnesota
    Mr. Chairman, thank you for calling this hearing today.
    As everyone in this room knows, the baseline funding to support the 
agricultural safety net has fallen substantially--roughly $60 billion 
over the next 10 years--due to higher than average commodity prices. 
This Committee made a strong bipartisan pitch before the Budget 
Committee last month to support additional resources for agriculture 
programs so that these high prices would not affect the forward-looking 
policies needed to facilitate a strong farm sector as well as helping 
our nation move toward energy independence. It looks as if this 
Committee will not have any wiggle room in terms of additional funding, 
and if that is the case, we will write the farm bill accordingly.
    Last year, during out field hearings, farmers and ranchers told us 
that the 2002 Farm Bill is working well for the most part and that its 
basic structure should be maintained.
    That support for the commodity title contrasted sharply with the 
reaction we got from the 1996 Farm Bill. That bill was written during a 
time of high commodity prices, much like the environment we are in 
today. However, prices didn't stay high, and Congress had to intervene, 
spending more than $23 billion in additional ``low price'' payments to 
farmers over its life. It ended up being a disaster for producers and 
taxpayers alike.
    In contrast, the 2002 Farm Bill has cost less than was projected, 
and that is because it is working well--making payments only when 
commodity prices are low and saving taxpayers billions of dollars.
    In one way, we have become victims of our own success. The last 
time a farm bill was written, the baseline for the safety net programs 
was $140 billion over 10 years. The most recent baseline has shrunk to 
about $80 billion.
    As we close in on a budget resolution and move into consideration 
of the farm bill in this and the other Subcommittees, I hope to build 
upon the strong fundamental structure that is already in place. The 
commodity title will not be decreased because prices are high, it will 
not be raided to pay for other programs, nor will it be dismantled to 
meet trade obligations that do not yet exist. We have made these kinds 
of assumptions once before with catastrophic results, and taxpayers 
have paid the price.
    I thank today's witnesses for appearing, and I yield back my time.
                                 ______
                                 
Prepared Statement of Hon. Bob Goodlatte, a Representative in Congress 
                             From Virginia
    Since the Agriculture Committee began its review of the 2002 Farm 
Bill a little more than a year ago, we've received a wide assortment of 
input and policy recommendations from a variety of producers and 
producer groups. Today, we are here to review some of those 
recommendations for the commodity title of the farm bill.
    As we proceed with writing the farm bill this year, it is important 
to consider some of the factors that will shape the environment in 
which it will be written. One of the most influential factors is the 
budget. Today, our budget flexibility is quite limited, a significant 
difference from the budget situation we found ourselves in when writing 
the last farm bill in 2002. In FY 2006, outlays for commodity programs 
were $18.221 billion. The most recent CBO projections estimate spending 
for the same programs over the next 10 years to be between $7.7 billion 
and $9.9 billion a year. Essentially, we are going into the 
reauthorization of the 2002 Farm Bill with a commodity budget almost 43 
percent smaller than what we had in 2002. This means we will have to be 
particularly creative in our approach to this farm bill to ensure that 
our producers can continue to produce the safest, most affordable food 
and fiber supply in the world.
    Throughout our farm bill field hearing series last year, the 
feedback we heard about the current commodity programs was generally 
positive and many asked that we just extend the current title. However, 
requests for an extension were also accompanied with requests for 
``tweaks'' in the current language. Additionally, some groups, such as 
the corn producers in my home State of Virginia, assert that the 
current program doesn't adequately cover production in areas of higher 
risk and are seeking changes that would work better for them. While a 
complete consensus would have certainly made our job a lot easier, we 
had no illusions that it would be that simple.
    Today, I hope to learn a little more detail about our witnesses' 
recommendations for the upcoming farm bill, keeping in mind the serious 
budget challenges we face. Is a simple extension, meaning no changes, 
of the current commodity title truly in the best interest of producers? 
Does the current policy meet the needs of all commodity producers? If 
not, what aspects do you recommend we modify to make the programs more 
effective for more producers?
    I look forward to the testimony of our witnesses and would like to 
thank them for the thought and effort that went into their proposals 
and the testimony they prepared for us today.
                                 ______
                                 
  Prepared Statement of Hon. Sam Graves, a Representative in Congress 
                             From Missouri
    Thank you Chairman Etheridge and Ranking Member Moran for convening 
this hearing today. As a farmer myself, I know that few titles in the 
farm bill can have as much impact on agriculture as the commodity 
title.
    While many farmers would like to see the different program rates 
adjusted in one minor way or another, the overwhelming number of 
farmers in my district believe the current structure of commodity 
programs that we approved in 2002--notwithstanding the rates which we 
will hear more about today--has the ability and potential to provide 
the all important safety net for agriculture that this Committee 
strives to provide.
    I am concerned that major changes to the structure of commodity 
programs, will cause confusion and complication for producers who 
already must expend a great deal of time and effort to participate in 
USDA programs.
    I am also concerned with many of the proposals for the commodity 
title advocated by USDA in the Administration's farm bill draft. While 
the program rates cited in that document may provide an adequate safety 
net during years when prices are good, I have serious concerns about 
what would happen to many farmers across our nation in times of lower 
prices. Without an adequate safety net during tough years, we cannot 
count on the safe, affordable, abundant food supply that our farmers 
provide for us three times a day.
    Finally, Mr. Chairman, I'd like to also express my support for 
programs--through the commodity title and elsewhere--to help young and 
beginning farmers make agriculture a viable career option. Farmers are 
an aging population, and we will be in serious trouble down the road if 
more young people aren't able to get into farming.
    Thank you again Chairman Etheridge and Ranking Member Moran. I look 
forward to the testimony of our witnesses.
                                 ______
                                 
   Prepared Statement of Hon. Randy Neugebauer, a Representative in 
                          Congress From Texas
    I appreciate Chairman Etheridge and Ranking Member Moran calling 
today's hearing and thank the witnesses representing their fellow 
producers for their testimony.
    This Subcommittee has the responsibility for crafting the title of 
the farm bill that farmers in our districts are likely paying the most 
attention to. It has a direct impact on them, and they are looking to 
us to get this right. Producer organizations have clearly put a lot of 
work into their proposals, and input from producers is most important 
to me in this farm bill process.
    Based on what I'm hearing from farmers in my district, the 2002 
Farm Bill has been successful. The current farm bill provides us with a 
great starting point; we don't have to start from scratch. At the same 
time, as we will hear today, a few tweaks and adjustments may help make 
the 2002 Farm Bill work even better.
    In addition to working well for producers, the 2002 Farm Bill has 
also saved taxpayer dollars. According to the Congressional Budget 
Office, the total costs for the commodity programs over the life of the 
bill are expected to come in $25 billion less than originally 
projected. For several commodities, demand is strong, and prices are 
good. For others, prices are not so high, and the farm bill safety net 
has kicked in.
    While a higher baseline may have made it easier to add new things 
to the farm bill or adjust programs, the baseline reflects that the 
2002 Farm Bill has worked as it was intended to. We could have a much 
more difficult debate if we had to explain to Members not on the 
Agriculture Committee why commodity programs cost more than projected.
    One option I think the Subcommittee should consider is improving 
coverage within crop insurance to help farmers better protect against 
disasters. I have legislation that allows producers to stack some of a 
supplemental group policy on top of their individual yield or revenue 
policy. USDA proposed supplemental insurance that would cover some or 
all of the farmer's deductible if the county yield is lower than 
average. Farmers need a better option than uncertain and costly 
disaster assistance to help manage risks.
    While there will be differences among commodity groups as to how 
best write this farm bill, I encourage you, to the greatest extent 
possible, to work toward common ground. When agriculture can speak with 
a unified voice, all producers benefit in the long run.
    I look forward to working with my colleagues on this Subcommittee 
on crafting a commodity title for the 2007 Farm Bill that continues to 
be a success for the farmers we represent.

    The Chairman. And with that, I would like to welcome our 
first panel to the table. Our first panelist is Mr. John 
Pucheu, Chairman of the National Cotton Council, from 
California; second, Mr. Ken McCauley, President of the National 
Corn Growers Association, as has been indicated, from Kansas; 
Mr. Dan Gertson, Chairman of the U.S. Rice Producers 
Association, from Texas; Mr. Richard Ostlie, American Soybean 
Association, from North Dakota; Mr. Lance Russell, President of 
the Kansas Sunflower Commission, from Kansas; and Mr. John 
Thaemert, President of the National Association of Wheat 
Growers, from Kansas. I don't know why in the world we couldn't 
have gotten a couple more from Kansas, then we would have a 
full table. But gentlemen, welcome.
    Mr. Moran. Mr. Chairman, if you would allow me to intrude? 
We grow every crop that is represented at this panel today and 
I could never say that about rice, but we or the State of 
Kansas has accepted a genetically modified rice, so every crop 
that is represented today is now grown in the 1st Congressional 
District in the State of Kansas. We are a diverse state.
    The Chairman. It is quite obvious we have changed Chairmen, 
but nothing has changed.
    Mr. Boustany. Mr. Chairman, does mean that we can send all 
our genetically modified rice to Kansas?
    The Chairman. I believe we better get on with the business 
at hand. Mr. Pucheu, you may begin. And please let me ask you, 
if you would, we have a light and we ask that you summarize 
your statement and it will be entered into the record, and keep 
it to 5 minutes if you possibly can. Thank you.

  STATEMENT OF JOHN E. PUCHEU, Jr., CHAIRMAN, NATIONAL COTTON 
              COUNCIL OF AMERICA; PARTNER, PUCHEU
                BROTHERS RANCH, TRANQUILITY, CA

    Mr. Pucheu. Mr. Chairman, thank you for holding this 
hearing and allowing me to present the views of the National 
Cotton Council. My name is John Pucheu and I serve as Chairman 
of the National Cotton Council. My brother and I own and 
operate a diversified farming operation in Tranquility, 
California.
    The Council's leaders have reaffirmed our recommendation 
that new farm legislation be pattered after the basic 
provisions of the 2002 Farm Bill. A marketing loan available on 
all production is the foundation of a sound farm policy. The 
combination of direct and counter-cyclical payments provides 
effect income support, especially in periods of low prices. We 
support planning flexibility so producers can respond to market 
signals. We oppose further reductions in limitations on 
benefits or more restrictive eligibility requirements, and we 
urge continuation of the extra long stable cotton program.
    We recognize that cotton markets are changing. Adjustments 
in the administration of the cotton marketing loan are needed 
to maintain competitiveness. Recently, to prepare for the farm 
bill, we asked USDA to assist in a thorough review of all 
aspects of the cotton marketing loan. We also recommended 
changes to provide more flexibility in the way loans are 
redeemed so U.S. cotton can be marketed even more efficiently.
    U.S. mill consumption will be less than 50 percent of the 
levels just 7 years ago. U.S. mills are competing with heavily 
subsidized imports without a safety net. In recent months, it 
has been emphasized that the United States needs a robust and 
viable renewable fuels production base, protected by high 
tariffs and a significant tax credit. Downstream users of 
cotton products also need assistance. We recommend a modest, 
low-cost program for U.S. textile mills which would be offset 
by savings in other provisions of the cotton program.
    Mr. Chairman, I would like to make a few comments about the 
Administration's farm bill proposal. We are pleased that it 
recognizes the importance of maintaining the structure of 
current law and that the marketing loan continues to operate 
without unworkable limits. We are concerned by the proposal to 
implement a formula that would result in a sudden precipitous 
drop in the cotton loan rate, even though it is supposed to be 
offset by a significant increase in the direct payment. 
Unfortunately, replacing the marketing loan, which is available 
on actual production with a decoupled payment based on ancient 
history, doesn't offer adequate compensation.
    We are also concerned by the proposal to terminate the 
three-entity rule, which was viewed as a significant reform in 
1989. If termination of the three-entity rule could be paired 
with a sustainable increase in limits, it could simplify 
compliance. You and your colleagues should also carefully 
consider how husband and wife eligibility is to be determined, 
and if the landowner exemption will continue to apply, and what 
regulatory changes USDA would make to the definition of 
``actively engaged in farming.''
    We are especially concerned about the proposal to modify 
the existing adjusted gross income test by dropping the level 
to $200,000 for commodity programs, while apparently leaving 
the existing $2\1/2\ million AGI test in place for conservation 
programs. The current test allows continued eligibility as long 
as the individual earns 75 percent or more of their income from 
farming, ranching or forestry. But this key proposal or 
provision is not in the Administration's proposal. The 
Administration cites statistics that only a small percentage of 
the recipients of a farm program payment have an AGI above the 
new limit. We think the important question is, is what percent 
of U.S. commodity production will be affected? For cotton, we 
believe it will be significant and we believe the new test will 
result in growers being eligible 1 year and out the next, 
making it very difficult to secure financing or make long-term 
plans.
    Mr. Chairman, cotton farmers continue to be deeply 
concerned about the efforts in the WTO Doha negotiation to 
isolate cotton and to squeeze even more concessions from the 
United States. The United States should not make additional 
concessions on domestic support until our market access 
objectives are met and exceeded.
    I will conclude with brief comments about our concerns with 
the sluggish U.S. cotton sales and the high levels of cotton 
underneath the loan. Why are U.S. exports lagging? First, the 
termination of Step two has hurt U.S. competitiveness; second, 
subsidies and trade restrictions by other countries are having 
significant impacts on world cotton trade; and third, total 
export commitments to China are 78 percent below last year. The 
result is more cotton in the loan because of the lack of demand 
in some of our key export markets. We are concerned by the 
recent action of the Department to impose additional financial 
penalties on farmers who forfeit their cotton if the demand 
doesn't rebound. It is imperative to find ways to ensure that 
U.S. cotton is competitive. Thank you for the opportunity to 
testify today and I will be pleased to respond to your 
questions. Thank you.
    [The prepared statement of Mr. Pucheu follows:]

 Prepared Statement of John E. Pucheu, Jr., Chairman, National Cotton 
  Council of America; Partner, Pucheu Brothers Ranch, Tranquility, CA
    The National Cotton Council is the central organization of the 
United States cotton industry. Its members include producers, ginners, 
cottonseed handlers, merchants, cooperatives, warehousemen and textile 
manufacturers. While a majority of the industry is concentrated in 17 
cotton producing states, stretching from the Carolinas to California, 
the downstream manufacturers of cotton apparel and home furnishings are 
located in Virtually every state.
    The industry and its suppliers, together with the cotton product 
manufacturers, account for more than 440,000 jobs in the U.S. [U.S. 
Census of Agriculture]. Annual cotton production is valued at more than 
$5 billion at the farm gate, the point at which the producer sells 
[Economic Services, NCC]. In addition to the cotton fiber, cottonseed 
products are used for livestock feed, and cottonseed oil is used for 
food products ranging from margarine to salad dressing. While cotton's 
farm-gate value is significant, a more meaningful measure of cotton's 
value to the U.S. economy is its retail value. Taken collectively, the 
annual business revenue generated by cotton and its products in the 
U.S. economy is estimated to be in excess of $120 billion [Retail 
Values of U.S. Agricultural Commodities, NCC].
    Mr. Chairman, thank you for holding this hearing and for allowing 
me to present the views and concerns of the members of the National 
Cotton Council. My name is John Pucheu. I serve as Chairman of the 
National Cotton Council. My brother and I own and operate a diversified 
farming operation in Tranquillity, California--a part of the highly 
productive San Joaquin Valley.
    Mr. Chairman, the Council's recent annual meeting was highly 
productive. In spite of numerous challenges, I am pleased that our 
leaders once again achieved consensus and reaffirmed our priorities for 
sound farm policy. Stated simply, we haven't changed our opinion that 
new farm legislation should be patterned after the basic provisions of 
the 2002 Farm Bill. A marketing assistance loan that is available on 
all production is the foundation of sound farm policy. The combination 
of direct and counter-cyclical payments provides effective income 
support when needed most--in times of low prices. We also support 
maintenance of adequate planting flexibility to allow producers to 
respond to market signals. And while we are opposed to payment 
limitations of any kind, we certainly oppose any change that reduces 
existing limits or further restricts eligibility.
    While we believe the basic structure of our farm program provides 
an effective safety net, we also recognize that our markets are 
changing. There need to be adjustments to the administration of the 
cotton marketing assistance loan to maintain competitiveness. Last 
August, we worked with USDA as they developed an extensive regulation 
that allows relocation of bales under loan to better position them to 
move to market. The regulations also capped the monthly storage charges 
paid by CCC and require warehouses to report performance on a weekly 
basis. Recently, we asked USDA to assist in a thorough review of the 
methodology used to establish loan premiums and discounts; whether 
location differentials make sense in a market that is approximately 75% 
exports; and whether the discovery of an accurate world price should 
use Far East rather than Northern Europe price quotations. We also 
recommend that the statute and the regulations be changed to provide 
more flexibility in the way loans are redeemed. We believe these 
changes can adequately protect CCC's collateral while allowing 
producers, cooperatives, and merchants to market U.S. cotton more 
effectively.
    Mr. Chairman, we also want to work with you and your colleagues to 
develop provisions which will assist our struggling domestic textile 
industry. According to USDA, domestic mill consumption of cotton is 
forecast at 5.0 million bales for 2006-2007 (Figure 1). This is 900,000 
bales or 15% below levels of a year earlier. The current projection 
means consumption will be less than 50% of levels just 7 years ago. It 
will be the lowest U.S. mill consumption since 1931-1932. Quoting from 
a USDA analyst's report to the recent USDA Outlook Conference ``. . . 
this dramatic decline in U.S. mill use has resulted from increased 
competition of imported textile and apparel products . . . China is now 
the leading supplier of cotton textile and apparel products to the 
U.S.--accounting for nearly 20% in 2005 and growing rapidly.'' While 
imports rise and domestic mill consumption declines, cotton use at 
retail actually increased to 23.6 million bale equivalents in 2006 and 
will continue to increase in 2007 and the foreseeable future. U.S. 
consumers continue to drive global demand for cotton--thanks in part to 
the U.S. producer and importer-funded promotion program operated by 
Cotton Incorporated. U.S. per capita consumption of cotton rose to 37.9 
lbs in 2006. To place that in perspective, PCI Fibres places annual per 
capita cotton consumption in the developed economies of Western Europe 
and Japan at just over 16 lbs, and USDA is currently estimating that 
China's consumers purchase only 5.5 lbs of cotton textile products 
annually.


    Mr. Chairman, I want to also make a few comments about the 
Administration's farm bill proposal. We are pleased that it recognizes 
the importance of maintaining the structure of current law. We also 
appreciate the recommendation that the marketing assistance loan 
continue to operate without onerous, unworkable limits. But it won't 
surprise you to hear that we are deeply concerned by the proposal to 
implement a loan rate formula that would result in a sudden, 
precipitous drop in the cotton loan rate.
    We understand that the proposal to significantly increase the 
direct payment is designed to compensate cotton producers for the lower 
loan--but it doesn't do an adequate job. Replacing an important 
component of our policy that is available on actual production with a 
decoupled payment based on ancient history doesn't offer adequate 
compensation--especially to growers in the Southeast and to new growers 
in places like Kansas and northern Texas. Cutting the loan rate and 
raising the direct payment may be considered good policy in Geneva, but 
in my opinion, it certainly doesn't meet the Secretary's objective of 
equitable farm policy.
    We were also intrigued and disappointed by the proposal to 
terminate the three-entity rule, which has been in place since 1989 
when it was viewed as a significant compromise. The intriguing part is 
the simultaneous increase of the limits on direct payments, counter-
cyclical payments and marketing loan gains. If we could be assured that 
the termination of the three-entity rule would be paired with the new 
limits--though they still disproportionately impact cotton, rice and 
peanuts--it might be worth considering as a means to simplify farmer's 
compliance. However, the clear danger is that some will support the 
termination of the three-entity rule and insist that limits remain at 
current levels. You and your colleagues should also carefully consider 
how husband and wife eligibility is to be determined, if the landowner 
exemption will continue to apply, and what regulatory changes USDA 
would make to the definition of actively engaged in farming.
    The Administration's proposal to modify the existing adjusted gross 
income (AGI) test by dropping the level to $200,000 is a bad idea. It 
is bad policy and bad operationally. Congress added a $2.5 million AGI 
test to the last farm bill in response to media criticism that high-
income individuals--namely Scotty Pippin and Ted Turner--were receiving 
farm program payments. To ensure high-income individuals were denied 
benefits while not penalizing individuals who depend on farming, 
ranching or forestry for their livelihood, a 3 year AGI test was added 
to the 2002 farm law. An important provision provides an exemption from 
the means test as long as the individual or entity earns 75% or more 
income from farming, ranching or forestry. The Administration 
apparently selected $200,000 as a new ceiling so they can say that less 
than 2% of Americans who file tax returns have an AGI at that level. 
The Administration also contends that 4.2% of recipients of farm 
program payments who filed a Schedule F in 2004 have an AGI above 
$200,000 and that only 4.7% of all payments received by farm 
proprietors went to those with an AGI over $200,000. That is catchy 
spin, but dangerously misleading. The real question is what percent of 
U.S. commodity production will be affected. For cotton, we believe it 
will be very significant.
    This new AGI ceiling was not chosen with any regard to financial 
reality on commercial farms. Let's be clear that a farmer's AGI is not 
profit. There are still a number of expenses that must be covered. In 
addition to personal expenses, farmers must service debt that, given 
the costs of today's machinery and land, can easily reach into the 
millions. Furthermore, the proposal inexplicably eliminates the 75% 
exclusion for people who farm and ranch--indicating that the purpose 
behind the means test has changed from one targeted to exclude 
millionaires who happen to own a farm to one that specifically targets 
active farmers and ranchers. Oddly, the Administration left the $2.5 
million AGI test in place to determine eligibility for conservation 
programs--which are the payments the aforementioned Mr. Pippin actually 
received. The Administration's proposal condemns growers and their 
lenders to the ping-pong effect of ``in 1 year and out the next'' which 
is directly at odds with the Secretary's ``equitable and predictable'' 
criteria for the new farm law. Finally, in another interesting twist, 
the U.S. will receive no credit in the WTO for this type of a means 
test.
    We were also deeply disappointed by the Administration's proposal 
to eliminate storage credits when prices are low. The practice of 
paying storage was put in place to ensure cotton was available at 
competitive prices, yet the Administration proposes eliminating the 
credits effective October 1, 2007, just as 2006 crop loans are 
maturing. This would result in significant market disruption and income 
losses to farmers by changing the existing rule during this marketing 
year. Inexplicably, the Administration proposed eliminating the credits 
in their FY08 budget proposal, but not in their farm bill proposal.
    Access to an affordable crop insurance program is an important tool 
for most farmers. However, given the continued inequities of coverage 
and service in different regions and for different crops, it is time 
for a thorough evaluation of the cost and benefits associated with the 
multi-peril crop insurance program. Also, the cotton industry would be 
interested in exploring enhancements to crop insurance products that 
would offer protection on an individual's deductible. The 
Administration included the concept of supplemental insurance coverage 
in their farm bill proposal, and many growers are interested in further 
analysis to identify an effective program that would help mitigate 
production risk.
    The National Cotton Council believes conservation programs will 
continue to be an important component of effective farm policy. The 
Conservation Reserve Program, Conservation Security Program and 
Environmental Quality Incentive Program are proven, valuable ways to 
promote sound, sustainable practices through voluntary, cost-share, 
incentive-based programs. However, they are not an effective substitute 
for the safety net provided by commodity programs. We must maintain an 
equitable balance in conservation and commodity spending for the 
development of new farm policy. Furthermore, we support eligibility 
provisions for conservation programs that are as consistent as possible 
with commodity eligibility provisions.
    Continuation of an adequately funded export promotion program, 
including the Market Access Program (MAP) and Foreign Market 
Development (FMD) Program, are important in an export-dependant 
agricultural economy. It also is valuable to maintain a WTO-compliant 
export credit guarantee program. Individual farmers and exporters do 
not have the necessary resources to operate effective promotion 
programs which maintain and expand markets--but the public-private 
partnerships facilitated by the MAP and FMD programs, using a cost-
share approach, have proven highly effective and have the added 
advantage of being WTO-compliant.
    Mr. Chairman, cotton farmers continue to be disappointed by the 
very overt effort in the WTO Doha negotiations to isolate cotton to 
squeeze even more concessions from the U.S. The U.S. proposal on 
agriculture was ambitious and has not received an adequate response 
from the EU, the G20, or most significantly, China. The elimination of 
the Step two program and the significant modification of the export 
credit guarantee program have also failed to elicit positive 
responses--despite the negative impact on U.S. cotton exports caused by 
these two changes.
    It sometimes seems that the WTO process is convincing other 
countries they can now dictate U.S. farm policy. Stunningly, an 
Argentine Government official recently derided the Secretary's farm 
bill proposal, saying the Secretary's proposal was moving in the wrong 
direction and would not make them happy with respect to cotton. He 
obviously read the USDA press release accompanying their farm bill 
proposal that said direct payments for cotton would be increased by 65% 
and did not note the precipitous decline in the cotton loan rate. While 
the NCC does not like all aspects of the Administration's proposal, I, 
for one, do not want Congress writing U.S. farm policy to make 
Argentine ministers happy. And I trust that is not the goal of our 
trade negotiators. Our purpose should be to develop policy that is 
beneficial to U.S. farmers and ranchers while tailoring that policy to 
minimize trade-distorting elements.
    Further, despite the changes made in the U.S. cotton program and 
despite the very significant offer on domestic support tabled by the 
Administration, the WTO held another special session on cotton at the 
request of West African countries just weeks after the Doha round was 
restarted. While many of the presentations at that meeting were 
directed to developmental discussions, it is our understanding that 
developing countries that produce cotton again ignored the efforts 
being made by the United States, both in trade policy and on the 
developmental front, and used the WTO session as a platform to attack 
the U.S. cotton program. These countries want elimination of the U.S. 
cotton program, and they want the WTO to pay them $400 million in 
compensation.
    Mr. Chairman, I must stress again that the U.S. has responded over 
and over to requests for reform and to requests for assistance. The 
Step two program was terminated at the end of the 2005 marketing year, 
and the negative impacts are being felt by producers of the 2006 crop. 
Furthermore, the export credit guarantee program has undergone 
significant revision, and I have already mentioned the significant 
agricultural offer tabled by the United States. I have not, however, 
mentioned that the U.S. committed to end all export subsidies for 
cotton by the end of 2006 and has complied with that promise even 
though we did not have to.
    The U.S. has also responded to the very real needs of African 
countries. Two of the four African countries that initially targeted 
U.S. cotton have submitted qualified proposals and received significant 
promises of assistance under the Administration's Millennium Challenge. 
According to the WTO's table of assistance, Benin and Mali have 
received commitments from the U.S. totaling over $750,000,000. This 
level of assistance amounts to almost 20 cents per pound on all cotton 
produced in these two countries, annually, over the next 6 years. This 
level of directed support actually dwarfs the compensation being sought 
through the WTO. Sadly, however, U.S. officials have stated that these 
governments are devoting very little of these funds directly to the 
cotton sector.
    The U.S. is providing the means to assist cotton farmers in Benin 
and Mali, but their own governments are not taking full advantage of 
our generosity. Instead, they demand high-level cotton sessions in 
Geneva and continue to brow-beat the WTO looking for more and more 
inequitable concessions on cotton.
    Mr. Chairman, U.S. negotiators must send a clear signal that enough 
is enough. The U.S. should not continue to provide more concessions 
(often unilateral) while receiving virtually no positive indications 
from our trading partners that they will also move down the trade 
liberalization road. The strong stand by the U.S. in Geneva last July 
was fully appropriate. Unfortunately, the U.S. seems to have been 
apologizing ever since. The U.S. must not make additional concessions 
on domestic support until our market access objectives are met and 
exceeded. The U.S. should not agree to a Doha result that effectively 
exempts China--the fastest growing economy in the world--from 
concessions. The U.S. should not make further inequitable concessions 
on cotton beyond those made in Hong Kong.
    The Secretary frequently cites the Brazil cotton case as evidence 
that the U.S. farm law must be changed in order to be unchallengeable. 
The truth is that U.S. farm law can always be challenged under current 
WTO rules and there are no concrete signs that a new farm bill or a new 
Doha Agreement will change this.
    Mr. Chairman, I would like to make some brief comments about our 
concerns with sluggish U.S. cotton sales, high levels of cotton under 
loan and persistently low prices. Total export commitments to China for 
the 2006-2007 marketing year stand at only 1.5 million bales, down 5.2 
million bales from last year's number of 6.7 million bales. U.S. 
exports to other buyers in Asia are also off from last year's pace, but 
to a lesser extent. At this point last year, other key Asian countries 
had purchased 2.1 million bales of U.S. cotton. In the current 
marketing year, they've committed to 1.8 million bales, a drop of about 
10%.
    It is the case that cotton still under loan is above the levels 
observed at this same time in past marketing years. As of mid-March, 
there were 11.3 million bales of the 2006 crop of upland cotton still 
under loan. In recent years, cotton under loan in March averaged about 
4.0 million bales. However, it is very important to note that 6.5 
million bales of the 2006 crop have already been redeemed from the 
marketing loan. This suggests that the loan is not the market of last 
resort and that cotton is not locked in the loan. Simply put, there is 
more cotton in the loan because of the lack of demand from key export 
markets. When demand improves, cotton will move out of the loan to 
satisfy that demand.
    Instead of assigning undue blame for the current market situation 
to the marketing loan, it is better to focus on the number of reasons 
why U.S. export sales have been lagging. First, as I previously 
mentioned, the loss of the Step two program has hurt the 
competitiveness of U.S. cotton. The U.S. has a smaller presence in the 
world market as a result of the loss of Step two. Second, subsidies, 
trade restrictions, and other actions are having significant impacts on 
world cotton trade and prices--and frankly, are having a much greater 
impact than the remaining provisions of the U.S. cotton program. This 
second point is well supported by several statements made by USDA 
analysts in their report prepared for the recent USDA Outlook 
Conference.

        ``A combination of moderately higher world production and 
        sharply highly world consumption is reducing world stocks for 
        the 2006-2007 season. Significant increases in production for 
        China, India, Brazil and Turkey will more than offset reduced 
        production in the United States, Australia, Greece and Syria.''

        ``For India, both area and yields rose in 2006-2007 from the 
        year before, as the ongoing adoption of genetically engineered 
        Bt cotton continued transforming cotton authorization across 
        the country. Since much of the Bt cotton planted in India is 
        illegal, estimates of the extent of Bt adoption vary widely.''

        ``Higher production is also expected in Pakistan in 2007-2008 
        as more normal weather and the spread of Bt cotton boosts 
        yields. Commercial cultivation of Bt cotton is not legal in 
        Pakistan, but has reportedly spread to several 100,000 
        hectares.''

        ``Production in West Africa's Franc Zone in 2007-2008 is likely 
        to be about unchanged compared with the year before cotton 
        prices were higher in U.S. dollar terms during the first half 
        of marketing year 2006-2007, but for the Franc Zone, this was 
        offset by the strength of the Euro versus the U.S. dollar. A 
        rebounding EU economy drove the Euro eight percent higher with 
        respect to the dollar, and the CFA Franc is linked to the 
        Euro.''

        ``China imported a record 19.3 million bales in 2005-2006; 
        however, imports for the first half of the current season have 
        fallen well short of the year ago level. The primary factor 
        slowing the pace of imports appears to be government-imposed 
        import quotas, which have been more restrictive thus far this 
        season than last. In January 2007, the WTO TRQ of 894,000 tons 
        (4.1 million bales) was released; however, because a portion of 
        the quota is reserved for state enterprises, it has not all 
        been allocated to mills.''

        ``China has used a sliding scale import duty on non-WTO TRQ 
        imports that attempts to assure a minimum import price to help 
        support the domestic price for cotton.''

        ``The apparent goal of the more restrictive import policies is 
        to use domestic cotton first before allowing significant 
        imports. The government imposed constraints on imports have 
        made it difficult to ascertain the underlying demand from the 
        world's largest cotton consumer, and importer; thus in turn, 
        has resulted in unusual uncertainty for the world cotton 
        market.''

        ``The [U.S.] cotton product trade deficit in 2006 expanded to a 
        record 18.1 million bale equivalents, more than double the 
        trade deficit of just 8 years ago. During 2006, U.S. cotton 
        textile and apparel imports reached the equivalent of 22.8 
        million bales of raw cotton, four percent above 2005. In 
        contrast, cotton product exports decreased slightly to 4.7 
        million bale equivalents in 2006, and now account for 86 
        percent of U.S. cotton mill use compared with 55 percent in 
        2002.''

        ``China's extensive and complex system of import quotas and 
        government cotton reserves has limited the correlation between 
        price movements in China and the rest of the world in 2006-
        2007.''

        ``Subsidies to cotton producers are also being put in place in 
        China, and the Government has frequently intervened in local 
        markets, buying cotton for the government's reserves.''

        Cotton Outlook, Vol. 85 No. 10 March 9, 2007 pg. 7

        ``. . . Beijing has announced a subsidy for the purchase of 
        good quality planting seed . . . this is part of an overall 
        package for agriculture valued at 8.87 billion Yuan . . . a 
        massive increase of 48.6 percent over last year . . . for 
        cotton, farmers in eight regions will benefit . . . the funds 
        earmarked will be sufficient to pay the subsidy on 40 percent 
        of prospective plantings.''

    Mr. Chairman, as previously noted, export markets account for 
approximately 75% of total disappearance of U.S. cotton. Exports, and 
subsequently total use, can be highly variable, particularly within the 
marketing year (Figure 2). The industry recognizes the pressures that a 
highly-variable demand situation can place on the storage and 
distribution system. Through cooperation with USDA, the cotton industry 
is working to improve the flow and efficiency of the system to ensure 
that we remain the supplier of choice to the world cotton market. In a 
market environment with a high level of variability and uncertainty, I 
will reiterate the importance of the safety net provided by an 
effective farm program. The farm program provides the necessary 
stability to make the long-term investments that will keep the industry 
competitive and productive.





    The Chairman. Thank you. And Mr. McCauley, before you 
start, let me just acknowledge that the Chairman of the 
Committee has arrived. Mr. Peterson, thank you. Any comments 
you want to have before we----
    Mr. Peterson. No. Carry on.
    The Chairman. Okay. Mr. McCauley.

  STATEMENT OF KEN McCAULEY, PRESIDENT, NATIONAL CORN GROWERS 
                 ASSOCIATION; CORN AND SOYBEAN
                    FARMER, WHITE CLOUD, KS

    Mr. McCauley. Thank you, Mr. Chairman, Ranking Member 
Moran, and Members of this Subcommittee. On behalf of the 
National Corn Growers Association, I appreciate this 
opportunity to present our members' recommendations for the 
2007 Farm Bill commodity title. My name is Ken McCauley, 
President of the National Corn Growers Association. I farm in 
White Cloud, Kansas with my wife and son, producing corn and 
soybeans. The National Corn Growers Association represents more 
than 32,000 corn farmers from 48 states. NCGA also represents 
more than 300,000 farmers who contribute to the corn check off 
programs, and 26 affiliated state corn organizations across 
this Nation.
    First, it is important to note that NCGA has supported the 
2002 Farm Bill for the improvements it made to our nation's 
agricultural policy. In short, the 2002 Farm Bill implemented 
the right policy for that time. Looking forward, though, 
today's farm safety net is simply not designed to meet our 
producers' long-term risk management needs, given the dynamic 
changes underway in U.S. agriculture. NCGA has developed a 
proposal to reform our commodity program supports, change that 
would help ensure better protection against volatile commodity 
prices, significant crop losses, and would provide a permanent 
disaster assistance.
    Earlier this month, our delegates voted in strong support 
of ``county-based revenue counter-cyclical program integrated 
with Federal crop insurance for corn and potentially other 
commodities.'' Extending the current farm bill would do nothing 
to address the flaws that NCGA has noted since the summer of 
2002. Too many farmers have learned the hard way that today's 
farm supports may be effective when market prices are low, but 
when yields are low, the income protection has been less than 
adequate.
    Changes in the corn industry have created many new 
opportunities for producers. Projected prices for corn and 
other major commodities indicate that current Marketing Loan 
Assistance Program and Counter-Cyclical Program will provide, 
at best, minimal support over the next 5 years. NCGA's proposal 
reflects the views that the time has arrived to adopt 
fundamental changes in our programs. The Congress has a unique 
opportunity to consider major reforms at a time when prices are 
strong for most crops and exports are expected to reach a 
record $77 billion in 2007. And thanks to continued support 
from the Congress, renewable energy from homegrown crops can 
now play a much larger role in enhancing the country's energy 
security.
    NCGA proposes replacing the existing Marketing Loan Program 
and nonrecourse Marketing Loan Program with programs that would 
provide more cost-effective risk management tools. Rather than 
low target prices, the new Marketing Loan Program, or RCCP, 
would make payments when a county's actual crop revenue is less 
than the expected revenue. In most years, RCCP payments would 
be triggered by the same thing, crop losses that lead to the 
great majority of crop insurance indemnity payments. The RCCP 
would be integrated with Federal crop insurance to minimize 
overlapping coverage and to ensure a more effective, cost-
efficient farm safety net. With insurance companies only paying 
for losses not covered by the RCCP, the indemnities paid to 
farmers would be reduced, enabling them to provide individual 
revenue insurance at higher coverage levels. Our analysis 
indicates that the voluntary paid premiums of buy-up revenue 
insurance policies should drop significantly. Another advantage 
to this approach is that it would provide a standing disaster 
program by automatically providing payments to all farmers in 
counties that suffer low crop revenue, thus saving almost $1.8 
billion annually on ad hoc disaster aid.
    The final component of NCGA's proposal is to change the 
nonrecourse loan to a recourse loan program, a reform that 
would significantly increase the market orientation of U.S. 
farm policy. A recourse loan would continue to give producers 
harvest time liquidity, which increases their ability to market 
their crop at a more profitable time. NCGA believes that the 
time is right for introducing these reforms and urges Congress 
to provide the necessary resources to take advantage of this 
opportunity. Integration of the RCCP with Federal crop 
insurance creates efficiencies in delivering individual revenue 
protection policies. At a 95 percent expected county revenue 
trigger and a 2 year transition period, this new safety net is 
projected to add no more than $500 million to the CBO's March 
baseline. NCGA recommends a cap on prices used to determine 
county trigger revenues and proposes to set projected crop 
prices using a straight 3 year average of the revenue insurance 
prices. At these levels of protection, we are confident of our 
proposal's potential for long-term savings and promise as a 
superior farm safety net.
    Mr. Chairman, NCGA stands ready to work with you as you 
begin crafting a new farm bill. Our growers appreciate the 
difficult task before you and your continued support of our 
industry. I thank you again for this opportunity to discuss our 
goals and priorities and look forward to any questions you 
might have. Thank you.
    [The prepared statement of Mr. McCauley follows:]

 Prepared Statement of Ken McCauley, President, National Corn Growers 
         Association; Corn and Soybean Farmer, White Cloud, KS
    Mr. Chairman, Ranking Member Moran and Members of the Subcommittee, 
on behalf of the National Corn Growers Association (NCGA), I appreciate 
this opportunity to present for your consideration our members' views 
and recommendations for the 2007 Farm Bill commodity title.
    My name is Ken McCauley, President of NCGA. I am from White Cloud, 
Kansas and farm with my wife and son producing corn and soybeans.
    The National Corn Growers Association represents more than 32,000 
corn farmers from 48 states. NCGA also represents more than 300,000 
farmers who contribute to corn check off programs and 26 affiliated 
state corn organizations across the nation for the purpose of creating 
new opportunities and markets for corn growers. As we celebrate our 
50th anniversary, our members are mindful of their predecessors' 
forward looking planning, their accomplishments and the value they 
placed on NCGA being a grassroots organization. That heritage as a 
grassroots organization remains very much alive and is reflected in the 
farm bill proposal that we bring forward today.
    First, it is important to note that NCGA has recognized and 
supported the 2002 Farm Bill for the improvements it made to our 
nation's agricultural policy, particularly the strengthening of the 
farm safety net. The introduction of a new counter-cyclical payment 
program with an option for producers to update their base yields marked 
a positive step toward delivering more targeted and timely assistance 
to producers during periods of low prices. Combined with the marketing 
assistance loan program, most producers have been in a much better 
position for long term planning, including investments in ethanol 
production and producer owned value added business opportunities. In 
short, the 2002 Farm Bill implemented the right policy for that time.
    Looking forward, though, today's farm safety net is simply not 
designed to meet our producers' long term risk management needs given 
the dynamic changes underway in U.S. agriculture, and particularly in 
the corn industry. Following 2 years of study, cost analysis and 
considerable input from our state associations, NCGA's Public Policy 
Action Team developed a proposal to reform our commodity support 
programs; changes that would help ensure better protection against 
volatile commodity prices, significant crop losses, and would provide 
permanent disaster assistance. Earlier this month, our delegates voted 
in strong support of a ``county based revenue counter-cyclical program 
integrated with Federal crop insurance for corn, and potentially other 
commodities.'' NCGA's proposal is designed to increase the market 
orientation of the commodity title, enhance the targeting of farm 
support so that payments arrive when farmers most need assistance and 
increase the efficiency with which taxpayer dollars are spent 
supporting agriculture.
    Although projections of higher commodity prices, alone, present a 
strong case for a revenue based farm program, it is producers' 
experience with drought and other adverse weather conditions in 
isolated areas that have drawn our attention to what some economists 
have referred to as a hole in the current safety net. Under these 
circumstances, growers have been unable to fully benefit from higher 
market prices and cannot depend on counter-cyclical payments at a fixed 
target price to reduce the adverse impact of lost income. For those 
farmers who have experienced large crop losses or repetitive years of 
less severe or shallow losses during the recent years of record 
harvests and low prices, the combined support of marketing loan 
deficiency payments and counter-cyclical payments have provided 
insufficient income protection which has led to the need for recurring 
disaster assistance. Revenue protection from Federal crop insurance 
protection can certainly soften the financial blow, but the premiums 
for these policies rise significantly at the higher levels of coverage.
    Most producers would agree that the commodity support programs in 
the 2002 Farm Bill have served them well. Extending these programs, 
though, would do nothing to address the flaws NCGA has noted since the 
summer of 2002 or the potential solutions we have recommended. Again, 
too many farmers have learned the hard way that today's farm supports 
may be effective when the market price is low, but the income 
protection available when yields are low has proven to be less than 
adequate. A well designed revenue based program can deliver protection 
against low prices or low yields.
    As you well know, the changes in the corn industry, driven largely 
by a growing ethanol industry have created many new opportunities for 
producers, our rural communities and the many businesses that are 
critical to our success. Projected market prices for corn and other 
major commodities from both the Congressional Budget Office (CBO) and 
the Food and Agricultural Policy Research Institute forecast that the 
current marketing loan assistance program and counter-cyclical program 
will provide minimal, if any, meaningful support over the next 5 years. 
The CBO, in fact, has scored the level of spending for loan deficiency 
payments ranging from $7 million in 2008 to just $30 million in 2012. A 
very similar level of outlays is forecast for counter-cyclical 
payments. These projections, along with the expansion of planted acres 
for corn, have reinforced the need for NCGA and affiliated state 
associations to investigate an alternative safety net that enables 
producers to better manage their risks.
    NCGA's commodity title proposal reflects the view that the time has 
arrived to adopt fundamental changes in our programs that would 
strengthen our competitiveness and enhance the long term viability of 
U.S. farmers. The United States Congress has a unique opportunity to 
consider major reforms at a time when prices are strong for most crops 
and exports are expected to reach a record $77 billion in 2007. Equally 
impressive is that U.S. agriculture can celebrate the lowest debt-to-
asset ratio in recorded history, approximately 11 percent for 2006. And 
thanks to continued support from the Congress, renewable energy from 
home grown crops are now playing a much larger role in enhancing the 
country's energy security.
    To provide a better safety net for producers, NCGA proposes 
replacing the existing counter-cyclical program, loan deficiency 
payments and the nonrecourse marketing loan program with programs that 
would provide more comprehensive and cost effective risk management 
tools. Direct payments would continue to provide a foundation of 
support. Rather than target low prices, the new Revenue Counter-
Cyclical Program would make payments when a county's realized crop 
revenue is less than a crop's trigger revenue. When the actual per-acre 
revenue falls below the per-acre trigger revenue, producers would be 
compensated for the difference. I need to emphasize that a farm's total 
payment would equal the per-acre payment multiplied by planted acres 
rather than base acres as is the case with today's price triggered 
program. This county based program is very similar to Group Risk Income 
Protection (GRIP), a product currently offered through the Federal crop 
insurance program. Similar to GRIP, the proposed RCCP trigger revenue 
for a county would equal the product of RCCP coverage level, the 
expected county yield and the projected price level. The harvest price 
and a crop's actual county yield reported by NASS (National 
Agricultural Statistic Service) would determine the actual county 
revenue. However, RCCP would not include a Harvest Revenue Option which 
can increase payments if the harvest price is greater than the 
projected price.
    In most years, RCCP payments would be triggered by the same events 
that lead to the great majority of crop insurance indemnity payments: 
droughts, excessive or inadequate heat, excessive rain, or widespread 
disease related losses. Hail, wind damage or local flooding may also 
cause losses at the farm level, but not enough toward county losses to 
trigger RCCP payments. NCGA recognizes the potential for overlapping 
coverage with RCCP and crop insurance. Consequently, NCGA proposes to 
integrate RCCP payments with the Federal crop insurance program to 
create a more effective and cost efficient farm safety net.
    The integration of these core programs would provide a first line 
of revenue protection, reducing price risk and widespread production 
risk now borne by private insurance companies. By making sure the 
companies only pay for losses not covered by the RCCP, the indemnities 
that insurance providers pay farmers would be significantly reduced 
enabling them to provide individual revenue insurance at higher 
coverage levels. Analysis provided to NCGA indicates that the farmer 
paid premiums of buy-up revenue insurance policies would drop 
significantly through the re-rating of insurance products by the Risk 
Management Agency.
    Integration of RCCP and crop insurance would establish a floor 
under farm revenue. In some years, though, farmers could receive RCCP 
payments when farm level crop losses are not severe enough to trigger 
insurance payments. In this situation, farm revenue would remain above 
the floor level. There could also be years farmers sustain farm level 
losses, yet would not receive any RCCP payments. Individual insurance 
would cover their losses and farm revenue would be brought up to the 
floor level. Participation in the crop insurance program would remain 
voluntary leaving the choice to producers to supplement the RCCP with 
insurance for farm level losses or accept the risk that the county 
level losses would not cover individual crop losses.
     The NCGA proposal through RCCP adopts an alternative approach that 
offers the advantage of providing savings for farmers wanting to 
purchase crop insurance while reducing the financial risks of the 
private insurance industry. We believe this change offers the potential 
of further strengthening the private-public partnership by making sure 
that most private insurance companies survive even through the heavy 
loss years. Another advantage to this direct approach is that it would 
provide a standing disaster program for farmers who grow program crops. 
Unlike the uncertainty and protracted delays that are now the norm for 
agriculture disaster assistance, RCCP would automatically provide 
payments to all farmers in counties that suffer low revenue. This 
change, alone, would help to ensure a more equitable and sensible 
delivery of aid than the antiquated crop disaster assistance formula 
which does little to fill the gaps in today's farm safety net.
    The final component of NCGA's proposal is to change the nonrecourse 
loan program to a recourse loan program, a reform that would 
significantly increase the market orientation of U.S. farm policy. A 
recourse loan would continue to give producers harvest time liquidity 
which increases their ability to market their crop at a more profitable 
time. Although the farmer's last resort option to sell a crop to USDA 
would no longer be available, a recourse loan program would create 
incentives for producers to actively market their crop into the private 
sector.
    Recognizing the challenges before this Committee to write a 
commodity title under the current fiscal constraints, I now want to 
turn to the subject of funding. As I stated earlier, NCGA believes the 
time is right for introducing these proposed reforms and we urge the 
Congress to provide the necessary resources to take advantage of this 
opportunity. Specific to the projected outlays, this integration of a 
county revenue counter-cyclical program (RCCP) with Federal crop 
insurance extracts cost efficiencies from lowering the costs of 
delivering individual revenue protection policies and as well as 
spending offsets from replacing the current nonrecourse marketing loan 
program and the price triggered counter-cyclical program. In addition, 
a county based RCCP modeled after the Group Risk Income Protection 
insurance policy, provides producers permanent disaster assistance less 
costly than the ad hoc crop disaster aid programs that have averaged 
near $1.8 billion on an annual basis. Assuming a level of 75 percent 
buy up individual revenue insurance, a county revenue guarantee at a 
coverage level of 95 percent of projected price and a 2 year 
implementation delay of a 5 year farm bill, the annual cost of the NFSA 
is projected at approximately $500 million above baseline. To be 
prudent in the use of public funds, NCGA recommends implementation of a 
cap on projected prices used to determine trigger revenues. One option 
would be to base the cap on a multiplier of loan rates adjusted for 
basis and historical season average prices. To reduce the effects of 
market volatility on the program and to provide greater predictability 
to producers, NCGA proposes to establish projected crop prices as the 
average of the current year's revenue insurance price and the previous 
2 year's prices. Given the improvements in the farm safety net that I 
have outlined and our confidence in the potential for long term 
savings, NCGA believes its proposal offers a viable policy alternative 
for your consideration.
    Mr. Chairman, NCGA stands ready to work with you and your 
colleagues in the weeks and months ahead as you begin crafting a new 
farm bill. Our growers appreciate the difficult task before you and 
your continued support of our industry. I thank you again for this 
opportunity to appear before this Subcommittee and discuss our goals 
and priorities.

    The Chairman. Thank you, Mr. McCauley. Mr. Gertson.

STATEMENT OF PETER D. ``DAN'' GERTSON, Jr., CHAIRMAN, U.S. RICE 
 PRODUCERS ASSOCIATION; RICE FARMER, LISSIE, TX; ON BEHALF OF 
                      USA RICE FEDERATION

    Mr. Gertson. Thank you. Good morning, Chairman Etheridge, 
Ranking Member Moran, Mr. Peterson and Members of the 
Subcommittee. I am Dan Gertson, a rice farmer from Lissie, 
Texas. I am the Chairman of the U.S. Rice Producers 
Association. I have been farming rice for 50 years and I am 
blessed to have four sons, two son-in-laws and one grandson, 
who I have helped begin farming as well. I am pleased to appear 
today on behalf of both the USA Rice Federation and the U.S. 
Rice Producers Association. Our grain represents the grain that 
feeds half the world. It sustains life in half the population 
of the world.
    The rice industry strongly supports the continuation of the 
current farm program, with a three-prong safety net of a 
nonrecourse Marketing Loan Program, Direct Payment Program and 
Counter-Cyclical Program. These programs have worked as 
designed, to ensure a safety net for producers. When prices 
increase, program expenditures decline because less support is 
needed.
    Rice program support levels: U.S. farm policy will have 
saved about $25 billion since passage of the 2002 Farm Bill. As 
a result, the commodity program budget baseline, according to 
the Congressional Budget Office, has gone down by about 43 
percent since 2002. At the same time, input and production 
costs for rice producers have gone up by more than 42 percent. 
Under current law, the loan rate for rice is set at a national 
average rate of $6.50 per hundredweight of rice. The loan rate 
for rice has remained unchanged since 1989. Since the enactment 
of the 2002 Farm Bill, the support provided by the rice loan 
compared to the variable cost of rice production has gone down 
by a whopping 33 percent. This represents a greater and 
effective reduction in the support level for rice than for any 
other program cost since 2002 and is now lower than for any 
other program crop. The falling value of program support in the 
face of rising production costs is why we are seeking a very 
modest increase in our rice loan rate from the current level of 
$6.50 per hundredweight to $7.50 per hundredweight. We are also 
seeking a 50 cents increase in the target price to $11 per 
hundredweight.
    Loan rates by class: There are currently three distinct 
loan rates for rice by class that are set by USDA for each crop 
year. There is long grain, medium grain and short grain rice. 
The average of these three loan rates must equal the $6.50 per 
hundredweight national average. There has been a differential 
between the loan rates for several classes of rice, even though 
the loan rate has been set at one single level for all rice in 
the farm bill. We believe that the rice loan rate should be set 
at the same level for all classes of rice, long, medium and 
short grain. We urge this Committee, as you draft the farm 
bill, to include language directing USDA to set the national 
loan rate for each class of rice at the same level as 
established by the farm bill, with the only adjustment 
continuing to be reflective of milling yields. There should be 
no further loan rate differentials by class or location.
    Adjusted world price calculation for rice: Many in the 
industry are also concerned with the current black box 
methodology and formula used by USDA in calculating the 
adjusted world price for rice. The adjusted world price largely 
determines the level of loan program benefits, if any, provided 
to the producers, based on the world price for rice. We believe 
by putting in place a transparent and verifiable formula and 
method for calculating the average world price for rice, 
producers and others in the industry will have a greater 
confidence in the process. We look forward to working with the 
Committee to include legislative language in the farm bill, and 
the industry consensus, to bring much needed transparency to 
this process.
    U.S. Department of Agriculture proposal: It is unfortunate 
that many of the changes to the farm bill proposal developed by 
USDA, particularly in the commodity title, would weaken the 
safety net the farm bill is intended to provide. The proposal 
to set loan rates based on previous 5 year Olympic average 
prices and to include a loan rate cap, but not a floor, would 
be especially damaging. The proposed adjusted gross income rule 
would make U.S. farm policy unpredictable, inequitable, and 
punitive for American farm and ranch families, especially 
tenant and beginning farmers and ranchers. We urge you to 
oppose these provisions of the USDA farm bill proposal.
    The rice industry supports the continuation of the basic 
commodity programs structure, with a modest improvements 
outlined above. I would be pleased to respond to any questions.
    [The prepared statement of Mr. Gertson follows:]

  Prepared Statement of Peter D. ``Dan'' Gertson, Jr., Chairman, U.S. 
                                  Rice
 Producers Association; Rice Farmer, Lissie, TX; on Behalf of USA Rice
                               Federation
Introduction
    Good morning, Chairman Etheridge, Ranking Member Moran, and Members 
of the Subcommittee.
    I am Dan Gertson, a rice farmer from Lissie, Texas and the Chairman 
of the U.S. Rice Producers Association. I have been farming rice for 50 
years, and I am blessed to have four sons and two sons-in-law who I 
have helped begin farming as well.
    I am pleased to appear today on behalf of both the USA Rice 
Federation and the U.S. Rice Producers Association.
    Mr. Chairman, we thank you for holding this hearing and for the 
opportunity to express our views on the farm bill.
    The U.S. rice industry supports maintaining an effective farm 
safety net that includes the marketing assistance loan program, 
counter-cyclical and direct payments, and planting flexibility.
Farm Bill Budget
    We would like to thank Chairman Peterson, Ranking Member Goodlatte 
and Members of the Agriculture Committee for the bipartisan effort they 
have made to obtain additional budget resources to help in developing 
the best farm policy possible. We are well aware of the difficult 
budget situation we are facing, but also fully agree with the position 
taken by the Committee in its budget views and estimates letter sent to 
the House Budget Committee.
    The fact is that U.S. farm policy will have saved about $25 billion 
since passage of the 2002 Farm Bill. As a result, the commodity program 
budget baseline according to the Congressional Budget Office has fallen 
by about 43 percent since 2002. At the same time, input and production 
costs for rice producers has risen by more than 42 percent since 2002. 
As such, the Agriculture Committees should be given some credit for 
this savings and provided an additional budget allocation for 
maintaining a farm program safety net in the farm bill.
    We recognize the many competing interests that must be considered 
when assembling a farm bill. New needs have been identified since 
passage of the 2002 Farm Bill. However, the safety net we have today is 
still vitally important to farmers and rural America--as important as 
when the 2002 Farm Bill was written.
Commodity Programs
    Overall, the rice industry strongly supports the continuation of 
the current farm programs within the commodity title of the farm bill. 
We believe the structure of the three-prong safety net of a nonrecourse 
marketing loan program, direct payment program and counter-cyclical 
program are working as designed to ensure a safety net for producers. 
When prices increase, program expenditures decline because less support 
is needed. This has resulted in the approximately $25 billion in actual 
and projected savings from the commodity programs over the course of 
the 2002 Farm Bill.
Payment Limitation Policies
    The U.S. rice industry opposes any further reduction in the payment 
limit levels provided under the current farm bill. We also oppose any 
government policies that attempt to ``target'' payments or apply a 
means test for agricultural production payments. Payment limits have 
the negative effect of penalizing viable family farms the most when 
crop prices are the lowest and support is the most critical. To be a 
viable family farm, we must use economies of scale to justify the large 
capital investment costs associated with farming today. It is essential 
that rice producers maintain eligibility for all production to the 
nonrecourse loan program. Arbitrarily limiting payments results in farm 
sizes too small to be economically viable, particularly for rice, 
cotton, and peanut farms across the Sunbelt. When the issue of payment 
limits is brought up, oftentimes opponents of production agriculture 
attempt to use misleading statistics taken out of context for the 
purpose of making their argument. Here are some key points that I know 
we are all probably aware of, but it's important to be reminded of so 
that we see the real picture of production agriculture.
    Statistics skewed by ``Rural Residence Farms'':  ``Rural residence 
farms'' as defined by USDA represent about \2/3\ of the 2.1 million 
``farms'' in this country. Excluding these farms where farming is not 
the primary occupation of the family results in a very different 
picture about the percentage of ``farms'' receiving farm program 
payments. The universe of farms actually producing this nation's food 
and fiber is much smaller than 2.1 million. In fact, 38% of farms 
produce 92% of our food and fiber and receive 87% of farm program 
payments.
    While we support the overall structure of the current commodity 
programs, there are some rice specific legislative adjustments within 
the structure of the programs that are needed to address some issues 
that have arisen relative to rice.
Rice Program Support Levels
    Within the current marketing loan program, the statutory loan rate 
for rice is set at a national average rate of $6.50 per hundredweight 
of rice (about 2.22 bushels). The loan rate for rice has remained 
unchanged since 1989. However, over that time period production costs 
and operating expenses have increased exponentially and continue to 
escalate. As a result, since the enactment of the 2002 Farm Bill the 
support provided by the rice loan compared to the variable cost of rice 
production has fallen by a whopping 33 percent! In 2002 the rice loan 
rate represented about 150 percent of the variable cost of producing 
rice. Today that same loan rate represents only about 100 percent of 
the variable cost of producing rice. This represents a greater 
effective reduction in the support level for rice than for any other 
program crop since 2002, and is now lower than for any other program 
crop. As such, we are seeking a very modest increase in our rice loan 
rate from the current level of $6.50/cwt to $7.00/cwt.
    In the 2002 Farm Bill, when the target price and counter-cyclical 
payment system was established, the target price for rice was set at 
$10.50/cwt and remains at that level today. Again, due to the continued 
increase in production costs, we are seeking a $.50/cwt increase in the 
target price to $11.00/cwt.
Loan Rates by Class
    The current statutory loan rate for rice is set at $6.50/cwt, but 
there are currently three distinct loan rates for rice by class that 
are set by USDA for each crop year: long grain, medium grain, and short 
grain. The average of these three loan rates must equal the $6.50/cwt 
national average set by current statute in the farm bill for rice. Over 
the course of the marketing loan program operation, there has been a 
differential between the loan rates for the several classes of rice, 
while the statutory loan rate has been set at one level for all rice. 
USDA has recently undertaken efforts to ``rebalance'' these loan rates 
by class. We have concerns with the approach being used by USDA in this 
process. After studying and analyzing the issue we believe that the 
most appropriate course is to set the loan rate at the same level for 
all classes of rice--long, medium, and short grain.
    Analysis of the impact of the changes proposed by USDA suggests 
that the modifications would have a significant impact on the rice 
industry. At first glance, changes in class loan rates would appear to 
cancel each other out, assuming that the method to report adjusted 
world prices remains unchanged. If so, the result would basically be a 
transfer of loan support from long grain rice producers to producers of 
medium and short grain.
    However, these changes in payments could be large enough to 
generate a round of false market adjustments as producers shift acreage 
in response to the change in the program and markets react to the 
resulting larger medium and short grain supplies and smaller long grain 
supplies. In other words, this new ``equilibrium'' envisioned by USDA 
will not have been achieved without causing significant economic pain.
    Arriving at a new ``equilibrium'' between long and medium/short 
grain loan rates will likely entail significant adjustments along 
regional lines. Within the long grain sector, the higher cost producers 
that are already operating at low rates of return would suffer the 
greatest burden. Losses in revenues would be concentrated in the areas 
where producers have the lowest ability to take advantage of changes in 
loan rates by shifting between varieties, such as Missouri, 
Mississippi, and Texas. Any gains in revenue would be concentrated in 
California where producers would receive a higher return on their 
existing production, and the potential to expand more profitable 
operations.
    The current method of setting loan rates by class has allowed for 
the orderly production and marketing of rice that has provided ample 
supplies to the market without generating excessive stocks in either 
the public or private sectors. Although domestic prices for medium 
grain varieties have over time appreciated at a rate much faster than 
long grain varieties, much of this increase reflects market forces 
unique to particular markets and even to particular medium grain 
varieties.
    Therefore, we urge this Committee as you draft the farm bill to 
include statutory language directing USDA to set the national loan rate 
for each class of rice at the same level as established by the farm 
bill, with the only adjustment continuing to be reflective of milling 
yields. There should be no further loan rate differentials by class or 
location.
    Making such a change to an ``all rice'' loan rate would, based on 
the current rice loan rate of $6.50/cwt, result in a slight reduction 
in the long grain loan rate of $0.09/cwt compared to the 2007 crop loan 
rate and an increase in the medium grain loan rate of $0.30/cwt and an 
increase of $0.22/cwt for short grain. Of note, long grain rice 
accounts for approximately 80% of total rice production, and medium and 
short grain rice accounts for approximately 20% of total production on 
average.
Adjusted World Price Calculation for Rice
    Many in the industry are also concerned with the current 
methodology and formula used by USDA in calculating the ``adjusted 
world price'' (AWP) for rice. The AWP is set and announced each week by 
USDA as part of the marketing loan program. The AWP largely determines 
the level of loan program benefits (if any) provided to producers, 
based on the world prices for rice adjusted back to U.S. location and 
quality.
    The current process employed by USDA is essentially a ``black box'' 
approach that provides little, if any, transparency in the process. 
This method worked well overall for a number of years after the 
marketing loan program was first established. However, over the course 
of the last few years, the AWP as announced by USDA has varied 
significantly at times from what was believed to be the true price 
relationships in the world market place. This has reduced U.S. 
competitiveness in the world market and diminished the producer safety 
net.
    To help address this issue, the industry is working to develop a 
more transparent formula that would be representative of the prices in 
the major world rice markets. Such an approach would work in principle 
similar to the method used for calculating the AWP for cotton, which 
utilizes a rather specific formula calculation for certain markets.
    We believe by putting in place a transparent, verifiable formula 
and method for calculating the AWP for rice, producers and others in 
the industry will have greater confidence in the process. It should 
also help USDA to better calculate the AWP on a weekly basis.
    As the several industry producer, processor, and other 
organizations further define and reach consensus on a proposal for a 
transparent method of calculating an AWP for rice, we look forward to 
working with the Committee to include legislative language in the farm 
bill to bring this much needed transparency to the process.
USDA Proposal
    We have reviewed the farm bill Proposal developed by USDA and 
released in January. While it is clear a great deal of effort went into 
developing the proposal, it is unfortunate that many of the proposed 
changes, particularly in the commodity title, would have the damaging 
effect of weakening and in some cases practically eliminating the 
safety net the farm bill is intended to provide. However, the USDA 
proposal does call for an additional $5.0 billion in funding for the 
farm bill over the next 10 years, which is a positive and necessary 
part of the farm bill development.
Commodity Title
    It is important to note overall that USDA's commodity program 
proposal recommends maintaining the key components of the safety net--
nonrecourse marketing loan program, direct payment program, and 
counter-cyclical program--although some of the changes within the 
programs are problematic, as described below.
    The proposal to set loan rates based on previous 5 year Olympic 
average prices and to include a loan rate cap but not a floor would be 
especially damaging. This would essentially remove any real safety net 
that the marketing loan program is intended to provide. If market 
prices for a certain commodity begin to decline and continue that 
downward trend for several years, the result could be a loan rate 
significantly below the current loan rate levels. Loan rates should be 
set in statute at the appropriate level to provide a basic safety net 
level and not be altered during the life of a farm bill. This level of 
certainty and predictability is necessary for producers to obtain 
production financing and make long-term planning decisions.
    Also, the proposal by USDA to modify the counter-cyclical program 
from a price-based trigger to a revenue-based trigger at the national 
level is also problematic for rice producers and the rice industry. 
Given the unique nature of rice production, we experience very little 
variation in yield or production, but can experience significant 
changes in market prices. Therefore, using market prices as the basis 
for counter-cyclical payments is important for our industry and 
something we continue to support. We would note that the justification 
for this change--helping producers when they have production losses--is 
not even accomplished by the proposal because producers in an entire 
region could lose their crop and so long as other producers made their 
crop and prices were strong, no payment would be made.
    The current law adjusted gross income (AGI) provision prohibits 
commodity program payments from being made to individuals with greater 
than a $2.5 million AGI, excluding those individuals who earn at least 
75% of their income from farming, ranching, or forestry. A major 
concern with the USDA proposal involves the reduction of the AGI test 
to only $200,000, and the repeal of the farmer safe harbor for those 
whose income principally comes from farming, ranching, or forestry.
    We believe the idea of means testing for commodity programs in 
general is bad policy. A farm safety net--no matter how good it may 
be--is not worth anything to thousands of farm and ranch families if 
they cannot access it. The AGI proposal unfairly penalizes full time 
farmers who have diversified and expanded for purposes of achieving 
economies of scale in order to compete with foreign competitors that 
enjoy huge subsidies, tariffs, and questionable non-tariff barriers. 
This rule would injure U.S. farmers and ranchers as they fight to 
compete on a very lopsided global playing field.
    The proposed AGI rule would make U.S. farm policy unpredictable, 
inequitable, and punitive for American farm and ranch families, 
especially tenant and beginning farmers and ranchers, as well as 
lenders, landowners, Main Street businesses, and rural communities.
    This provision would also have serious consequences as it relates 
to rental agreements between landowners and producers. It would force 
landowners to cash rent their land rather than share production risks 
with their producer tenants. This will only hurt the ``real producers'' 
farming or ranching on the land. Large or wealthy landowners who are 
the apparent targets of this proposal will not suffer, but will simply 
cash rent their land to other producers who are likely eligible for 
program benefits.
    The proposed AGI rule also makes it difficult or impossible for 
lenders to measure with any certainty the future cash flow of farm and 
ranch families in order to make both short and long term lending 
decisions. Uncertain whether the producer will be eligible for farm 
policy benefits, lenders--whether banks, farm credit system 
institutions, equipment dealers, or others offering business credit--
will be unable to estimate producer cash flows with any level of 
certainty.
    It is understandable why this type of rule has not been proposed 
for conservation programs under the farm bill. Or under the JOBS Bill 
that helps U.S. manufacturers compete globally. Or for doctors under 
Medicare. They didn't include this kind of a rule because it would have 
hurt the cause, not helped it. Similarly, farm and ranch families 
should not be means-tested out of farm policy based on their AGI 
because this, too, would undermine a fundamental purpose of farm 
policy: the provision of the safest, most abundant, most affordable 
food and fiber supply in the world to the American consumer.
    We urge you to oppose the above provisions of the USDA farm bill 
proposal due to the severe consequences that would result from any one 
or combination of them. America's farm and ranch families are already 
facing enough uncertainty and difficulty without unnecessarily 
weakening the safety net as proposed by USDA.
Conclusion
    Overall, the rice industry supports a continuation of the basic 
commodity programs structure, with the changes referenced above as it 
relates to rice: (1) Modestly increase the program support levels for 
rice to a loan rate of $7.00/cwt and a target price of $11.00/cwt.; (2) 
Set loan rates for all classes of rice at the same level, with no 
differential by class or location; and (3) Develop and implement a more 
transparent formula for the calculation of the AWP for rice.
    We continue to believe that our current farm programs are a 
fiscally responsible approach to farm policy and provide a safety net 
when needed. They have resulted in $25 billion in savings from the 
estimated costs of the farm commodity programs of the 2002 Farm Bill.
    Furthermore, any unilateral reduction of the current programs and 
funding levels of the farm bill will result in the effective 
``unilateral disarmament'' by the U.S. when it comes to World Trade 
Organization (WTO) negotiations that the Administration is continuing 
to pursue. Such action would effectively weaken our negotiating 
position with other countries. We certainly do not agree that the 
pending WTO negotiations should dictate or steer our domestic farm 
policy. Farm policy should be directed by what's best for America's 
farm and ranch families.
    Thank you again for the opportunity to testify and share our views 
with you as it relates to the commodity provisions of the farm bill and 
the Administration's farm bill proposal. We look forward to working 
with this Subcommittee and the full Committee in crafting the strongest 
farm policy possible to continue to provide an effective safety net for 
American agriculture.
    I would be pleased to respond to any questions at the appropriate 
time.

    The Chairman. Thank you, sir. Mr. Ostlie, I understand that 
you and Mr. Russell will share your 5 minutes. Okay, you are 
recognized. Thank you, sir.

   STATEMENT OF RICHARD OSTLIE, PRESIDENT, AMERICAN SOYBEAN 
                   ASSOCIATION, NORTHWOOD, ND

    Mr. Ostlie. Good morning, Mr. Chairman, Mr. Peterson, and 
Members of the Subcommittee. I am Rick Ostlie, a soybean farmer 
from Northwood, North Dakota and President of the American 
Soybean Association. The ASA appreciates the opportunity to 
present our views on the commodity title of the 2007 Farm Bill.
    Mr. Chairman, ASA previously testified on the 2007 Farm 
Bill before the full Committee in September of 2006. Our 
statement at that time was presented on behalf of the National 
Sunflower Association and the U.S. Canola Association as well 
as ASA. I am pleased that Mr. Russell from NSA is able to join 
me here in restating our position today.
    Oilseed producer organizations support the basic structure 
of the 2002 Farm Bill, with some minor adjustments. We believe 
the three-legged stool that includes a marketing loan, the 
Marketing Loan Program, direct payments, combined with crop 
insurance and disaster assistance, can provide an adequate 
safety net for farmers in years of low prices and reduced 
production.
    I say can because the 2002 Farm Bill establishes target 
price and marketing loan rates for oilseeds at levels that do 
not provide an adequate safety net for producers of these 
crops. They are out of balance with the supports provided to 
other program commodities. The soybean target price of $5.80 
per bushel triggers counter-cyclical payments only when 
seasonal average prices fall below $5.36. The difference 
reflects the soybean direct payment of 44 cents. We believe 
that $5.36 per bushel is inadequate in protecting soybean 
producer income. Prices never fell below the $5.36 level during 
the past 4 years under the current farm bill. Even if they had, 
counter-cyclical payments are made on only a fraction of actual 
production. They are based on 85 percent of a formula that in 
many cases uses outdated yields from the early 1980s. This 
safety net is too low to be meaningful to oilseed producers.
    Our proposal is to adjust target prices for all program 
crops to a minimum of 130 percent of the Olympic average of 
season average prices in 2000 to 2004. This period was selected 
because it includes years of both lower prices and higher 
prices for most commodities. The 130 percent level was selected 
because it would increase income support for all crops except 
cotton and rice. Since target prices for these crops under the 
2002 Farm Bill are already higher than 130 percent, they would 
not be affected under our proposal.
    At 130 percent, the soybean target price would increase 
from $5.80 to $6.85 per bushel. Subtracting the 44 cents direct 
payment, the average effective target price would be $6.41. The 
target price for canola, sunflower and other so-called minor 
oilseeds would increase from $10.71 to $14.61 per 
hundredweight. Considering the target prices for other program 
crops, we consider these to be adequate and reasonable levels 
of income support for oilseed producers.
    Our proposal would also adjust marketing loan rates to a 
minimum of 95 percent of the 5 year Olympic average. These 
adjustments would only marginally affect soybeans. The increase 
would be only 1 cents, from $5 to $5.01 per bushel. However, as 
Mr. Russell will make clear, marketing loan rates must reflect 
the market value of commodities. If they are out of sync with 
each other, planting decisions can be distorted in years when 
prices at harvest are expected to be near or below loan levels. 
Some current loan rates do not reflect recent market price 
relationships between crops, and they must be adjusted.
    Mr. Chairman, attached to my written statement is a table 
showing current and proposed marketing loan rates and target 
prices for all program crops. Also attached are tables showing 
the cost of these adjustments for individual commodities, and a 
table showing the overall cost for all target price and loan 
rate adjustments of about $900 million per year.
    We understand the Subcommittee has limited resources to 
accommodate this and any changes in the commodity title in the 
2002 Farm Bill. However, we strongly believe our proposal is 
the best way to correct major deficiencies in the Act. We also 
strongly support making additional resources available from 
outside the commodity title to make these changes. However, if 
they are not made available, we encourage you to consider ways 
to make these adjustments using resources within the commodity 
title. Thank you very much.
    [The prepared statement of Mr. Ostlie follows:]

   Prepared Statement of Richard Ostlie, President, American Soybean 
                       Association, Northwood, ND
    Good morning, Mr. Chairman and Members of the Subcommittee. I am 
Rick Ostlie, a soybean farmer from Northwood, North Dakota, and 
President of the American Soybean Association. ASA appreciates the 
opportunity to present our views on the commodity title of the 2007 
Farm Bill.
    Mr. Chairman, ASA previously testified on the 2007 Farm Bill before 
the full Committee in September 2006. Our statement at that time was 
presented on behalf of the National Sunflower Association and the U.S. 
Canola Association as well as ASA. I am pleased that Mr. Russell from 
the NSA is able to join me in restating our position today.
    Oilseed producer organizations support the basic structure of the 
2002 Farm Bill, with some minor adjustments. We believe the ``three-
legged stool'' that includes the marketing loan, the counter-cyclical 
program, and direct payments, combined with crop insurance and disaster 
assistance, can provide an adequate safety net for farmers in years of 
low prices and reduced production.
    I say ``can'' because the 2002 Farm Bill established target prices 
and marketing loan rates for oilseeds at levels that do not provide an 
adequate safety net for producers of these crops and are out of balance 
with the support provided to other program commodities. The soybean 
target price of $5.80 per bushel triggers counter-cyclical payments 
only when season average soybean prices fall below $5.36. The 
difference reflects the soybean direct payment of $0.44. We believe 
that $5.36 per bushel is inadequate in protecting soybean producer 
income. Prices never fell below $5.36 during the past 4 years under the 
current farm bill. Even if they had, counter-cyclical payments are made 
on only a fraction of actual production--they are based on 85% of a 
formula that in many cases uses antiquated payment yields from the 
early 1980's. This safety net is too low to be meaningful to oilseed 
producers.
    Our proposal is to adjust target prices for all program crops to a 
minimum of 130% of the Olympic average of season average prices in 
2000-2004. This period was selected because it includes years of both 
lower prices and higher prices for most commodities. The 130% level was 
selected because it would increase income support for all crops except 
cotton and rice. Since target prices for these crops under the 2002 
Farm Bill are higher than 130%, they would not be affected under our 
proposal.
    At 130%, the soybean target price would be increased from $5.80 to 
$6.85 per bushel. Subtracting the $0.44 direct payment, the effective 
target price would be $6.41. The target price for canola, sunflower and 
other so-called minor oilseeds would increase from $10.71 to $14.61 per 
hundredweight. Considering the target prices for other program crops, 
we consider these to be adequate and reasonable levels of income 
support for oilseed producers.
    Our proposal would also adjust marketing loan rates to a minimum of 
95% of the same 5 year Olympic price average. These adjustments would 
only marginally affect soybeans--the increase would only be 1 cents, 
from $5.00 to $5.01 per bushel. However, as Mr. Russell will make 
clear, marketing loan rates must reflect the market value of 
commodities. If they are out of sync with each other, planting 
decisions can be distorted in years when prices at harvest are expected 
to be near or below loan levels. Some current loan rates do not reflect 
recent market price relationships between crops, and they must be 
adjusted.
    Mr. Chairman, attached to my written statement is a table showing 
current and proposed marketing loan rates and target prices for all 
program crops. Also attached are tables showing the cost of these 
adjustments for individual commodities, and a table showing the overall 
cost for all target price and loan rate adjustments of about $900 
million per year.
    We understand the Subcommittee has limited resources to accommodate 
this or any other change to the commodity title in the 2002 Farm Bill. 
However, we strongly believe our proposal is the best way to correct 
major deficiencies in that Act. We also strongly support making 
additional resources available from outside the commodity title to make 
these changes. However, if they are not made available, we encourage 
you to consider ways to make these adjustments using resources within 
the commodity title.
    Thank you very much.

Richard Ostlie,
President, American Soybean Association.

                                                                       Attachment
                               Adjusting Loan Rates to 95% & Target Prices to 130% of 2000-2004 Olympic Average of Prices
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                2000-04                                                 % of                                     % of
                                                Olympic       Direct     04-07 Loan     Proposed      Olympic    04-07 Target    Proposed      Olympic
                  Commodity                     Average      Payment        Rate        2008 Loan     Average        Rate       2008 Target    Average
                                                 Price         Rate                       Rate         Price                       Price        Price
--------------------------------------------------------------------------------------------------------------------------------------------------------
Wheat (bu.)                                         $3.19        $0.52        $2.75         $3.03           95%        $3.92         $4.15          130%
Corn (bu.)                                          $2.12        $0.28        $1.95         $2.01           95%        $2.63         $2.75          130%
Soybeans (bu.)                                      $5.27        $0.44        $5.00         $5.01           95%        $5.80         $6.85          130%
Cotton (lb.)                                      $0.4680      $0.0667      $0.5200       $0.5200          111%      $0.7240       $0.7240          155%
Rice (cwt.)                                         $5.81        $2.35        $6.50         $6.50          112%       $10.50        $10.50          181%
Barley (bu.)                                        $2.47        $0.24        $1.85         $2.35           95%        $2.24         $3.21          130%
Grain Sorghum (bu.)                                 $2.05        $0.35        $1.95         $1.95           95%        $2.57         $2.66          130%
Oats (bu.)                                          $1.52       $0.024        $1.33         $1.44           95%        $1.44         $1.97          130%
Minor Oilseeds (cwt.)                              $11.27        $0.80        $9.30        $10.71           95%       $10.10        $14.66          130%
Peanuts (lb.)                                      $0.205      $0.0180        $0.18        $0.195           95%      $0.2475        $0.267          130%
--------------------------------------------------------------------------------------------------------------------------------------------------------


          Overall Annual Average Change in Farm Program Costs:
------------------------------------------------------------------------
                                                    Baseline
------------------------------------------------------------------------
                       Marketing Loan Program:
  $ Million...........................                         160
  Percent.............................                           11%
         Countercyclical Program:
  $ Million...........................                         741
  Percent.............................                           51%
                           Total:
  $ Million...........................                         901
  Percent.............................                           32%
------------------------------------------------------------------------


               Change in Cost to Adjust Marketing Loans to 95% of 2000-2004 Olympic Ave. of Prices
----------------------------------------------------------------------------------------------------------------
                                        2008         2009         2010         2011         2012         2013
----------------------------------------------------------------------------------------------------------------
                                                                     ($ million)
----------------------------------------------------------------------------------------------------------------
All Crops                                   176          158          158          156          157          156
Soybean                                       5            5            5            6            6            6
Corn                                         34           29           29           28           31           32
Wheat                                        66           55           50           44           40           37
Cotton                                        0            0            0            0            0            0
Rice                                          0            0            0            0            0            0
Barley                                       36           35           36           36           37           36
Oats                                          2            2            1            1            1            1
Peanuts                                      24           23           26           28           27           27
Sorghum                                       0            0            0            0            0            0
Minor Oilseeds                               10           10           11           13           14           15
----------------------------------------------------------------------------------------------------------------


   Change in Cost of Counter-Cyclical Program to Adjust Target Prices to 130% of 2000-2004 Olympic Average of
                                                     Prices
----------------------------------------------------------------------------------------------------------------
                                        2008         2009         2010         2011         2012         2013
----------------------------------------------------------------------------------------------------------------
                                                                     ($ million)
----------------------------------------------------------------------------------------------------------------
All Crops                                   717          689          707          749          774          809
Soybean                                     395          400          421          468          486          520
Corn                                        108           92           90           88           93           95
Wheat                                        82           71           66           60           56           53
Cotton                                        0            0            0            0            0            0
Rice                                          0            0            0            0            0            0
Barley                                       45           44           46           47           50           50
Oats                                         20           18           17           17           17           17
Peanuts                                      40           40           40           41           41           41
Sorghum                                       6            5            5            5            5            4
Minor Oilseeds                               21           20           21           24           26           29
----------------------------------------------------------------------------------------------------------------


    Mr. Ostlie. Mr. Russell?

         STATEMENT OF LANCE RUSSELL, PRESIDENT, KANSAS
             SUNFLOWER COMMISSION; MEMBER, BOARD OF
           DIRECTORS, NATIONAL SUNFLOWER ASSOCIATION;
                   SUNFLOWER FARMER, HAYS, KS

    Mr. Russell. Good morning, Mr. Chairman, Mr. Peterson, and 
Mr. Moran. My name is Lance Russell. I am a sunflower farmer 
from Hays, Kansas and I run a diversified farm, growing most of 
these crops. I am currently the President of the Kansas 
Sunflower Commission and therefore on the Board of Directors of 
the National Sunflower Association, and I want to thank you for 
the opportunity to speak, even though I am in the red button 
right now.
    Anyway, Mr. Chairman, the U.S. sunflower industry has gone 
through a difficult transition dating back to the late 1970s. 
At that time, we were seen as a Cinderella crop, with boundless 
potential for production and demand. In the 1980s, oilseed 
crops discovered how farm programs can impact production 
decisions. We lost acres to program crops and became dependent 
on export subsidies, and later on access to the farm program 
payments to survive. In the 1990s, our industry took a bold 
move and decided to take control of our future by building 
superior oil characteristics into the entire sunflower crop. 
This was a challenging and costly effort involving producers, 
feed companies and processors, but we emerged with NuSun 
sunflowers. NuSun varieties have low linolenic oil profile, 
making them ideal for use in food products and food service 
applications that require a healthier oil with higher stability 
and longer shelf life.
     They also require partial hydrogenation in these 
applications. What that means is they contain no transfats and 
we know that ``transfats'' is the big buzz word right now. And 
following FDA's decision to require transfats to be labeled on 
food products in 2006 and actions or proposals to eliminate 
transfats in the food product and manufacturing industry, 
demand for NuSun sunflowers has exploded. A number of major 
U.S. and Canadian food companies have switched their formulae 
to include NuSun in order to avoid transfats. Now, there is 
more demand for low saturated and stable oils coming from other 
users. This is an enormous opportunity for our industry, after 
25 years of work, to find our place in the oils market and we 
don't want to lose it. Moreover, if we are to meet the 
consumers' demands for healthier oils, we must assure an 
adequate and stable supply of sunflower seed oil.
    Mr. Chairman, sunflower support levels under the current 
farm program present one of the biggest obstacles in our 
ability to respond to market demand. Our marketing loan rate of 
$9.30 per hundredweight is only 82 percent of the Olympic 
average of season average prices between 2000 and 2004. The 
loan rates for commodities that compete with sunflower are much 
higher. Soybean is 95 percent; corn, 92; wheat, 86; and dry 
peas at 120 percent. As a result, sunflower has lost 47 percent 
of our acreage since 1998 and 1999, dropping from 3\1/2\ 
million to 1.9 million acres, even as market demand has called 
for a major increase in sunflower production.
    Sunflower and other minor oilseeds were also discriminated 
against when target prices were established in the 2002 Farm 
Bill. The minor oilseed target price of $10.10 per 
hundredweight is 80 cents higher than our $9.30 loan rate. But 
since our direct payment is also 80 cents, the effective target 
price is still the same, at $9.30, identical to the loan rate. 
There is no way counter-cyclical payments can be triggered for 
minor oilseed producers.
    Together with the other oilseed organizations, we strongly 
support adjusting marketing loan rates to a minimum of 95 
percent of the Olympic average of prices in 2000 to 2004, and 
target prices to a minimum of 130 percent of the same price 
average. It is absolutely critical that these adjustments be 
made in the 2007 Farm Bill if our industry is going to survive 
and be able to take advantage of the opportunities that we have 
helped to create and which we have before us today. Thank you 
for your consideration.
    [The prepared statement of Mr. Russell follows:]

    Prepared Statement of Lance Russell, President, Kansas Sunflower
Commission; Member, Board of Directors, National Sunflower Association; 
                       Sunflower Farmer, Hays, KS
    Good morning, Mr. Chairman and Members of the Subcommittee. I am 
Lance Russell, a sunflower farmer from Hayes, Kansas. I currently serve 
as President of the Kansas Sunflower Commission, and on the Board of 
Directors of the National Sunflower Association. Thank you for the 
opportunity to appear before you today.
    Mr. Chairman, the U.S. sunflower industry has gone through a 
difficult transition dating back to the late 1970's. At that time, we 
were seen as a Cinderella crop, with boundless potential for production 
and demand. In the 1980's, oilseed crops discovered how farm programs 
can impact production decisions. We lost acres to program crops, and 
became dependent on export subsidies and, on later access to farm 
program payments, to survive.
    In the 1990's, our industry decided to take control of our future 
by building superior oil characteristics into the entire sunflower 
crop. This was a challenging and costly effort involving producers, 
seed companies and processors, but we emerged with NuSun sunflower. 
NuSun varieties have a low linolenic oil profile, making them ideal for 
use in food products and food service applications that require a 
healthier oil with higher stability and longer shelf life.
    They also require no partial hydrogenation in these applications, 
meaning they contain no transfats. Following FDA's decision to require 
transfats to be labeled on food products in 2006 and actions or 
proposals to eliminate transfats in the food product and manufacturing 
industry, demand for NuSun sunflower has exploded. A number of major 
U.S. and Canadian food companies have switched their formulas to 
include NuSun in order to avoid transfats. There is more demand for low 
saturated and stable oils coming from other users. This is an enormous 
opportunity for our industry, after 25 years of work, to find our place 
in the oils market--and we don't want to loose it. Moreover, if we are 
to meet the consumers' demands for healthy oils we must assure an 
adequate and stable supply of sunflower seed oil.
    Mr. Chairman, sunflower support levels under the current farm 
program represent one of the biggest obstacles to our ability to 
respond to market demand. Our marketing loan rate of $9.30 per 
hundredweight is only 82 percent of the Olympic average of season 
average prices in 2000-2004. The loan rates for commodities that 
compete with sunflower are much higher: Soybeans is 95 percent; corn is 
92 percent, wheat is 86 percent, and dry peas is 120 percent. As a 
result, sunflower has lost 47 percent of our acreage since 1998-1999, 
dropping from 3.5 million to 1.9 million acres, even as market demand 
has called for a major increase in sunflower production.


    Together with the other oilseed organizations, we strongly support 
the adjusting marketing loan rates to a minimum of 95 percent of the 
Olympic average of prices in 2000-2004, and target prices to a minimum 
of 130 percent of the same price average. It is absolutely critical 
that these adjustments be made in the 2007 Farm Bill if our industry is 
going to survive and be able to take advantage of the opportunities we 
have helped to create, and which we have before us today.
    Thank you for your consideration of our views.

Lance Russell,
President, Kansas Sunflower Commission;
Board Member, National Sunflower Association.

                                                                       Attachment
                               Adjusting Loan Rates to 95% & Target Prices to 130% of 2000-2004 Olympic Average of Prices
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                2000-04                                                 % of                                     % of
                                                Olympic       Direct     04-07 Loan     Proposed      Olympic    04-07 Target    Proposed      Olympic
                  Commodity                     Average      Payment        Rate        2008 Loan     Average        Rate       2008 Target    Average
                                                 Price         Rate                       Rate         Price                       Price        Price
--------------------------------------------------------------------------------------------------------------------------------------------------------
Wheat (bu.)                                         $3.19        $0.52        $2.75         $3.03           95%        $3.92         $4.15          130%
Corn (bu.)                                          $2.12        $0.28        $1.95         $2.01           95%        $2.63         $2.75          130%
Soybeans (bu.)                                      $5.27        $0.44        $5.00         $5.01           95%        $5.80         $6.85          130%
Cotton (lb.)                                      $0.4680      $0.0667      $0.5200       $0.5200          111%      $0.7240       $0.7240          155%
Rice (cwt.)                                         $5.81        $2.35        $6.50         $6.50          112%       $10.50        $10.50          181%
Barley (bu.)                                        $2.47        $0.24        $1.85         $2.35           95%        $2.24         $3.21          130%
Grain Sorghum (bu.)                                 $2.05        $0.35        $1.95         $1.95           95%        $2.57         $2.66          130%
Oats (bu.)                                          $1.52       $0.024        $1.33         $1.44           95%        $1.44         $1.97          130%
Minor Oilseeds (cwt.)                              $11.27        $0.80        $9.30        $10.71           95%       $10.10        $14.66          130%
Peanuts (lb.)                                      $0.205      $0.0180        $0.18        $0.195           95%      $0.2475        $0.267          130%
--------------------------------------------------------------------------------------------------------------------------------------------------------


          Overall Annual Average Change in Farm Program Costs:
------------------------------------------------------------------------
                                                    Baseline
------------------------------------------------------------------------
                       Marketing Loan Program:
  $ Million...........................                         160
  Percent.............................                           11%
         Countercyclical Program:
  $ Million...........................                         741
  Percent.............................                           51%
                           Total:
  $ Million...........................                         901
  Percent.............................                           32%
------------------------------------------------------------------------


               Change in Cost to Adjust Marketing Loans to 95% of 2000-2004 Olympic Ave. of Prices
----------------------------------------------------------------------------------------------------------------
                                        2008         2009         2010         2011         2012         2013
----------------------------------------------------------------------------------------------------------------
                                                                     ($ million)
----------------------------------------------------------------------------------------------------------------
All Crops                                   176          158          158          156          157          156
Soybean                                       5            5            5            6            6            6
Corn                                         34           29           29           28           31           32
Wheat                                        66           55           50           44           40           37
Cotton                                        0            0            0            0            0            0
Rice                                          0            0            0            0            0            0
Barley                                       36           35           36           36           37           36
Oats                                          2            2            1            1            1            1
Peanuts                                      24           23           26           28           27           27
Sorghum                                       0            0            0            0            0            0
Minor Oilseeds                               10           10           11           13           14           15
----------------------------------------------------------------------------------------------------------------


   Change in Cost of Counter-Cyclical Program to Adjust Target Prices to 130% of 2000-2004 Olympic Average of
                                                     Prices
----------------------------------------------------------------------------------------------------------------
                                        2008         2009         2010         2011         2012         2013
----------------------------------------------------------------------------------------------------------------
                                                                     ($ million)
----------------------------------------------------------------------------------------------------------------
All Crops                                   717          689          707          749          774          809
Soybean                                     395          400          421          468          486          520
Corn                                        108           92           90           88           93           95
Wheat                                        82           71           66           60           56           53
Cotton                                        0            0            0            0            0            0
Rice                                          0            0            0            0            0            0
Barley                                       45           44           46           47           50           50
Oats                                         20           18           17           17           17           17
Peanuts                                      40           40           40           41           41           41
Sorghum                                       6            5            5            5            5            4
Minor Oilseeds                               21           20           21           24           26           29
----------------------------------------------------------------------------------------------------------------


    The Chairman. Thank you, Mr. Russell. Now we will hear from 
Mr. Thaemert. Please, sir, 5 minutes. And remember, fellows, 
your full statement is in the record and you will summarize it 
within the 5 minutes. Thank you.

STATEMENT OF JOHN C. THAEMERT, PRESIDENT, NATIONAL ASSOCIATION 
OF WHEAT GROWERS; OWNER/OPERATOR, JT FARMS, INC., SYLVAN GROVE, 
                               KS

    Mr. Thaemert. Mr. Chairman and Members of the Subcommittee, 
my name is John Thaemert and I am a farmer from Sylvan Grove, 
Kansas, and I currently serve as President of the National 
Association of Wheat Growers. I would like to thank you for 
allowing me this opportunity to discuss how together we can 
best address the needs of our Nation's wheat producers in the 
2007 Farm Bill.
    Effective farm legislation is essential, not only for wheat 
growers, but also for rural economies as well as consumers both 
here and abroad. Farm programs were designed to cushion boom 
and bust cycles that are inherent to farming, and also to 
ensure a safe, affordable and abundant supply of food and fiber 
for the American people. The economic safety net provided by 
multi-year farm legislation is largely responsible for the food 
security our country enjoys, which in turn provides a variety 
of societal and economic benefits. People all over the world 
also benefit from a healthy U.S. agriculture sector through 
trade, technology developed with American research, and our 
extensive network of food aid.
    U.S. farm policy is also essential to continue 
agriculture's strong legacy of conservation and stewardship. 
This is something that the wheat growers feel very, very 
strongly about. Our farmers and ranchers care for the vast 
majority of America's land. Responsible growers treat the land 
well because they know that it is their most precious resource. 
Our Nation's farm policy has the responsibility to help these 
men and women maintain and improve the natural resources they 
have cared for over, oftentimes, many generations.
    Agriculture is increasingly providing Americans the 
opportunity to get their fuel from the Midwest rather than an 
unstable Middle East. The Federal Government can help make this 
goal a reality in a variety of ways. The emerging biofuels 
industry, especially cellulosic ethanol, which is of particular 
interest to the National Association of Wheat Growers, is an 
industry that could revolutionize and vitalize both our 
national and rural economies. These technologies will be 
commercialized much more quickly and efficiently if farmers can 
remain on their operations and profitably produce the necessary 
crops and feed stocks.
    As for title I, the commodity title, the Food Security and 
Rural Investment Act of 2002 has some strong points, and the 
membership of the National Association of Wheat Growers 
believes that the 2007 legislation should build on these 
strengths. While wheat growers generally support the structure 
of the current policy, much of the safety net provided by the 
2002 Bill has not been effective for wheat farmers due to the 
fact that the support levels, namely, the target price, were 
set too low. The 2007 Farm Bill has an opportunity to correct 
these imbalances.
    The chart displayed in my written testimony clearly shows 
the inequities in the commodity safety net that wheat growers 
have dealt with over the term of the 2002 Bill. And I want to 
make this point quite clearly. Make no mistake about the fact 
that NAWG members understand the needs of producers of other 
crops and we certainly do not advocate a decrease in support 
for any crops. However, wheat producers need an equitable 
increase in support to maintain their operations. As a result 
of this inequity, our members and our Board of Directors gave 
firm direction to our domestic policy committee and to our 
officers to address this issue. After many months of discussion 
and extensive analysis of various options, including revenue-
based programs, our Board adopted a proposal that increases the 
direct payment and target price to more accurately reflected 
increased cost of production. We therefore recommend to the 
Committee that the direct payment for wheat be increased to a 
$1.19 per bushel, along with a commensurate increase in the 
payment limit for fixed payments, and that the target price be 
increased to $5.29 per bushel, while maintaining the Market 
Loan Program as currently structured, a nonrecourse loan at 
$2.75 per bushel.
    In addition to these changes in title I, NAWG opposes any 
type of means testing to establish eligibility for, or restrict 
participation in, Federal programs. NAWG supports the 
continuation of the three-entity provision of the 1996 FAIR 
Act, and separate identity rights for spouses actively engaged 
in farming. NAWG supports creating a separate market 
classification for hard white wheat.
    And the highlights of our position on titles II through X 
include extension of CRP for sensitive lands, utilizing certain 
CRP acreage for land eligible for CRP, or land eligible for 
CRP, for the purpose of planting and harvesting dedicated 
energy crops, including, but not limited to, switchgrass, and 
continued funding for research in mapping of the wheat genome, 
a complex project that offers huge potential.
    And at this point, I would like to refer to a magazine 
article that was in Farm Journal. I don't know if you can see 
it there, but it says, ``Farm Bill Disappoints Wheat.'' This is 
what our members have been telling us for the last 4 or 5 
years. But I want to quote a colleague of mine from Kansas and 
many of you may know him, Dr. Barry Flinchbaugh. In his plain 
spoken way he says, ``Wheat has gotten the shaft in commodity 
programs.'' I think it is important that we take this 
opportunity to right this inequity.
    In closing, I would also like to implore you about the need 
for disaster assistance for my members. This has been a 
struggle. We have been caught up in this for a number of months 
on this debate. We have gone through anywhere from 5 to 10 
years of drought and that really hampers a person's ability to 
pay loans. In closing, the members of the National Association 
of Wheat Growers are excited about this opportunity to make 
needed adjustments to the 2007 Farm Bill and are ready to work 
with Congress and the Administration to produce legislation 
that will best serve all producers and consumers alike. And I 
thank you for this opportunity and I look forward to any 
questions you may have.
    [The prepared statement of Mr. Thaemert follows:]

Prepared Statement of John C. Thaemert, President, National Association 
   of Wheat Growers; Owner/Operator, JT Farms, Inc., Sylvan Grove, KS
    Mr. Chairman, Members of the Subcommittee, my name is John 
Thaemert. I am a farmer from Sylvan Grove, Kan., and am currently 
serving as President of the National Association of Wheat Growers. I 
would like to thank you for allowing me to be here today to discuss the 
needs of wheat growers in the 2007 Farm Bill.
    As you are aware, effective farm legislation is essential, not only 
for wheat growers, but also for rural economies and consumers all over 
the world. Farm programs were designed to cushion the boom and bust 
cycles that are inherent to agricultural production and to ensure a 
consistently safe, affordable and abundant supply of food and fiber for 
the American people. These programs provide stability to American 
agriculture, an industry that contributes to about 15 percent of our 
country's gross domestic product. Because of these programs, American 
consumers also pay less for their food than citizens of any other 
developed country.
    The safety net provided by multi-year farm legislation is largely 
responsible for the food security our country enjoys, which has a 
variety of societal and economic benefits. Americans know that their 
food supply is the safest and most reliable in the world, a knowledge 
that fulfills a basic human need and allows citizens to be productive. 
People all over the world also benefit from a healthy American 
agricultural sector through trade, technology developed with American 
research and our extensive network of food aid.
    Federal farm policy is also essential to continue agriculture's 
legacy of land conservation and stewardship. American farmers and 
ranchers care for the vast majority of America's land, which they know 
intimately. Responsible growers treat the land well because they know 
it is their most precious resource. Federal farm legislation has a 
responsibility to help these men and women maintain and improve the 
areas they and their ancestors have cared for over generations.
    Agriculture is also increasingly providing Americans the 
opportunity to get their fuel from the Midwest rather than the Middle 
East. The Federal Government can help make this goal a reality in a 
variety of ways, but, for the infant biofuels market to grow to 
maturity, it is essential for growers to stay on the land. Cellulosic 
ethanol and other renewable fuels that could revolutionize our energy 
economy cannot be commercialized if farmers are not on the ground to 
produce the necessary crops.
    As farm legislation, the Food Security and Rural Investment Act of 
2002 has strong points, and the membership of the National Association 
of Wheat Growers believes that the next farm bill should build on these 
strengths. But, while wheat growers generally support current policy, 
much of the ``safety net'' provided by the 2002 Bill has not been 
effective for wheat farmers. The 2007 Farm Bill needs to correct these 
imbalances.
    The 2007 Farm Bill is also a chance to ensure conservation programs 
are appropriately funded, to create incentive programs and provisions 
for the development of a renewable fuel sector and to provide for a 
wide variety of other important measures to wheat growers.
    The members of National Association of Wheat Growers are excited 
about the opportunities inherent in the farm bill process and are ready 
to work with Congress and the Administration to produce legislation 
that will serve all producers and all Americans.
Commodity Programs
    The members of the National Association of Wheat Growers realize 
that the U.S. wheat industry is suffering from both lower net returns 
and lower levels of support than other program crops, as well as a lack 
of access to advanced genetic technologies and stagnant demand. These 
challenges led to an industry-wide Wheat Summit in September 2006 that 
began with the goal of collaboration on issues ranging from domestic 
farm policy priorities and science and research to domestic utilization 
and exports.
    One of the most important elements of any plan to restore the wheat 
industry's competitiveness is Federal farm policy that provides an 
equitable safety net for growers while allowing them to take production 
cues from the marketplace and while avoiding challenges based on our 
World Trade Organization obligations. Since 2002, wheat growers have 
received little or no benefit from two key commodity components of the 
farm bill, the counter-cyclical program and loan deficiency payment 
program. Severe weather conditions for several consecutive years in 
many wheat states have led to significantly lower yields or total 
failure, and the loan program and the LDP are useless when you have no 
crop. The target price for the counter-cyclical program for wheat was 
also set considerably lower than market conditions indicated, which, 
combined with short crops due to disaster and, thus, higher prices, has 
led to very little support for wheat in the form of counter-cyclical 
payments. This safety net failure has hurt many wheat growers and has 
led to a continued decrease in wheat acres.
    The chart below clearly shows the inequities in the government-
provided safety net to wheat growers over the term of the 2002 Farm 
Bill. While NAWG members understand the needs of producers of other 
crops and do not believe that their safety nets should be decreased, it 
is important for wheat growers to be in an equitable position relative 
to other program crops. 


        Sources for production costs/acre: http://www.ers.usda.gov/
        Data/CostsandReturns/testpick.htm. 

    We, therefore, recommend to the Committee that the direct payment 
for wheat be increased to $1.19 per bushel and that the target price be 
increased to $5.29 per bushel, while maintaining the marketing loan 
program as currently structured.
    While we are aware that other agriculture organizations have 
expressed concern about the effects that the direct payment may have on 
rental rates, we believe that the direct payment does not cause any 
greater increase in rental rates or land values than any other income. 
For instance, The Wall Street Journal reported on March 7 of this year 
that, ``Farmland prices are soaring across the Midwest amid a surge in 
demand for corn driven by the ethanol boom.'' We believe that higher 
crop prices and more demand for corn acres are the real causes of 
increases in land values and rental rates--not the direct payment.
    The decision of the NAWG Board of Directors to support the above 
proposal came about as a result of reviewing data on trends in the 
wheat industry including historical prices, historical cost of 
production and historical yields as determined by USDA's National 
Agricultural Statistics Service and USDA's Economic Research Service. 
NAWG's Domestic Policy Committee also obtained data from the Food and 
Agricultural Policy Research Institute and the Agricultural and Food 
Policy Center that helped determine what it would take to keep wheat 
growers on the farm. (These reports are available through NAWG or on 
the NAWG Website, www.wheatworld.org.)
    According to USDA data, historical input costs for 2005 and 2006--
the most representative of forecast production costs over the term of 
the next farm bill--averaged $215.79 per acre.\1\ The average yield, on 
the other hand, has stayed around 38 to 42 bushels.\2\ Using these 
numbers, the average cost to produce a bushel of wheat is around $5.29 
while the average market price over the term of the 2002 Farm Bill has 
been approximately $3.40 (2003-2005).\3\
---------------------------------------------------------------------------
    \1\ Cost-of-production forecasts for U.S. major field crops, 2005-
2006f, Economic Research Service.
    \2\ U.S. & All States Data--Wheat All, 1995-2006, USDA-NASS Quick 
Stats, National Agricultural Statistics Service, USDA.
    \3\ U.S. & All States Data--Wheat All, 2002-2006, USDA-NASS Quick 
Stats, National Agricultural Statistics Service, USDA.
---------------------------------------------------------------------------
    While most wheat growers purchase crop insurance and rely on it 
heavily, affordable coverage is typically limited to 65 to 70 percent 
of expected yield. Wheat growers expressed concern, therefore, about 
ensuring that a safety net exists for the other 30 to 35 percent of the 
crop. By providing a safety net to wheat growers of $1.19 per bushel in 
the form of a direct payment, Federal farm policy can assure growers, 
their families and their bankers that they have a predictable and 
dependable safety net.
    This proposal also took into consideration our current World Trade 
Organization obligations. This proposal is based on historical 
information and, in part, relies on a direct payment that is decoupled 
from current production.
    The benefits of this proposal echo Secretary of Agriculture Mike 
Johanns' view of farm bill priorities, as stated publicly many times 
and specifically in an interview on Aug. 2, 2006: ``. . . but it seems 
to me we should be talking about, how do we make our farm program 
predictable and beyond challenge and equitable for that matter?''
    NAWG members also support an increase in payment limits 
commensurate with the increase in the direct payment. While we 
understand this has been a very heated issue in the past, we believe 
that we cannot use any types of means testing in the farm bill, 
especially since payment limit proposals in the past have always 
targeted the direct payment more than the counter-cyclical or loan 
payments. This is unfair to wheat producers, who rely most on the 
direct payment.
    In addition to these changes in the farm bill's title I:

   NAWG opposes any type of means testing to establish 
        eligibility for or restrict participation in Federal farm 
        programs.

   NAWG supports the continuation of the three-entity 
        provisions of the 1996 FAIR Act and separate identity rights 
        for spouses actively engaged in farming.

   NAWG supports creating a separate market classification for 
        Hard White Wheat.
Conservation
    NAWG believes that all components of title II are important and 
that full and adequate funding for conservation programs should not 
come at the expense of full and adequate funding for commodity 
programs; the conservation title should not replace the commodity 
title. NAWG further believes that participation in a conservation 
program does not create a new right of public use and fully protects 
all otherwise applicable private property rights.
    NAWG makes the following recommendations for title II:
Conservation Reserve Program (CRP)
   CRP should be continued and renewed.

   CRP should be limited to the most highly erodible soils.

   CRP payments should reflect local rental rates.

   Any wheat base acreage enrolled in CRP should be restored, 
        but not updated, upon the expiration of the contract.

   CRP acreage should be capped at 39.2 million acres.
Conservation Security Program (CSP)
   CSP should be fully funded and returned to its original 
        purpose.

   If CSP is not fully funded, the ``priority watershed'' 
        concept should be implemented.

   Choice of crop protection products should not qualify or 
        disqualify producers from participating in CSP.
Administration
   NAWG does not support consolidating the conservation 
        programs administered under the Department of Agriculture. 
        However, NAWG believes that duplication and competing 
        administrative functions should be removed to provide a 
        streamlined sign-up process for these conservation programs. 
        Additionally, NAWG believes Natural Resources Conservation 
        Service programs, like the Conservation Security Program, 
        should be administered by the Farm Service Agency.
Other
   NAWG also opposes the proposed sod saver provision from the 
        Administration that would make grassland (rangeland and native 
        grasslands, not previously in crop production) acres that are 
        converted into crop production permanently ineligible for farm 
        price, income support and other USDA program benefits.
Trade and Food Aid
    NAWG supports fair and open trade of wheat throughout the world. 
Nearly half of U.S. wheat is exported and, since 95 percent of the 
world's population lives outside of the United States, wheat growers 
recognize that expanded markets will likely be overseas. In addition, 
wheat growers continue to support food aid programs. However, our 
requests for title III cannot come at the expense of the commodity or 
conservation titles.
    To facilitate trade, the wheat industry:

   supports funding of the Market Access Promotion (MAP) 
        program at no less than $300 million annually.

   supports the use of funding allocated to the Export 
        Enhancement Program (EEP) to enhance U.S. wheat exports and 
        market development programs until all export subsidies have 
        been eliminated.

   supports increased funding for CCC export credit programs.

   supports funding of the Foreign Market Development (FMD) 
        program at no less than $55 million annually.

   supports continued legislative authorization of the 
        cooperator program as a line item in the CCC budget.

   supports producer oversight of the allocation of cooperator 
        program funds.

    In the area of food aid, the wheat industry:

   opposes any attempt in the World Trade Organization (WTO), 
        or in any other venues, to require that food aid be given as 
        ``cash only'' instead of allowing donor nations to provide food 
        directly as emergency and development assistance.

   supports funding food aid programs at levels no less than 
        the amounts needed to provide food donation levels of at least 
        six million metric tons annually, of which three million metric 
        tons should be wheat.

   supports the original intent of the Bill Emerson 
        Humanitarian Trust, that it provide direct food aid and should 
        not be sold back into the U.S. domestic market. The wheat 
        industry also supports the Emerson Trust being replenished in a 
        timely manner.

   believes that current programs administered by the U.S. 
        Department of Agriculture are effective and should remain under 
        USDA management.

   believes that, except in times of emergency, U.S. food aid 
        programs should be comprised of U.S.-produced food.

   opposes withholding of food aid for political purposes.
Credit
    NAWG supports financing programs for beginning farmers. In 
addition, NAWG supports the continuation of and increased funding for 
the FSA guaranteed loan program. NAWG supports full funding for the FSA 
reduced interest loan program.
Rural Development
    NAWG is supportive of rural development programs but strongly 
opposes the diversion of money from other areas of the farm bill for 
these efforts.
Research
    NAWG supports funding for the mapping of the wheat genome and 
international triticae mapping initiatives. NAWG also supports funding 
for research into fusarium head blight and other wheat-related diseases 
and pests, as well as for other research initiatives that would benefit 
wheat growers.
Energy
    NAWG supports utilizing Conservation Reserve Program (CRP) acreage, 
or land to be enrolled in CRP, for the purpose of planting and 
harvesting dedicated energy crops including, but not limited to, 
switchgrass. This should be carried out in a manner that maintains the 
environmental benefits that CRP is designed to achieve.
    NAWG also supports the Commodity Credit Corporation offsetting 40 
percent of the cost of cellulosic feedstock for the first year of a 
cellulosic ethanol refinery's life. A similar program intended for 
other types of biofuel, the CCC Bioenergy Program, expired in 2006, and 
should be reauthorized to support cellulosic ethanol feedstocks, 
including dedicated energy crops or agricultural/forestry residues. The 
program could be simplified to provide a per gallon payment rate, 
consider a payment limit per eligible entity and be terminated as 
cellulosic ethanol becomes commercially feasible.
    NAWG is highly supportive of programs to encourage the development 
of a viable renewable energy sector, but strongly opposes the diversion 
of money from other areas of the farm bill for these efforts.
Other Priorities
    NAWG supports creating a Hard White Wheat development project that 
would focus on achieving critical mass. U.S. Wheat Associates' HWW 
Committee will draft a plan that includes a research component and an 
infrastructure development component. A draft concept paper is 
available at http://www.wheatworld.org/pdf/Draft%20HWWDP%20(2).doc and 
will be updated as necessary.
    NAWG believes that a nationally-uniform regulatory structure for 
biotechnology regulation is essential to successfully utilizing this 
technology. Accordingly, we propose amendments to the Grain Standards 
Act that would ensure a uniform, national regulatory structure.
    NAWG supports Federal pre-emption of state labeling requirements 
for biotech products to ensure that labeling is voluntary, consistent 
with U.S. law, consistent with international trade agreements, truthful 
and not misleading.
Notes
    Both the NAWG Domestic Policy Committee and the NAWG Board of 
Directors began examining several farm bill proposals and options as 
early at April 2005 to ensure that the organization's recommendations 
to Congress would provide the best possible safety net for wheat 
growers.
    Proposals that the NAWG Committee and Board examined included 
several revenue assurance-type programs, including options outlined by 
the American Soybean Association, the National Corn Growers 
Association, a NAWG Domestic Policy Committee proposal, and most 
recently, program recommendations from the U.S. Department of 
Agriculture.
    While these programs continue to sound good in theory, after much 
analysis, we have determined that these programs just won't work for 
wheat growers. Most are based on a 70 percent cap, and/or either a 3 
year average or 5 year Olympic average income that is used to determine 
a producer's ``target'' revenue.
    Wheat is grown mostly in areas of variable production that have 
experienced recent years of drought and other natural disasters, which 
brings a producer's potential target revenue much lower than it should 
be. That, combined with the possibility of only being able to cover 70 
percent of revenue makes these programs a no-win situation for wheat 
growers. The recent proposal by the USDA uses the current (2002 Farm 
Bill) target price as the basis for figuring a target revenue. Wheat 
growers have continued to state that the current target price is far 
below what market conditions indicated was necessary for a reliable 
safety net, so a new target revenue based on the same number is 
completely inadequate. A quick analysis of the current year situation 
shows that once again, wheat growers would not receive any safety net 
from the Department's proposal.

    The Chairman. Thank you very much and I thank each of you 
for your testimony. The chair would like to remind Members that 
they will be recognized for questions in the order of seniority 
of the Members who were here at the start of the hearing. After 
that, Members will be recognized in the order that they arrived 
for the hearing. So I appreciate your understanding of that. We 
will adhere to that. Mr. Moran and I agreed, though, that if 
the Chairman and Ranking Member show up, that sort of will take 
precedence over the rest of us. So with that, I will recognize 
the Chairman of the Committee, Mr. Peterson, for the first 
questions.
    Mr. Peterson. I thank the Chairman, and I want to thank 
him, the Ranking Member, and the other Members of the Committee 
for the outstanding job they are doing and the leadership in 
getting more information pulled together. I just got back from 
speaking at the National Cattlemen's. I got delayed because the 
President was speaking and I got caught up in all of that 
commotion that goes on and couldn't get out of there. But what 
I said to them I want to say to you, since you brought it up, 
Mr. Thaemert.
    Mr. Thaemert. Yes, sir.
    Mr. Peterson. Did I get that right? The disaster. We really 
didn't want, or choose, to put this disaster in this Iraq 
supplemental, but we didn't have any choice. This was supposed 
to have been done last year; we were promised in September; we 
were promised after the election. It didn't happen. I don't 
know how exactly we are going to work through this, but I just 
had a farmer Saturday in my district commit suicide over this. 
It is a serious situation and we need to address this and we 
need to figure out how to deal with this in the farm bill so we 
don't have to go through this every 2 years in the future. But 
in my judgment, if we don't figure out some way to work through 
this and get the President's support in this bill, whatever it 
ends up being, we aren't going to get this done and people need 
to understand that. I mean, this is the last train out of the 
station. If we don't get this done now, it isn't going to 
happen. So whatever influence any of you have, we have to 
figure out some way to get this done.
    So Mr. McCauley, I have a letter from my Minnesota corn 
growers and apparently they are still not totally on board with 
you, is that correct?
    Mr. McCauley. That is correct. But I want to emphasize 
that.
    Mr. Peterson. You are not making any progress with them at 
this point.
    Mr. McCauley. No, there are three states that have 
different opinions and we have been notified of that, but we 
have had a large majority of our membership that is in favor of 
it, but Minnesota is not.
    Mr. Peterson. And there are no more discussions, or are you 
still talking, or what?
    Mr. McCauley. I think we will just leave it like that.
    Mr. Peterson. All right. So Mr. Thaemert, the rebalancing 
idea that some of you guys have put out, that is not workable 
for you, I take it?
    Mr. Thaemert. We are looking at cost production as opposed 
to market prices. The market hasn't always guaranteed a return 
and we are not expecting to be guaranteed a return. The formula 
that you will see in our written testimony also does not 
guarantee a return, either. We put a margin in there. The issue 
that we have been looking at is the increased inputs and the 
cost of production relative to loan rate, target price and 
direct payments. And we struggled with a lot of different 
formulae. We looked at a lot of different delivery mechanisms; 
and what we could come up with as the best one for wheat was an 
increase in the direct payment and an increase in the target 
price. And I think it is very important to note that it is not 
a cookie-cutter application for every crop. The agronomics are 
different.
    Mr. Peterson. Well, if you recall, I tried to improve the 
situation for wheat and barley in 2002. Unfortunately, at that 
time, I didn't have enough clout. It is a little different this 
time, but we will see what we can do here. But I should know 
this, but have you gotten a score on what the changes, how 
much----
    Mr. Thaemert. We are working on----
    Mr. Peterson. We haven't got a score----
    Mr. Thaemert. We have submitted an analysis of the target 
price and direct payment. The preliminary numbers that we hear 
are that the projections for the price increases are high 
enough that there won't be much of a counter-cyclical as a 
result. The cost of the direct payment, we haven't got a 
scoring on that yet, but we are waiting for that analysis.
    Mr. Peterson. I assume, are all of you guys opposed to the 
President's payment limit idea? Unanimous. And what do you 
think about this idea on the President's or the Secretary's 
farm bill, where they want to change the posted county price 
from a daily basis to monthly? Have you guys looked at that? 
What do you think about that change?
    Mr. McCauley. Well, we talk about it every year at our 
policy session, and throughout the year as we have LDPs. Our 
proposal would change the way you look at posted county prices 
and we think that would answer that question.
    Mr. Peterson. And it would still be daily, the way you are 
proposing it?
    Mr. McCauley. Ours would be a yearly, established in the 
spring.
    Mr. Peterson. Oh, yearly. Okay.
    Mr. McCauley. That is one the benefits, also.
    Mr. Peterson. The rest of you have any comment?
    Mr. Ostlie. I guess I still think it is very important to 
keep them on a daily basis as we have done in the past. I think 
it is something that has worked and it should be left the way 
it is.
    Mr. Thaemert. Well, speaking for wheat, we haven't received 
any LDPs, so I can't really talk about that. But for other 
crops, I would say that the marketing flexibility of the daily 
price system would be more desirable.
    Mr. Peterson. If I could have one more? I keep getting 
complaints all the time about the way these prices are set--
like if you had one county next to another and they have 
differences. People are hauling their grain two counties over 
because they can get a better deal, and all of that sort of 
stuff. Have you guys, in the work that you do, taken a look at 
that whole situation, in terms of how they establish those 
county prices? Did you come up with any ideas on how to get 
around some of these issues that keep coming up?
    Mr. McCauley. We have looked at that quite a bit, Mr. 
Chairman, as in 2005, 2006, and 2007, and those continually 
continue to be a problem and it is always in one area. We felt 
like it is best to be addressed when you have that problem, 
because I think you are always going to have some kind of a 
problem as prices go from area to area and county to county. So 
we have addressed it as an implementation or administrative 
job.
    Mr. Ostlie. Well, I guess I probably would agree with that. 
I think a lot of the problem is the way they do the formulae 
and a lot of the local problems of how they determine those 
prices on a county-by-county basis. I am not sure how we would 
change the law to actually address that at a national level. 
But it definitely is a problem, especially in our area, where 
we have these really large counties that are 30 by 40 miles 
wide. It really gets distorted from one end to the other.
    Mr. Peterson. All right. Thank you. Thank you, Mr. 
Chairman.
    The Chairman. Thank you. Thank you, Mr. Chairman. Mr. 
McCauley, you stated that your proposed revenue counter-
cyclical proposal would reduce the indemnities paid out on risk 
management to where it would re-rate insurance products so 
producers could obtain higher coverage levels of individual 
revenue insurance at a lower premium. You also cited analysis 
provided to NCGA to this effect. My question is, who conducted 
the analysis and has anyone in the crop insurance industry, 
have they confirmed the conclusions? It would be interesting 
stuff. We would just like to know what.
    Mr. McCauley. We had the study done by a CARD at Iowa 
State, Dr. Babcock. We had it reviewed by Dr. Barnaby. He 
commented on it. He didn't totally review it, and another 
professor. We talked to the crop insurance industry, but 
really, these things have just come together pretty fast, so we 
anticipate doing that shortly. But one of the things that I 
really need to emphasize is that there is an overlap as you go 
through government payments at the FSA office and the crop 
insurance industry. We feel like we can do this without hurting 
the crop insurance industry's profits. We could actually give 
them more access, to the farmers, the individual policies and 
as the buy-up. So we think, with a little bit of vision, the 
crop insurance industry can benefit also from this.
    The Chairman. It would probably be helpful to this 
Committee, though. We need some pretty hard data before we 
start doing----
    Mr. McCauley. I realize that.
    The Chairman. For the rest of you on the panel, let me ask 
this question. You suggested a number of changes and certainly 
that is what we like to see as it relates to loan rates, target 
prices, how loan repayment rates are calculated and how LDPs 
are collected, et cetera. As I listen to that, it seems to me 
that these suggested changes will end up costing some money. So 
my question is this: Money that we really don't have unless we 
do some adjustments somewhere else. So let me ask the question 
this way. To achieve the changes you want, would each of you be 
willing to see a reduction in the direct payment, or would you 
rather keep the programs as they are, without changes? Because 
when you start doing it, we have a limited pot of money, as 
each of you know, this year. We don't have the benefits we have 
had in the past. I would appreciate you helping this Committee 
with your comments on that.
    Mr. Ostlie. I guess I would like to comment on that. I will 
comment first here. I mean, first of all, I would like to see, 
obviously, new money to fund our changes. But as I travel 
around the country, most farmers like the basic framework of 
the 2002 Farm Bill and that is what I have seen from most 
farmers. The problem is, the way it is set up right now, it 
simply causes farmers to make a planting decision based on a 
farm program. We think that those planting decisions have to be 
made on the market. So I guess when you talk about reducing the 
direct payments somewhat to pay for this; I guess I realize 
that that would affect all commodities, not just soybeans. You 
know, so I hate to--but I think that is something that we would 
be willing to look at. But I do understand it affects all 
commodities.
    The Chairman. Anyone else?
    Mr. Thaemert. Yes, I would like to address that. You know, 
as I stated in my testimony, a cookie-cutter approach probably 
isn't the best way to go. What works for corn and beans doesn't 
work for wheat. What works for wheat doesn't work for flowers 
and rice. And in the marginal production areas where wheat is 
normally grown, the direct payment is the only thing we have 
been able to depend on. We can go to our creditor and we can 
have a cash flow and know that we are going to get it. So wheat 
growers are strongly opposed to any reduction. As a matter of 
fact, we are pushing for an increase in the direct payment. As 
far as distorting planting, direct payment is based on 
historic. The loan rate would have more impact on planting than 
the direct payment would, and the direct payment is a known 
entity and we can budget for it and so can the government.
    The Chairman. We are going to run out of time. Anyone else 
want to comment, yes or no?
    Mr. McCauley. We feel that the direct payments have been 
included in our proposal. It fits. We want to keep it, but you 
know, we have to realize that as we go through the process, 
that that might be some of the things we have to deal with.
    The Chairman. Okay, thank you. Let me ask each one of you 
and get it on the record. The Chairman thinks it is important. 
When the Secretary came, he talked about the AGI limits of 
$200,000. I happen to believe, in farming across this country, 
with the changes in cost and everything, that is going to be 
very difficult. I would like to know from each one of you very 
quickly, do you agree or disagree with that limit?
    Mr. Pucheu. Absolutely disagree.
    Mr. McCauley. I will have to say we think that it is a 
creative idea and it would be combined with a 3 year average or 
there is some ways that this could make some sense.
    Mr. Gertson. I disagree.
    Mr. Ostlie. And I would also strongly disagree.
    Mr. Russell. I would echo most of this. I would disagree as 
well.
    Mr. Thaemert. Strongly disagree.
    The Chairman. Thank you. Thank you, gentlemen, and I yield 
to Mr. Moran.
    Mr. Moran. Mr. Chairman, thank you very much. Let me 
compliment Mr. Peterson's efforts in regard to disaster 
assistance. There is no more greater need in ag country, and 
certainly from the ag country I come from, than disaster 
assistance. It has a higher priority at the moment than 
necessarily trying to figure out the details of the farm bill, 
and I will admit that we have failed in past Congresses led by 
the Republican Party. And I would also say that it is less than 
a perfect scenario to the new leadership. This is an issue, as 
Mr. Peterson indicates, that we have to figure out how to 
resolve and resolve quickly, and I look forward to working with 
him and others to see that that is accomplished. The farm bill 
and long-term policy is certainly important, but we will have a 
lot of farmers who aren't in business to take advantage of this 
newly refined and improved version of the 2002 Farm Bill.
    Let me ask a couple of questions. Our Chairman has given me 
strict instructions that I am to abide by the 5 minute light, 
and so I will. And it sounds like my colleagues are pleased by 
that suggestion as well. You talked about an unbalanced system 
in which there are a couple of components to how we determine 
what loan rates or target price ought to be. I assume one is 
what is we have talked about, this balance. I find it 
interesting and perhaps this is the way we would approach it 
too, is that we talk about how to raise crops' target price. No 
one mentions that someone else's target price might be too high 
now and that that is what you pay for, is by the adjustment of 
a give and take, which I assume has implications that make 
testifying before our Committee more difficult. But in addition 
to trying to figure out how you balance these payments that are 
based upon this desire that farmers make decisions based upon 
the markets and not based upon what the program says.
    The other part of this is the safety net and we have in all 
of this conversation seemed to concede that we are going to 
have less money to work with than we had in the 2002 Farm Bill. 
And in part, the Administration's proposal is based upon a 
belief that prices will continue to be where they are today or 
higher during the life of the farm bill. It is troublesome to 
me that we spend a lot of time talking about prices, but very 
little understanding of what has happened in the cost of 
production. My understanding of the safety net, the purpose of 
the farm bill is to provide assistance to farmers in times in 
which the cost of production is not exceeded by the cost, or 
price, that they receive for the commodity they grow. So if we 
are trying to develop a safety net, what is your advice about 
target prices, as far as it relates to other commodities? And 
what would be your reminder to this Committee about the 
increasing input costs that have occurred since we adopted the 
2002 Farm Bill? And in that regard, about target prices, can we 
treat commodities differently? Wheat is very interested in 
having a higher direct payment. Does that mean that every other 
commodity needs to be treated the same way? Or can we have a 
different program, a different target price, a different 
emphasis on a direct payment, based upon what commodity program 
we are dealing with? Mr. McCauley?
    Mr. McCauley. Thank you, Congressman. I think the stability 
factor is really the important part when we start looking at 
the safety net as we go to these higher prices. In the corn 
market, today we are looking at $4 corn. I think a lot of our 
producers are recognizing the fact that there is actually more 
risk growing these higher priced crops than there is, say, $2 
corn. So we, with this revenue approach, feel like we are 
addressing that. We put a cap on it so that we can be 
responsible looking at our taxpayers and say we don't feel like 
we need a support over this figure.
    Mr. Moran. Let me follow up on my final question, which 
was, can we treat corn differently than other commodities? So 
you found a program that you think will work better for corn. 
Does that mean we could do something different for wheat, or do 
you see this as needing to be uniformly applied to all 
commodities?
    Mr. McCauley. We have done some rebalancing. We used the 
soybeans' percentage rates to come up with this cap. I have to 
recognize that each commodity has their own issues. I totally 
agree with that. I think with some work we could probably make 
this go across, but it doesn't address some of the other things 
that they have. As my limited experience in farm programs over 
the last 35 years, everybody has their own issues and I hear 
from legislators that, to make it work right, they all have to 
be uniform. So I am hoping we can come together and make 
something uniform.
    Mr. Russell. My biggest concern, Congressman, is when I go 
and do my spreadsheet, and go to my banker to get my loan for 
my operating mill for the year, he looks at what the minimum 
return is going to be a year. We don't know what the prices are 
going to be, so we have to look at the loan prices, first of 
all. We know that is the minimum that we are going to get on 
our crop. And the inequities of the sunflowers, the banker 
looks at me kind of funny and says, ``Are you sure you don't 
want to grow another crop?'' Even though the demand is there, 
we have to look at the bottom line, like you said, the increase 
in the input. The increase in my fertilizer, just this last 
month, went up 15 percent. We have to look at that safety net 
to where we are just asking if sunflowers were on a level 
playing field to where we can at least be in the game with the 
other program crops. We want a safety net to where we can go to 
our bankers and say, ``Here is what we have and this is what we 
can do. Let us do what is best for the consumers, by producing 
this better oil.''
    Mr. Thaemert. Congressman, I represent a crop that is grown 
in semi-arid areas. There are people that can only grow wheat 
or barley. If you happen to be down in some places with 
marginal rainfall, they can go grow very good wheat, but that 
is about all they can grow. They don't have the options of 
these other crops, so they focus on what works for wheat and 
the direct payment has been something that, as Mr. Russell 
alluded to, you can go to your creditor and you know you are 
going to get that. And it is also a lot of trade distorting 
support. The loans run into some issues there and there are 
some issues as far as market or trade distorting that the loan 
rate has.
    Mr. Ostlie. I guess most of us farm most of the other 
crops. At least in my area we grow other crops but rice, 
obviously, not in North Dakota. But you know, I have raised 
more wheat over the years going back than I have soybeans, 
actually, so I definitely understand the problems in the wheat 
market. But one of the disturbing things in my area, what I see 
as a direct payment, is that most of the people that own land 
or are renting land, they pencil that direct payment right into 
the price of their land right away. I feel that it really takes 
away a lot of the safety net that it was intended for, because 
that money gets put into that land price too quickly. I guess, 
going back to rebalancing, I have had the same situation 
happen, where you look at different crops and because of the 
farm program, your banker says, ``This one you can guarantee 
yourself a better return,'' even though in reality it is not 
and you have to argue with them and say, ``Well, I guess I am 
the boss.'' But it is unfortunate that the farm program 
sometimes does determine what you seed. I feel that our 
rebalancing of the target price and loan rates really addresses 
that. You should not be looking at having to have the farm 
program determine what you seed. Thank you.
    The Chairman. Thank you. Let me also welcome Mr. Costa to 
the Committee today. He is sitting in. We welcome you here 
today.
    Mr. Costa. Thank you very much, Mr. Chairman. I heard all 
of the Kansas talk earlier and it is nice that you would allow 
a Californian to sit in here. We do appreciate it.
    The Chairman. It is good to have you.
    Mr. Costa. I do have a witness here from my district. There 
really is a Tranquility, California, believe it or not and a 
wonderful place to live. But I do have a question I want to 
submit to him later on.
    The Chairman. Good to have you. When the time becomes 
appropriate. At this time, I would recognize the gentlelady 
from Kansas, Mrs. Boyda, for 5 minutes.
    Mrs. Boyda. Thank you, Mr. Chairman. And yes, Mr. McCauley 
is from White Cloud. And I would like for the record, Mr. 
McCauley, is Kansas flat?
    Mr. McCauley. Not everywhere.
    Mrs. Boyda. Where Mr. McCauley lives is beautiful rolling 
plains, so I would like to get that myth out of the way. And I 
would also just like to say thank you for your proposal. I am a 
freshman and certainly learning how all of this is going to go 
and having my input, but quite honestly, I am very much in the 
learning stage today. So I appreciate the fact that you put 
together a proposal that said, ``We want revenue but we realize 
that we are going to have to pay for it in some way,'' and came 
up with a balanced approach, so thank you. And I will watch 
with interest as those discussions go on.
    It is interesting as we try to balance all of the payments, 
too. I would just like to put a few of my good Kansans on the 
spot, if I could, and just come back and listen to how you find 
a balance between these things. But the Sunflower Commission 
has basically said to the wheat growers, we are going to 
propose that you have a price support of $4--and 15 cents--
something along those lines. Do you think that $4.15 is really 
adequate for the wheat growers to go ahead and to be able to 
produce wheat? And by the way, Mr. Thaemert, I am going to come 
to you. But I would love to just hear how you found the way to 
balance this.
    Mr. Russell. As a producer?
    Mrs. Boyda. Yes.
    Mr. Russell. As a producer, number one, I have a rotation 
on my farm and I do use wheat, sunflowers, grain sorghum and 
corn and soybeans. But on that point, any safety net, bottom 
line, that I can take to my banker and say in my rotation, that 
I can clear my cost, then he is willing to do that for me. 
Sunflowers has been the hard part of my rotation, to get that 
done, and as I sit here representing sunflowers, that is all we 
are asking for. And we are a minor oilseed, so the total 
dollars really don't add up to much.
    Mrs. Boyda. My question is really back to, is $4.15 going 
to be adequate for the wheat growers? You are in Hays, yes?
    Mr. Russell. Yes.
    Mrs. Boyda. So I don't know if you go out to western 
Kansas, if that is a different scenario. But in your mind, 
$4.15 would be an adequate price there for wheat growers. Let 
me just turn to Mr. Thaemert for a minute----
    Mr. Thaemert. Yes.
    Mrs. Boyda.--and come to you and say you are requesting 
$5.29, which is really up from less than $4.
    Mr. Thaemert. Yes.
    Mrs. Boyda. Is $5.29 the bottom line or is it something 
that, in fact, you are going to be able to work with and find a 
balance there?
    Mr. Thaemert. That is a number that we got from USDA 
records and we divided that by the 10 year average yield. That 
was the cost of production, the average of 2005 and 2006, 
divided by the average production of the last 10 years and we 
came up with a national number. We are not just pulling that 
number out of the air as $5.29 per bushel. Congressman Moran 
alluded to cost of production. A lot of people have been 
looking at price. Price doesn't guarantee you profitability. 
Again, we are not looking for a guarantee of profitability, but 
you might as well have a number that is based on cost of 
production, and that is what we did. So that is where that 
number is, we feel comfortable with that number, and that is 
why we chose that number.
    I would like to address one thing that was said earlier 
about direct payments being capitalized in the land values. Any 
income stream associated with the ownership of an asset gets 
capitalized into that asset, whether it is a loan price or 
whether it is a direct payment, regardless. And increased land 
values aren't necessarily a bad thing for rural areas. When you 
look at how much tax base supports schools, hospitals and other 
county entities, this is just another way to help rural areas 
take advantage of some of the prosperity in the urban areas. So 
we are so adamant about an increased direct payment, that that 
is our focus and that is where you need to be. It is 
predictable.
    Mrs. Boyda. Right. I yield back my time. Thank you. I 
appreciate just listening to how you balance it out. Thank you.
    The Chairman. I thank the gentlelady. The gentleman from 
Texas, Mr. Conaway, for 5 minutes.
    Mr. Conaway. Thank you, Mr. Chairman. Thank you, Mr. 
Chairman. Good to be here. Gentlemen, thank you for coming 
today. Mr. McCauley, you had mentioned that, when Mr. Peterson 
asked about Minnesota, Texas also has a letter out that says 
that they are not in accordance with what the National Corn 
Growers have done. You mentioned a strong majority or whatever. 
Can you give me the actual numbers of the split between those 
in favor of your position versus those who are not?
    Mr. McCauley. Our delegates were over 70 percent in favor 
of our policy.
    Mr. Conaway. Okay.
    Mr. McCauley. The revenue-based policy.
    Mr. Conaway. All right. Thanks. You also mentioned that we 
wield this up here like very poor referees. To try to referee 
between commodities is about the best we can do and we have 
commodities who come to us with a difference within the 
commodity itself. It really makes our job even tougher in terms 
of how we try to make all of that work. So I would encourage 
you to continue to work with the folks. I think there are four 
states now and there may be other states added on to that. You 
know, continue talking with each other and try to figure out a 
way to reconcile it within corn so we can limit the amount of 
refereeing that we have to do.
    Mr. McCauley. I recognize that it is a state issue. We 
haven't had anyone question our concept, most of these--
marketing loans--it is a regional issue, probably. But I 
wouldn't want to speak for any of those states, because they 
have dissented and that is the way our policy reads.
    Mr. Conaway. All right. Thank you. Mr. Pucheu, I am 
pronouncing your name----
    Mr. Pucheu. Pucheu.
    Mr. Conaway. Pucheu. I am sorry. Excuse me. Can you talk to 
us a little bit about--we have a high inventory right now, a 
carryover inventory of cotton from this past crop. Can you talk 
about, are there things that we ought to be doing within the 5 
year window of this farm bill that will help address that? We 
aren't going to fix it today immediately, but is there 
something about the policy we have in place that could 
contribute to that or is it just----
    Mr. Pucheu. We are looking at ways to fine tune the 
marketing loan but basically, we had two things happen this 
last year. India had a bumper crop and China had a bumper crop 
and then the other long-term thing is the decline of our 
domestic textile industry, and we are adjusting to exporting a 
larger percentage of our crop. But with the shift, we are going 
to have a major shift in acreage this year, cotton acreage 
going down and shifting into soybeans, and especially corn, and 
this is going to help pull down our carryover and it should not 
be as big a problem as it has been the last year.
    Mr. Conaway. So the modest proposal that you are making for 
textile support is all you are going to change within the farm 
bill itself to address this?
    Mr. Pucheu. Basically, that is the major change we are 
proposing.
    Mr. Conaway. Okay. Again, I appreciate you gentlemen coming 
this morning. What I have heard is that, except for the 
National Corn Growers Association, most of you support the 
position we have with minor changes within there. We will have 
a limited amount of money to go at it. I don't expect any of 
you to trade against yourself this morning and tell us that you 
trade or whatever. We will be working with you and look forward 
to working with you during this process. Thank you for your 
testimony. With that, I yield back.
    The Chairman. I thank the gentleman. The gentleman from 
Indiana is now recognized for 5 minutes, Mr. Ellsworth.
    Mr. Ellsworth. Thank you, Mr. Chairman. I don't think it 
will take 5 minutes, but I appreciate it and I think I only 
have one question. It has been very informative for me, also, 
as a new Member. I just wanted to know, as I did my town halls 
over the last few weeks with farmers, a lot of the subject of 
Farm Flex came up, especially with some of the people who might 
like to grow tomatoes and get into that on base acres. They 
explained to me that they are getting ``double-whammied'' on 
base acres if they prefer to grow tomatoes. I was just curious 
if your organizations had taken a position on the Farm Flex 
issue and how you feel about that. So if you can just grab the 
line or if anybody wants to jump in.
    Mr. Pucheu. The National Cotton Council has supported the 
existing policy.
    Mr. McCauley. We are supporting the existing policy, but we 
do recognize the fact that the fruits and vegetables is an 
issue, not only with trade, but with the budget. So we think 
that we need more research on how it would affect corn and how 
it would affect the total budget of the farm bill, the 
commodity title.
    Mr. Gertson. We support the present policy. I remind you 
that the WTO has a different view on this, and we will support 
whatever the Administration or whatever is composed.
    Mr. Ostlie. We would support continuing the existing policy 
on vegetable crops.
    Mr. Thaemert. We would be in favor of planting flexibility 
for vegetables.
    Mr. Ellsworth. Thank you. Let me go back to Mr. McCauley. 
You always get lead on this, so I will just run back to you. 
Can you just explain when the farmers came in and said, ``They 
don't want the base payment. They just want the option to be 
able to negotiate that.'' Can you explain what the position--if 
they are saying, ``We will forego the base payment, just give 
us the option and don't bang us twice on this.''
    Mr. McCauley. I think if you look at the fact that the 
money doesn't affect the rest of the commodity title, it makes 
a huge difference. Depending on how much money you are actually 
talking about, it would make a lot of difference. That is what 
I said about the WTO implications. We do need to make a farm 
bill that is WTO compliant and that would make a big difference 
in that.
    Mr. Ellsworth. Thank you, sir. Thank you all. I would yield 
back, Mr. Chairman.
    The Chairman. I thank the gentleman. Now for 5 minutes to 
the gentleman from Louisiana, Mr. Boustany.
    Mr. Boustany. Thank you, Mr. Chairman, and thank you all 
for your testimony. We certainly appreciate the work that you 
are all doing. I don't want to leave rice out of this and I 
want to discuss a few issues here. First of all, the rice 
industry over the past 2 decades has had a very difficult time, 
with declining market access and of course, we have seen the 
recent disasters secondary to the hurricanes, which had a major 
impact. And you have made several specific proposals here. In 
your testimony, Mr. Gertson, you mentioned that loan rates for 
rice production have not changed in 18 years; meaning that the 
loan rate compared to the variable cost has fallen by 33 
percent, which is a pretty significant drop or differential. I 
want you to express, for the record, how this has impacted the 
rice industry. How your specific proposals which you mentioned, 
the modest increase in the program support levels for rice to a 
loan rate of $7 per hundredweight, a target price of $11 per 
hundredweight, setting the loan rates for all classes of rice 
at the same level. I understand the current system, by 
separating them out, hurts long grain rice more 
proportionately. And then I have a specific question about the 
AWP. But for the record, give us an indication of how these 
measures will go toward stabilizing, long-term, the rice 
industry and how they will account for the increase in variable 
costs?
    Mr. Gertson. First of all, the $6.50 loan rate increasing 
to a $7 loan rate, this modest increase would help slightly on 
the 42 percent increase we have had in costs. Our fertilizer 
cost, a ton of urea in 2002 was $150. Today we are paying $425. 
We have taken--increases and fuels--just in the last 18 months, 
our cost per acre has gone up a hundred an acre and this 
increase in the loan is just to stabilize our economy a little 
better. Knowing that we are short of money in this country, we 
feel like this is a modest request, increasing our target price 
to $11. At least we can take this to the banker and say, 
``Look, we have a target price of $11. Can you go along with 
us?'' We have to got sell the banker in order to be able to 
farm. We cannot just go down and get a blank check to farm. We 
have to show some stability and this will help us to adjust 
this to the point that we feel like we can get financial 
backing. And do you want to go to the black box?
    Mr. Boustany. Right. Yes, with regard to the average world 
price, you mentioned the need for transparency. Were there any 
specific recommendations that you have at this time?
    Mr. Gertson. Well, the specific problem is there is only a 
couple people that know how this world price is arrived at. 
Cotton, for instance, it is transparent. You know how it is 
arrived at. But there is this black box that nobody understands 
how they come or arrive at a world market price. And so what we 
would like to see is a program kind of like cotton, where we 
know what is happening. We know where they get all of their 
figures to arrive at a world market price, because right now we 
don't. We don't know how they come up and I think it should be 
our right to know, in our own commodity, how they come up with 
these world market prices.
    Mr. Boustany. Thank you.
    Mr. Gertson. Okay, going back to the fixing the loan 
between the three grains----
    Mr. Boustany. Yes. Right. Yes, could you just----
    Mr. Gertson.--long, medium and short. We would like to fix 
it and the main reason we would like to fix it is because if we 
have a loan that fluctuates, again, we can't go to the banker 
and say, ``We have an $11 loan rate.'' If they are going to 
adjust it between the three, we can't go to our banker and say, 
``It is going to be X number of dollars. It might be 50 cents 
lower or 50 cents higher.'' If we feel like we are going to set 
a target price, we should have a fixed loan price to give to 
our banker. Our whole industry has agreed. All the different 
growers in the different states have agreed that we need a 
fixed loan price.
    Mr. Boustany. Okay. I thank you. That is all I have.
    The Chairman. I thank the gentleman. Thank you. And I now 
yield 5 minutes to the gentleman from Georgia, Mr. Marshall.
    Mr. Marshall. Thank you, Mr. Chairman. Earlier, the 
Chairman, following up on what the Committee Chairman asked, 
had each of you give your position on AGI. Could you do the 
same thing real quickly for the three-entity rule? What is your 
view on the three-entity rule? I think I know cotton's view.
    Mr. Pucheu. Yes, cotton supports the three-entity rule.
    Mr. McCauley. We support the three-entity rule.
    Mr. Gertson. We support the three-entity rule.
    Mr. Ostlie. Yes, we support the three-entity rule.
    Mr. Russell. I think it is unanimous. You know, we support 
the three-entity rule, too.
    Mr. Thaemert. Absolutely.
    Mr. Marshall. The question that I asked, you would expect 
the same answer from all of the different ag groups? Is there 
any ag group that you know of that is on the other side of that 
issue?
    Mr. Ostlie. I don't think there would be one that is in the 
commodity title, no.
    Mr. Marshall. Okay. Mr. McCauley, I would like to focus on 
your organization's proposal for this counter-cyclical program. 
I am only now becoming familiar with it. It is the first I have 
seen it and I just read through your testimony, and I am sorry 
I wasn't here when you gave your testimony earlier. No doubt 
you have had discussions with your comrades here, at least your 
staff has had discussions. Could you summarize the arguments 
that are made against your concept by others? Because I imagine 
you have been floating this around and a number of people have 
offered their comments.
    Mr. McCauley. Well, it will be hard for me to talk about 
something that is against it. I usually try to look at the 
positive side.
    Mr. Marshall. Yes, and unfortunately, I am up here and I 
get to ask you questions and you pretty much have to answer. 
Well, you know that is going to shorten this considerably if 
you could identify, because you already know what they are, the 
primary arguments against what you are proposing and then 
address those arguments. Put them on the table so that we 
understand what people are saying is weak about your proposal.
    Mr. McCauley. I think we have a different issue with wheat 
on the idea that the direct payment is a different climate and 
they had totally different issues on how their crop has 
increased in yield versus ours. So I have talked to these 
individuals quite a bit. John and I live in Kansas. Two hundred 
miles is a pretty close distance, so we live and we 
understand----
    Mr. Marshall. That is because you all can see one another, 
because there are no hills in Kansas.
    Mr. McCauley. If I can see over that hill right west of me, 
I can see quite a ways. But the direct payment issue is 
different in our philosophy versus wheat, because you have a 
regional difference on how they do business, plus, the wheat 
has the difference in their, which yields haven't progressed. I 
contend that in the future, wheat, they will get to address the 
yield. Their yields will go up. We have tried to take the 
approach with both of these commodities, their only 
commodities, that we understand what they are talking about 
that we can fit into the program of each other's commodity. 
Soybeans. Rick and I have talked and their issue is that their 
price could go lower than corn at this time. I think that is 
the reason they probably focused on the price aspect. I sure 
don't want to speak for them, but our proposal----
    Mr. Marshall. Could I interrupt?
    Mr. McCauley. Sure.
    Mr. Marshall. Are you contemplating a commodity-by-
commodity county price support, essentially? Or is it just 
one----
    Mr. McCauley. No.
    Mr. Marshall. Okay.
    Mr. McCauley. Our hope is that we can get all the 
commodities together on this and you know, see where the issues 
really are. That is our hope.
    Mr. Marshall. Well, I guess maybe I don't understand your 
proposal. Is your proposal that a target price be set in each 
different commodity?
    Mr. McCauley. Yes.
    Mr. Marshall. Okay.
    Mr. McCauley. As a revenue instead of just as a price, 
because we focused on the price. Price trigger is revenue 
trigger when you are at these levels, because you have more 
exposure to risk at this level and the price support today is 
at the lower level.
    Mr. Marshall. Have your economists done an analysis 
assuming that if this were adopted as the national farm 
program, an analysis of cost?
    Mr. McCauley. Yes.
    Mr. Marshall. And how does it compare to----
    Mr. McCauley. We think where we are today, which is I think 
we are solid on where we are today at $500 million 
approximately over the baseline.
    Mr. Marshall. Thank you, Mr. Chairman. I yield back.
    The Chairman. I thank the gentleman. Now the gentleman from 
California, Mr. McCarthy, for 5 minutes.
    Mr. McCarthy. Thank you, Mr. Chairman. I just have two 
follow-up questions for some others. If I could just follow up 
with Mr. Pucheu from the National Cotton Council. You commented 
and I have seen it in my district, declining cotton being 
grown. Is it mainly the market driving these decisions that are 
being made?
    Mr. Pucheu. It is market driven and the economics of crops 
that have a better return. We are fortunate in California. We 
have a lot of different options as compared to a lot of areas 
of the country.
    Mr. McCarthy. And I have just one for everybody else. I 
want to follow up on what the Chairman asked about adjusted 
gross income. Overwhelmingly, the majority do not support the 
Administration position of $200,000, knowing now that it is 
$2.5 million and 75 percent of your income has to come. Would 
you recommend to keep it exactly like that or would you 
recommend any other change to it if you disagreed with going to 
the $200,000?
    Mr. Pucheu. We are happy with the current policy.
    Mr. McCarthy. And is the current policy successful, do you 
think it corrected what we wanted it to?
    Mr. Pucheu. I think so, in keeping people that have very 
high income from outside of agriculture away from the payments.
    Mr. McCarthy. Okay.
    Mr. McCauley. If I could comment? Being the different one 
of the group, I think that an adjusted gross income, and I 
would disagree on the price, because I don't think we know what 
the adjusted gross income should be today. But any time you get 
to work with a net income figure versus a hard cap of the 
dollar amount, as a farmer, you have to think that it might be 
a better way to look at it. That is where I was coming from 
with the possibilities, because right now, if you deal with a 
person that, say, it is a $2.5 million hard cap, we could 
actually have a gross income of that much but not make any 
money. So that is where I was coming from. I think the concept 
itself has some merit if we figure out how it could work and 
the number.
    Mr. Gertson. I do not think the $200,000 limit will work. I 
think $2.5 million was more in line with what we need to have, 
and also, we need to keep the 75 percent exemption, 75 percent 
of farm income. I think you should be exempt from either one of 
them. But the $200,000 is way too low.
    Mr. Ostlie. I guess we would also agree that the $200,000 
is too low and we would support staying with the same limits we 
have now.
    Mr. Thaemert. Yes, the $200,000 is too low. You are going 
from $2.5 million to $200,000 and even if you talk about net 
income, if you are talking about a young producer that is 
buying land and is buying equipment, the principal payments, 
you cannot deduct the principal payments. You can deduct 
interest, you can deduct depreciation, you can do those things, 
but when you are making a principal payment, you are trying to 
grow your operation. Yes, you are going to run into the 
$200,000. You very easily could run into that $200,000 limit. 
One year you would be in it, the next year you would be out. 
How do you go to your creditor and say, ``Well, this is what I 
have and this is my cash flow?'' I can understand the public 
relations drive behind doing that, but that is too drastic a 
step, from $2.5 million to $200,000. Wheat Growers is fully 
behind the current legislation and thinks it is fair and 
effective.
    Mr. McCarthy. I appreciate it and yield back the balance of 
my time.
    The Chairman. I thank the gentleman. The gentleman from the 
Dakotas, Mr. Pomeroy----
    Mr. Pomeroy. Mr. Chairman, thank you very much and I 
enjoyed the--it is a very articulate----
    The Chairman.--for 5 minutes.
    Mr. Pomeroy. Yes, sir. Point noted. This is an articulate 
and interesting panel and I have enjoyed these responses. Mr. 
Thaemert, you can't tell me you got a lot of wheat growers, 
especially beginning ones, that are cracking that $200,000 AGI.
    Mr. Thaemert. No, what I am saying is that the drop from 
$2\1/2\ million to $200 thousand is dramatic.
    Mr. Pomeroy. That is a dramatic drop.
    Mr. Thaemert. And there could be issues where----
    Mr. Pomeroy. You went on to tell us you have a lot of 
beginning farmers, that they are going to be stumbling around 
that $200,000 AGI. Unless there is something tremendously 
different about wheat production in Kansas than North Dakota, I 
don't get it.
    Mr. Thaemert. Well, if Dale Schuler wanted to turn over 
his, well, he is in North Dakota. And let us just say that one 
of your constituents in North Dakota was trying to sell his 
farm to his children as a way to make his retirement, and 
having to make those payments of machinery and land, there 
could be an issue where you are trying to provide an income for 
your family, plus pay off those principal payments. You could 
very easily creep over that limit and the problem is 1 year you 
are in, 1 year you are out.
    Mr. Pomeroy. That is right.
    Mr. Thaemert. You could hopefully, hopefully have a decent 
year where you can get in that good lick to cover a lot of 
those expenses and expand.
    Mr. Pomeroy. I am not for the Secretary's proposal. I think 
that it is too low. But on the other hand, I couldn't quite 
understand what you were saying there. I had to----
    Mr. Thaemert. I hope I explained it a little better. You 
know, why do we expect a retiring farmer to give his farm away? 
You know----
    Mr. Pomeroy. Now wait a minute. I have your answer. Let us 
just not overstate the point. We don't have that many wheat 
farmers making more than $200,000 AGI. And maybe the other 
commodities have different things, but I know a little bit 
about wheat. That one isn't going to cut us that bad. I am not 
sure it is good policy. But let us get to, and I want to talk 
to my constituent here, Mr. Ostlie. We are very proud of your 
leadership of the Soybean Council.
    Mr. Ostlie. Thank you.
    Mr. Pomeroy. And it is a very important year in this 
commodity, so for you to have the helm right now makes us all 
very proud indeed.
    Mr. Ostlie. Thank you.
    Mr. Pomeroy. Let us talk about the balance between loan 
rates, soybean to wheat. And the question I have to you is, 
under your proposal, it looks like the wheat target price would 
climb to $4.15. Wheat stated that is not high enough to keep 
the acreage in wheat, in light of the other things, the higher-
value commodities that are available to grow right now. Do you 
have any response to that?
    Mr. Ostlie. Yes. I said earlier, over the past 20 years, I 
have actually raised more acres of wheat than soybean.
    Mr. Pomeroy. I have read that you have, yes.
    Mr. Ostlie. Yes. And wheat has got a unique problem. I 
don't really know what the answer is. I think the wheat problem 
goes way beyond the farm program. We have a lot of countries in 
the world that can grow wheat and grow it pretty efficiently. I 
just don't know at what point and how we stop the wheat 
problem. But--commodity and soybeans, I don't want farmers 
making decisions on what they plant based on the farm program, 
and I feel right now, the way the farm program is set up, the 
2002 farm program, soybeans at $5.36 is the effect of the 
target price when you take off the direct payment. I would lose 
a lot of money at that, and the point of it is, is that we need 
to have it balanced or ``adjusted,'' is what I guess the word 
is that we have been using. With balancing, we are not looking 
to bring down other commodities, but an adjusted rate so that 
we are more at an equal level throughout the commodities. When 
I go to make my decisions on what I plant, and my neighbors, I 
don't go to the bank and the banker will say, ``Well, I want 
you to plant more edible beans or corn or some other crop, 
because the farm program guarantees you a profit.''
    Mr. Pomeroy. Thinking about the farm program essentially as 
insurance protection against price collapse, you would like a 
similar level of protection across the commodities?
    Mr. Ostlie. Right.
    Mr. Pomeroy. To me, it makes a lot of sense.
    Mr. Ostlie. And you know, a lot of this is a conceived 
value and that is part of the problem. Right now, we may have 
soybeans that are not going to go below even at a $6.85 loan 
rate or whatever the target price may be. You know, nobody 
spent on counter-cyclicals. But when you go into the banker, 
they always look at the worse case scenario and suddenly you 
have to conceive in your mind that maybe next fall soybeans 
might drop and corn might drop. ``Aha, I better raise corn 
because it has got a better support level, or some other 
crop.'' And I think a lot of times it is a conceived value as 
much as it is actual market price. So we want to have a market 
price that has that guarantee there.
    Mr. Pomeroy. Mr. Chairman, my time is up and I yield back.
    The Chairman. I thank the gentleman. Let me take this 
opportunity to thank each of our panelists for your thoughtful 
comments, for answering the questions. But before we dismiss 
you, I would yield to the gentleman from Kansas for his final 
comment.
    Mr. Moran. Mr. Chairman, I finally found an advantage to 
you being the Chairman of this Subcommittee as compared to me, 
because Mr. Pomeroy never ended his comments under my regime. 
He would speak minutes beyond and then yield back the balance 
of his time. So you have greater authority over him than I ever 
had. I also want to point out that today we are eating North 
Carolina peanuts, which is also a change in this Committee, and 
I would indicate to Mr. Russell that last year, and maybe we 
can correct this, for the last 2 years we have been eating 
Kansas gold sunflower seeds. If we could get back to the days 
of sunflower seeds, we would all, well, I shouldn't say that. 
We would appreciate the variety.
    The Chairman. The gentleman's time has expired. No, thank 
you. And let me thank each of you, because you have been very 
helpful. As you understand, we will have a challenge, but 
working together we are going to make sure, as I have said to a 
number of folks, Jerry and I work very closely together. Having 
a farm policy is important to this country if we want a good 
food supply, a plentiful food supply, and by and large, a cheap 
food supply for the American consumers. Thank you for your part 
in that process. And you are excused and now we will ask the 
second panel to come and join us.
    Okay, if we can get everyone seated, we will be ready to 
proceed with our final panel. Let me thank each of you for 
being here and just remind each of you that your full statement 
will be submitted for the record and if you would summarize it 
within 5 minutes and we will move along. Our first panelist is 
Mr. Larry Mitchell, who is the Chief Executive Officer of the 
American Corn Growers Association; and our second witness will 
be Mr. Evan Hayes, President of the National Barley Growers 
Association; the third panelist is Mr. Jim Evans, Chairman of 
the USA Dry Pea and Lentil Council, from Iowa; and Mr. Greg 
Shelor, Past President of the National Sorghum Producers, from 
the great State of Kansas. Mr. Mitchell, you are recognized for 
5 minutes.

    STATEMENT OF LARRY MITCHELL, CEO, AMERICAN CORN GROWERS 
                          ASSOCIATION

    Mr. Mitchell. Thank you, Mr. Chairman, Congressman Moran, 
other Members of the Committee. I am here representing the 
American Corn Growers Association and I may give a slightly 
different version of what we think should be in the farm bill 
than some of the previous panel members. But we know that 
everyone in this room has pledged at one time or another that 
you are going to write this farm bill and it is not going to be 
written at the WTO, and we commend you for that commitment and 
we are here to help you make that commitment.
    You know, about 2 years ago, Secretary Johanns started off 
across the country asking seven important questions about the 
farm bill, and the American Corn Growers has been doing the 
same thing. In fact, I just got back Sunday night from a 3,800 
mile, seven state, seven meeting tour in 9 days and we posed 
these same questions. Those questions are, are farm bills 
getting better? The sounding answer is no. Are farm bills 
getting more or less complicated? They are more complicated. 
Are we keeping people on the land? No. Are our rural 
communities improving? No. Are we exporting more? No. For those 
people that support the current farm bill, what do they find is 
the weakest link in that farm bill? And they will tell you that 
there is just not enough money in it. So the follow-up question 
has to be, are we going to have more or less money in the next 
farm bill? The answer that you have stated today, Mr. Chairman, 
is less. So given those questions and the resounding responses 
that we received over the past 4 or 5 months at the various 
meetings that we have held, we have to assume through deductive 
reason that it is time to rethink U.S. farm policy and change 
course to help, not only U.S. farmers, but farmers globally.
    Part of our work working towards this started nearly 6 
years ago when a group of farmers got together and identified 
three things about farm policy that we needed to address. We 
did the analysis on that and we asked for a review of that 
analysis by the Agriculture Policy Analysis Center at the 
University of Tennessee. Those three things were: first, we 
knew that farmers farm. Farmers will farm every acre every year 
and they will produce every bushel and every pound, regardless 
of whether the price is high or low, or regardless of the 
subsidy. The second thing is that low prices does not reduce 
overproduction, and the third thing is that low prices have not 
expanded our exports. The fourth thing that we found out is 
just the simple elimination of U.S. farm subsidies does not 
help farmers in other countries. It only devastates our 
farmers, our rural communities, our rural banking system, and 
will have a downward turn on the U.S. economy. What we need to 
do is to replace those subsidies with a support system.
    Working with the National Family Farm Coalition and some 60 
other organizations from the farm, rural, environmental and the 
faith sectors, we have drafted the Food From Family Farm Act. 
The three key items for title I under that Act would be to 
return to the nonrecourse loan as opposed to the marketing 
loan, so that we can support the price as opposed pay out 
subsidies. This would relieve us of the burden of direct 
payments, counter-cyclical payments, marketing loan gains and 
loan deficiency payments. And for those of you that are 
conservative, and especially the blue dogs that have been 
working hard to figure out how to balance this budget and write 
a farm bill within the budget constraints, this may be your 
best option. The second thing that we need to work towards is 
reestablishing a grain reserve. Our country went to war 4 years 
ago with a 30 day supply of petroleum in the Strategic 
Petroleum Reserve, and a 5 hour supply of corn in the Commodity 
Credit Corporation. We need to address that. The third thing, 
we need to find a way of curbing overproduction from those 
crops that are traditionally overproduced. That is why we 
support Chairman Peterson's plan for a cellulosic reserve to 
move crops that have traditionally been overproduced into new 
dedicated energy crops.
    One last point before we run out of time. We also support 
Congresswoman Herseth's bill, H.R. 1649, that prohibits the 
closing of county Farm Service Agency offices until after this 
farm bill has been written, enacted and implemented. Until we 
get the computer system fixed at FSA and figure out what this 
farm bill is going to do, it is not the right time to be 
closing county offices.
    In conclusion, the Food From Family Farm Act provides a 
better safety net for farmers, it saves money and those savings 
can be used to fund the Conservation Security Program, and 
expanded energy title, and many other titles of the farm bill. 
Thank you, sir.
    [The prepared statement of Mr. Mitchell follows:]

   Prepared Statement of Larry Mitchell, CEO, American Corn Growers 
                              Association
Introduction
    Chairman Etheridge, Ranking Member Moran, and Members of the 
Subcommittee on General Farm Commodities and Risk Management, I am 
Larry Mitchell, Chief Executive Officer of the American Corn Growers 
Association (ACGA).
    We are pleased and honored to have been extended the invitation and 
opportunity to appear before this Committee today. It has been over 6 
years since ACGA has been afforded this courtesy before any Committee 
associated with the U.S. House Committee on Agriculture.
    The ACGA has long recognized the daunting task Congress faces in 
writing our new farm bill, a task made particularly difficult because 
of the deepening economic depression endured by family agriculture and 
rural communities in the United States. A primary goal of our 
organization is to provide leadership on this new farm bill, through 
positive and specific suggestions for change. Therefore, on behalf of 
the 14,000 members of the ACGA, I would like to present our views and 
suggestions on the crop provisions of the Farm Security and 
Reinvestment Act of 2002 to this Committee today.
    We wish it noted that our farm bill proposal for the crop title of 
the next farm bill is much more than a corn proposal. We have always 
attempted to represent the interests of not only corn farmers, but also 
all those in agriculture. We believe that all family farmers must work 
together to find a farm policy that restores prosperity to family 
farmers and ranchers of all types.
    We also understand that corn is the most widely grown crop in the 
U.S. and has by far the largest production volume of any commodity. It 
has the largest livestock feed usage, and the largest industrial usage. 
Therefore, we recognize that feed grain policy has a huge impact on all 
commodity prices, and also directly impacts the structure of the dairy 
and livestock industries. The commodity title also impacts our rural 
communities, our environment, our food system and our Federal budget 
more than any other sector of the overall farm bill.
    This is why we have been working with scores of other farm, rural, 
religious, international, environmental, and wildlife groups over the 
past year to advance the Food from Family Farm Act (FFFA) with the 
National Family Farm Coalition and some sixty other organizations. We 
will present the basic concepts of the FFFA today and ask for your 
consideration and support for the plan as you advance your endeavor in 
drafting this year's farm bill. But first, we are obliged to request 
your consideration of a broader review of which direction we should 
choose in the next farm bill.
    In addition to our support for the FFFA, we take this opportunity 
to state that ACGA also supports the following farm bill provisions:

   Retention and expansion of the Conservation Reserve Program 
        (CRP),

   Full funding and deployment of the Conservation Security 
        Program (CSP),

   Expansion of the energy title of the farm bill,

   Establishment of a standing disaster program,

   Development of a Cellulosic Reserve Program,

   Extension of the Milk Income Loss Contract (MILC),

   Inclusion of a competition title similar to Senator Tom 
        Harkin's Agricultural Fair Practices Act,

   Implementation of the current Country of Origin Labeling 
        (COOL) provision of the 2002 Farm Bill, and

   Improved delivery and full funding of programs targeted 
        toward limited resource and socially disadvantaged farmers and 
        ranchers.
Ten Questions That Must Be Answered Before We Draft the 2007 Farm Bill
    Over the past year, we have been asking the questions listed below 
of farmers and others in rural America and the answers to these 
questions have been almost unanimous.

    Question--Are farm bills getting better or worse?
    Answer--Worse!

    Question--Are farm bills more or less complicated?
    Answer--Much more complicated!

    Question--Are we keeping more or fewer families on the land?
    Answer--Fewer families are on the land!

    Question--Are our rural communities improving?
    Answer--No!

    Question--Are we exporting more?
    Answer--No!

    Question--Are farm bills getting more or less expensive?
    Answer--More Expensive!

    Question--For those that actually support the current farm bill, 
what do they identify as the biggest problem?
    Answer--It needs more funding!!

    Question--Will we have more or less funding for the next farm bill?
    Answer--Less!

    Question--If we don't change course on U.S. farm policy, will the 
next farm bill be better or worse?
    Answer--Worse!

    Question--Why don't we take a serious look at changing course?
    Answer--We must change course to insure the livelihoods of all 
farmers in the U.S. and around the world.
A New Course for U.S. Farm Policy--The Food From Family Farm Act (FFFA)
    We must change the course of U.S. farm policy. As a part of the 
Building Sustainable Futures for Farmers Globally campaign on the new 
farm bill, sixty organizations (see list in appendix) have endorsed the 
FFFA and many others are planning to join in the near future.
    The Building Sustainable Futures for Farmers Globally campaign 
calls for U.S. agricultural and trade policies that:

   Ensure food sovereignty,

   Curtail overproduction, raise low commodity prices and end 
        dumping abroad,

   Advance sustainable bioenergy production,

   Promote healthier food through community-based food systems,

   Diminish inequalities both among and within countries and 
        support small scale, family oriented agriculture,

   Transform U.S. food aid policies to promote more flexible 
        and comprehensive aid to developing countries, and

   Respect the rights of immigrants and farmworkers.

    FFFA is still a work in progress, but will encompass the following 
provisions for title I, the commodity title;

    1. Reestablishment of the nonrecourse loan program to provide a 
        floor price at the full cost of production for the major, 
        strategic commodities and relieve the burden of tens of 
        billions of dollars in subsidies from the shoulders of 
        America's taxpayers.

    2. Reestablishment of a U.S. reserve of the basic storable 
        commodities and a significant portion of that reserve should be 
        a Farmer Owned Reserve (FOR) for:

       Domestic Food Security,

       Domestic Energy Security, and

       International Famine Relief.

    3. Reauthorize the Secretary to manage over-production and price-
        depressing surpluses by providing incentives to plant dedicated 
        energy crops on acres which are now, or may be, produced in 
        surplus.
Background on the Food from Family Farm Act
    The Agriculture Policy Analysis Center (APAC), at the University of 
Tennessee, Knoxville, a land-grant university, and ACGA released the 
groundbreaking research report Rethinking U.S. Agriculture Policy: 
Changing Course to Secure Farmer Livelihoods Worldwide in the fall of 
2003 (a copy has been provided with this testimony).
    ACGA has worked closely with APAC on this analysis and will 
continue to advance its findings and seek solutions to the inadequacies 
in U.S. farm policy identified therein. We ask you to thoughtfully 
review this research, and to consult closely with its authors, Dr. 
Daryll Ray, Dr. Daniel De La Torre Ugarte and Dr. Kelly Tiller.
    The report concludes that even if the difficult task of negotiating 
the elimination of global farm subsidies is completed, family-based 
agriculture will continue to spiral downward as a result of continued 
low commodity prices. This report goes comprehensively to the heart of 
the ever more contentious trade issues of farm subsidies in developed 
countries, low world commodity prices, and global poverty.
    The Genesis of the APAC report came from a group of corn farmers at 
ACGA. For many years, we had been pondering how to quantify several key 
points that we, as farmers, have observed.
    First--Farmers farm. They farm every available acre and produce 
every pound, bushel or hundredweight possible. That's what farmers do. 
They will produce as much as they can when prices are high to maximize 
profits. They will produce as much as they can when prices are low to 
service debt and survive.
    Second--While low prices in many sectors of the economy may drive 
producers out of business, reduce production and put it back in line 
with demand, we find that, although farmers are put off the land with 
low prices, the land stays in production.
    Third--Low prices have not expanded our exports and are detrimental 
to farmers, not only in the U.S., but also around the globe.
    Government has been involved in agriculture policy since the 
beginning of recorded history by expanding production, improving 
technology, managing stocks, establishing weights and measures, 
supporting prices, etcetera. There were those 7 fat years followed by 7 
lean years. The Chinese started a grain reserve program in 54 B.C., and 
operated it for 1,400 years. When government-backed military force 
removed the indigenous people from the land on our continent, 
government was again expanding agricultural production. The same can be 
said of the transcontinental railroad, where the government gave away 
miles of land on both sides of the tracks for settlement and, later, 
crop production. Then we had the homestead programs, USDA's research 
and development, land-grant universities and even the Federal 
interstate highway system, which means that today 4,000 head dairies in 
New Mexico drive down the price of milk in Wisconsin.
    Let me repeat this point--government has been involved in 
agriculture since the beginning of recorded history--and will continue 
to do so. We must change course to make government involvement in 
agriculture work for all of us, not just the processors, vertical 
livestock producers and merchants.
    A good farm program includes not only a good commodity program, but 
also good programs for conservation, research, rural development, 
nutrition, credit, and etcetera. Having said that, let me point out the 
three components of a good commodity program as we envision it:

    1. Price support, not subsidies,

    2. Tools to manage stocks, and 

    3. Tools to manage over-production.
Price Support
    I know many of you may feel that the difference between price 
supports and price subsidies seem like a semantic splitting of hairs. 
But I can assure there is a great difference. The biggest difference is 
who pays. The user pays for the support and the government, i.e. 
taxpayers, pays for the subsidy. The best analogy I can give you to 
share with your urban friends is the difference between the minimum 
wage, a support program, and food stamps, a subsidy program. And you do 
not have to be an economist to realize that if we increase the support 
program, we can reduce or eliminate the subsidy program.
    One of the timeliest discoveries in Dr. Ray's work, during these 
times when so many developing nations are demanding an end of U.S. farm 
subsidies as a way to improve the economic situation for their farmers, 
shows that the simple elimination of U.S. subsidies will not help. Such 
a policy change would devastate U.S. farmers and would even reduce the 
prices for some commodities worldwide. What would help is a policy to 
improve prices in the U.S., a world price sett