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



   HEARING TO REVIEW STRUCTURAL CHANGES THAT ARE TAKING PLACE IN THE
                 AGRICULTURAL ECONOMY AND THEIR IMPACTS

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

                                HEARING

                               BEFORE THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 18, 2007

                               __________

                           Serial No. 110-31


          Printed for the use of the Committee on Agriculture
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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 SANDLIN, South     MIKE ROGERS, Alabama
Dakota                               STEVE KING, Iowa
HENRY CUELLAR, Texas                 MARILYN N. MUSGRAVE, Colorado
JIM COSTA, California                RANDY NEUGEBAUER, Texas
JOHN T. SALAZAR, Colorado            CHARLES W. BOUSTANY, Jr., 
BRAD ELLSWORTH, Indiana              Louisiana
NANCY E. BOYDA, Kansas               JOHN R. ``RANDY'' KUHL, Jr., New 
ZACHARY T. SPACE, Ohio               York
TIMOTHY J. WALZ, Minnesota           VIRGINIA FOXX, North Carolina
KIRSTEN E. GILLIBRAND, New York      K. MICHAEL CONAWAY, Texas
STEVE KAGEN, Wisconsin               JEFF FORTENBERRY, Nebraska
EARL POMEROY, North Dakota           JEAN SCHMIDT, Ohio
LINCOLN DAVIS, Tennessee             ADRIAN SMITH, Nebraska
JOHN BARROW, Georgia                 TIM WALBERG, Michigan
NICK LAMPSON, Texas
JOE DONNELLY, Indiana
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

                                  (ii)









                             C O N T E N T S

                              ----------                              
                                                                   Page
Goodlatte, Hon. Bob, a Representative in Congress from Virginia, 
  opening statement..............................................     3
    Prepared statement...........................................     4
Graves, Hon. Sam, a Representative in Congress from Missouri, 
  prepared statement.............................................     6
Kagen, Hon. Steve, a Representative in Congress from Wisconsin, 
  prepared statement.............................................     5
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, opening statement...................................     1
    Prepared statement...........................................     2
Smith, Hon. Adrian, a Representative in Congress from Nebraska, 
  prepared statement.............................................     6

                               Witnesses

Collins, Ph.D., Keith, Chief Economist, U.S. Department of 
  Agriculture, Washington, D.C...................................     7
    Prepared statement...........................................     8
Gruenspecht, Ph.D., Howard, Deputy Administrator, U.S. Energy 
  Information Administration, U.S. Department of Energy, 
  Washington, D.C................................................    23
    Prepared statement...........................................    25
Westhoff, Ph.D., Patrick, Research Associate Professor and 
  Program Co-Director, Department of Agricultural Economics, Food 
  and Agricultural Policy Research Institute, University of 
  Missouri--Columbia, Columbia, MO...............................    28
    Prepared statement...........................................    30

 
   HEARING TO REVIEW STRUCTURAL CHANGES THAT ARE TAKING PLACE IN THE
                 AGRICULTURAL ECONOMY AND THEIR IMPACTS

                              ----------                              


                       THURSDAY, OCTOBER 18, 2007

                          House of Representatives,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 10 a.m., in Room 
1300 of the Longworth House Office Building, Hon. Collin C. 
Peterson [Chairman of the Committee] presiding.
    Members present: Representatives Peterson, Holden, 
Etheridge, Boswell, Cardoza, Herseth Sandlin, Cuellar, Costa, 
Salazar, Boyda, Kagen, Pomeroy, Davis, Barrow, Goodlatte, 
Lucas, Moran, Graves, Neugebauer, Foxx, Fortenberry, Smith, and 
Walberg.
    Staff present: Claiborn Crain, Nona Darrell, Adam Durand, 
Alejandra Gonzalez-Arias, Craig Jagger, Scott Kuschmider, Clark 
Ogilvie, John Riley, Sharon Rusnak, Anne Simmons, Kristin 
Sosanie, Bryan Dierlam, Alise Kowalski, Josh Maxwell, Rita 
Neznek, and Jamie Weyer.

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE 
                   IN CONGRESS FROM MINNESOTA

    The Chairman. The Committee will come to order. We are 
going to get going here because we are going to have a vote 
about 10:30 or so. It is just one vote, so we may try to keep 
the Committee going during that process so we can get finished 
up. This hearing is to review the structural changes that are 
taking place in the agricultural economy and their impacts. I 
want to thank everyone, especially our witnesses, for being 
here today.
    I welcome all of you to today's hearing on the impact and 
structural changes in agriculture. The witnesses, who I 
appreciate being with us, include Dr. Keith Collins, the Chief 
Economist at USDA. He has testified before this Committee 
numerous times and also on this very same topic. Dr. 
Gruenspecht, with the Department of Energy, who is also on the 
panel. We combined the two panels into one so we could expedite 
the process. The witnesses were fine with that arrangement. And 
also Dr. Pat Westhoff, the Research Associate Professor for the 
Food and Agriculture Policy Research Institute from Columbia, 
Missouri is our last witness. So welcome to the witnesses.
    The Committee has been quite busy since we last heard from 
you on this issue. We have held many hearings in advance of the 
farm bill, both here and across the country, trying to gain as 
much input as we possibly could. We heard from producers, 
processors, consumers, and researchers to write a farm bill 
that we felt served American agriculture well, now and also 
into the future. And it is that next generation of agriculture, 
and beyond that, we are looking at with today's hearing. A lot 
of us on this Committee have seen with our own eyes how 
agriculture has changed in recent times and it is changing 
today. American farmers and ranchers are more productive today 
than ever before. They are meeting the needs of a growing 
global population with changing food preferences. They are 
serving newer and fast-growing markets with organics, local 
foods, value-added products, and increasingly farmers are eager 
to meet our nation's growing fuel challenges.
    Taking those factors into account, we will hear today about 
structural changes that are taking place in the farm economy 
and examining what this Congress might be able to expect in the 
future. We are especially interested in the distinction between 
long-term changes that we would expect to hold in the future 
and short-term changes that are subject to variability.
    In today's hearing, we will examine the indicators of 
economic performance for the U.S. agriculture sector; the 
outlook for prices of major crops and livestock and their 
products; the farm sector's financial health including farm and 
ranch incomes, debt-to-asset ratios and input costs; broad 
macroeconomic factors influencing commodity markets; and the 
structural factors that determine American agriculture's 
efficiency, returns, and competitiveness in the world market. 
So I appreciate each of you being with us here today and 
sharing your thoughts with the Committee on the economic 
factors that influence this farm policy, and I look forward to 
your testimony.
    The Chair would request that other Members submit their 
opening statements for the record so the witnesses can begin 
their testimony with one exception, and that is my good friend, 
the Ranking Member Mr. Goodlatte. We now recognize him for an 
opening statement.
    [The prepared statement of Mr. Peterson follows:]

  Prepared Statement of Hon. Collin C. Peterson, a Representative in 
                        Congress From Minnesota
    Thanks to everyone for being here today. I welcome all of you to 
today's hearing on the impact of structural changes in agriculture. I 
want to welcome today's witnesses. Dr. Keith Collins, the Chief 
Economist at USDA, has testified before this Committee numerous times, 
and also on this very same topic, along with Dr. Gruenspecht with the 
Department of Energy, who is also on the first panel.
    This Committee has been quite busy since we last heard from you on 
this issue. We held many hearings in advance of the farm bill, both 
here and across the country, trying to gather as much input as we 
possibly could from producers, processors, consumers, and researchers, 
to write a bipartisan farm bill that would serve American agriculture 
well now and into the future.
    And it is that next generation of agriculture--and beyond--that we 
are looking at with today's hearing. A lot of us on this Committee have 
seen with our own eyes how agriculture has changed in recent times and 
how it is changing today. American farmers and ranchers are more 
productive today than ever before. They are meeting the needs of a 
growing global population with changing food preferences. They are 
serving newer and fast-growing markets with organics, local foods, and 
value-added products. And increasingly, farmers are eager to meet our 
nation's growing fuel challenges.
    Taking those factors into account, we will hear today about 
structural changes that are taking place in the farm economy and 
examining what this Congress might be able to expect in the future. We 
are especially interested in the distinction between long-term changes 
that we would expect to hold in the future and short-term changes that 
are subject to variability. In today's hearing, we will examine:

   The indicators of economic performance for the U.S. 
        agricultural sector;

   The outlook for prices of major crops and livestock and 
        their products;

   Farm sector financial health, including farm and ranch 
        incomes, debt-to-asset ratios, and input costs;

   Broad macroeconomic factors influencing commodity markets; 
        and

   The structural factors that determine American agriculture's 
        efficiency, returns, and competitiveness in world markets.

    I appreciate each you for being here today and to share your 
thoughts with this Committee on the economic factors that influence 
farm policy. I look forward to your testimony.

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

    Mr. Goodlatte. Mr. Chairman, thank you for calling this 
hearing to discuss changes that are taking place in the 
agricultural economy and their impact. Over the past couple of 
years we have discussed new opportunities in rural America. 
Much of that discussion has been about energy and the growth of 
renewable fuels. We have made significant progress in 
developing a robust industry using agricultural crops, as well 
as animal waste, to produce ethanol and biodiesel. In 2006 
alone, the renewable fuels industry added more than 1.05 
billion gallons of new ethanol to the marketplace. It is 
projected that without any new technological breakthroughs the 
industry already has the potential to produce more than 11 
billion gallons within the next decade. The current tax credits 
and renewable fuel standard along with the phase out of MTBE, 
have helped fuel investment in new ethanol and biodiesel plants 
and created more markets for agriculture products. It is 
obvious that current policies have successfully established a 
thriving renewable fuels market, but to what extent to do we 
continue these new policies and what effect have they had on 
all sectors of agriculture.
    Last year, 20 percent of the U.S. corn crop was used for 
ethanol production, and that amount is expected to rise 
significantly over the next few years. With feed stocks 
currently tasked, to me our renewable fuels initiatives, the 
livestock sector, which relies on those same feed stocks, is 
facing a significant increase in their input costs. Is there a 
balance between having a reliable and affordable supply of feed 
for our livestock industry and developing a reduced reliance on 
foreign energy sources, stabilizing energy prices, and creating 
new markets for agricultural products without a risk of 
increased input costs for livestock producers?
    Even though energy has received much attention, it should 
not be our only focus. The testimony we will hear from Dr. 
Keith Collins, Chief Economist at the USDA, mentions a number 
of factors that are driving some of the changes we have seen in 
the agriculture sector and deserve the attention of this 
Committee. Corn prices were driven high early in the year due 
to a strong growth in ethanol demand, but now prices for both 
corn and ethanol have moderated, putting pressure on ethanol 
production facilities. Nonetheless, corn prices are still 
relatively high by historical standards and continue to place 
pressure on livestock producers who need corn for their 
rations. Simultaneously, wheat production has fallen globally 
due to drought and production problems in Australia, Canada, 
Eastern Europe, and the Black Sea region. This is good news for 
U.S. producers who have experienced the highest wheat prices 
ever. The only bad news for wheat farmers is that they don't 
have more wheat to sell. That will change as farmers respond to 
this demand for wheat by expanding production. Soybean 
producers will also expand production to meet this growing 
demand.
    In the midst of these changes in supply and demand for 
agricultural crops has been the activity in financial markets. 
The U.S. dollar has depreciated in value, which will help 
increase our agricultural exports, but will make imported input 
for farmers and ranchers--such as crude oil, fuel, and 
fertilizer--more expensive. That said, it is great news to have 
strong demand and high prices for our nation's agricultural 
production, and much of this has been driven by strong domestic 
and export demand, the declining dollar, and production 
problems in some parts of the world. I have no doubt that 
farmers will respond to the price signals given by the market 
and will plan their operations accordingly. Their decisions 
will continue to influence this dynamic cycle.
    I appreciate the witnesses bringing to the attention of the 
Committee all of the domestic and international events that 
will impact our domestic agricultural economy. I hope you can 
help us understand the impact these events will have on 
farmers, ranchers, livestock producers, and consumers. It is 
critical that the Committee understand the big picture so that 
we can all put in place the policies that allow all of our 
constituents to compete in an ever-changing global marketplace. 
Your testimony today will help us in this regard. Thank you, 
Mr. Chairman.
    [The prepared statement of Mr. Goodlatte follows:]

Prepared Statement of Hon. Bob Goodlatte, a Representative in Congress 
                             From Virginia
    I appreciate the Chairman calling this hearing to discuss changes 
that are taking place in the agricultural economy and their impact. 
Over the past couple of years when we have discussed new opportunities 
in rural America, much of that discussion has been about energy and the 
growth of renewable fuels.
    We have made significant progress in developing a robust industry 
using agricultural crops, as well as animal waste, to produce ethanol 
and biodiesel. In 2006 alone, the renewable fuels industry added more 
than 1.05 billion gallons of new ethanol to the marketplace. It is 
projected that, without any new technological breakthroughs, the 
industry already has the potential to produce more than 11 billion 
gallons within the next decade.
    The current Tax Credits and Renewable Fuels Standard, along with 
the phase out of MTBE, have helped fuel investment in new ethanol and 
biodiesel plants and created more markets for agriculture products. It 
is obvious that current policies have successfully established a 
thriving renewable fuels market. But to what extent do we continue 
these new policies and what effect have they had on all of sectors of 
agriculture?
    Last year twenty percent of the U.S. corn crop was used for ethanol 
production and that amount is expected to rise significantly over the 
next few years. With feedstocks currently tasked to meet our renewable 
fuel initiatives, the livestock sector, which relies on those same 
feedstocks, is facing a significant increase in their input costs. Is 
there a balance between having a reliable and affordable supply of feed 
for our livestock industry and developing a reduced reliance on foreign 
energy sources, stabilizing energy prices, and creating new markets for 
agricultural products without a risk of increased input costs for 
livestock producers?
    Even though energy has received much attention, it should not be 
our only focus. The testimony we will hear from Dr. Keith Collins, 
Chief Economist at USDA, mentions a number of factors that are driving 
some of the changes we've seen in the agriculture sector and deserve 
the attention of this Committee.
    Corn prices were driven high early in the year due to strong growth 
in ethanol demand, but now prices for both corn and ethanol have 
moderated, putting pressure on ethanol production facilities. 
Nonetheless, corn prices are still relatively high by historical 
standards and continue to place pressure on livestock producers who 
need corn for their rations. Simultaneously, wheat production has 
fallen globally due to drought and production problems in Australia, 
Canada, Eastern Europe and the Black Sea region.
    This is good news for U.S. producers who have experienced the 
highest wheat prices ever. The only bad news for wheat farmers is that 
they don't have more wheat to sell. That will change as farmers respond 
to this demand for wheat by expanding production. Soybean producers 
will also expand production to meet this growing demand.
    In the midst of these changes in supply and demand for agricultural 
crops has been the activity in financial markets. The U.S. dollar has 
depreciated in value which will help increase our agricultural exports 
but will make imported inputs for farmers and ranchers--such as crude 
oil, fuel and fertilizer--more expensive.
    That said, it is great news to have strong demand and high prices 
for our nation's agricultural production and much of this has been 
driven by strong domestic and export demand, a declining dollar and 
production problems in some parts of the world. I have not doubt that 
farmers will respond to the price signals given by the market and will 
plan their operations accordingly. Their decisions will continue to 
influence this dynamic cycle.
    I appreciate the witnesses bringing to the attention of the 
Committee all of the domestic and international events that will impact 
our domestic agricultural economy. I hope you can help us understand 
the impact these events will have on farmers, ranchers, livestock 
producers and consumers. It is critical that this Committee understand 
the big picture so that we can put in place the policies that allow all 
of our constituents to compete in an ever-changing global marketplace. 
Your testimony today will help us in this regard.

    The Chairman. I thank the gentleman. I would request that 
Members would submit their statements for the record.
    [The prepared statements of Messers. Kagen, Graves, and 
Smith follow:]

 Prepared Statement of Hon. Steve Kagen, a Representative in Congress 
                             From Wisconsin
    Thank you Chairman Peterson and Ranking Member Goodlatte for 
calling this important hearing to review the infrastructure of today's 
agricultural economy. I am eager to hear what our witnesses have to say 
and welcome the opportunity to continue our dialogue.
    The House Committee on Agriculture, as well as anyone with a vested 
interest in agriculture, has been very busy this past year. With the 
reauthorization of the farm bill, or as I like to call it--the Food and 
Nutrition bill--the Committee, USDA, farmers, producers and consumers 
have all been actively participating in finding ways agriculture policy 
can best support a healthy economy and environment.
    This discussion has largely centered around factors that are top 
news items on the nightly news. America is excitedly trying to find an 
alternative to energy processing as usual, to a portfolio of renewable 
fuels, of alternative energy and of efficient processes of production. 
In very obvious ways this has a large impact on the economy of today's 
agriculture. We cannot change the price of gasoline without expecting 
it to change the way farmers buy gas and diesel and fill up their 
tractors. We cannot choose one source for an alternative type of fuel 
and drastically increase the value of that crop over others and think 
that farmers will not choose to plant that ``cash crop.'' We cannot 
turn our heads when we make it easier to buy a cheap, unhealthy food 
over a more expensive fresh fruit or vegetable, and then wonder why 
obesity rates are soaring. It is simply cause and effect. The things we 
do in this Committee affect the food, fiber, energy, environment and 
economy across the nation.
    I urge you to share with us your numbers and your detailed findings 
so that we may internalize this information and use it in the best 
interest of northeast Wisconsin and for America. We must remember that 
our influence has far-reaching effects, but that we have the ability to 
strengthen and support our agricultural economy by assessing what has 
been done in the past and how that might better our choices for the 
future.
    Thank you, again, Chairman Peterson and Ranking Member Goodlatte 
for holding today's hearing. I look forward to the testimony of our 
witnesses.
                                 ______
                                 
  Prepared Statement of Hon. Sam Graves, a Representative in Congress 
                             From Missouri
    Thank you, Chairman Peterson and Ranking Member Goodlatte for 
holding this hearing.
    And I want to recognize Dr. Pat Westhoff from the Food and 
Agricultural Policy Research Institute at the University of Missouri in 
Columbia. Pat will be testifying on the next panel. As some of you may 
know I am a graduate of the Agriculture School at Mizzou. FAPRI does a 
great job and has provided me and this Committee with a lot of 
important data over the years, and I think it is important that we make 
sure to support FAPRI and similar institutes so they can continue to 
provide us with this valuable information.
    I have always been an advocate for farmers having choices. Judging 
by the positive letters of support that the National Corn Growers 
Association sent to Secretary Chuck Conner and the leadership of this 
Committee, it was great news for corn farmers to learn that the Federal 
Crop Insurance Corporation recently approved the biotech yield 
endorsement pilot crop insurance product.
    As I understand it, this product is predicated on the simple notion 
that farmers using triple stack corn with traits proven effective at 
controlling pests and weeds have been objectively shown to have 
quantifiably less yield loss risk, and so the crop insurance premiums 
they pay can be lowered.
    This makes real sense to me and I applaud USDA's innovative 
approach to encourage these kinds of best farmer practices. I would be 
particularly interested to learn from Dr. Collins a few things about 
this program:

   How does this approval advance the goal of increasing 
        participation in the crop insurance program and improving the 
        existing safety net for our farmers?

   Will this program be widely available both to growers in the 
        pilot states and to approved insurance providers that serve 
        these farmers?

   Is there anything about this pilot that otherwise interferes 
        with other priorities of the crop insurance program?

   What distinguishes this crop insurance product from others 
        introduced in the past?

    Thank you again to the Chairman and Ranking Member.
                                 ______
                                 
 Prepared Statement of Hon. Adrian Smith, a Representative in Congress 
                             From Nebraska
    Good morning and thank you, Chairman. I am so pleased we are 
holding this hearing today.
    This hearing will give us the opportunity to explore the impacts 
and economics of recent and current structural changes in agriculture. 
Agriculture in the United States is in exciting times. We face both 
great challenges and great opportunities.
    My principal goals are to create policies which will strengthen 
American agriculture and provide long-term stability for our nation's 
producers, and to promote economic policies which will foster sustained 
growth in rural communities. An important component of that policy 
should be to strengthen foreign demand for our products, by 
aggressively pursuing new markets and breaking down barriers to trade.
    And as we look to the future, we must remain mindful of the 
barriers to new farmers. I want to keep sharp and enthusiastic young 
people involved in agriculture and in Nebraska's Third Congressional 
District. Beginning farmers often lack the access to land and financing 
tools to succeed. As we face an aging farming population, we must 
ensure young people are ready and able to prosper in our agricultural 
economy.
    I want to thank our witnesses for coming here today to provide 
testimony for the Committee, and I look forward to hearing from you.
    I appreciate the Committee for holding this hearing as an important 
step to meeting our goals.
    Mr. Chairman, I look forward to continuing to work with you, and I 
thank you for your time.

    The Chairman. Again, we welcome the panel to the witness 
table. Dr. Collins, if you are ready we invite you to begin.

   STATEMENT OF KEITH COLLINS, Ph.D., CHIEF ECONOMIST, U.S. 
          DEPARTMENT OF AGRICULTURE, WASHINGTON, D.C.

    Dr. Collins. Okay. Thank you very much. Mr. Chairman, Mr. 
Goodlatte, Members of the Committee, thanks for the opportunity 
to be here today to talk about recent changes in the farm 
economy. As you know, for several years the U.S. farm economy 
has been setting records for exports, for prices, for 
production, for total use, for income, and for net worth. I 
would like to highlight in a couple of minutes here a few of 
the developments behind these changes and the implications for 
sustaining growth.
    The global economy is an important factor sustaining the 
U.S. farm sector. For example, in developing economies, which 
account for half of our agricultural exports, real GDP is 
expected to rise a strong seven percent this year. The U.S. 
dollar, which has depreciated 25 percent since 2002 against 
major foreign currencies, has also helped raise U.S. exports to 
an all-time high. With strong demand, and constrained supplies, 
farm cash receipts are expected to be a record high this year 
pushing net cash farm income to the third record high in the 
past 4 years.
    Beneath these broad indicators there are new trends that 
are both consoling and, as well, disconcerting. One concern, as 
was just mentioned by Mr. Goodlatte, is the adequacy of wheat 
supplies to meet global food demand. Production problems in a 
number of countries, particularly Australia 2 years in a row, 
are reducing global wheat stocks relative to use this year to 
the lowest level we have ever recorded. But strong prices and 
some land coming out of the Conservation Reserve Program could 
raise U.S. wheat-planted area by five to seven percent in 2008. 
This would significantly raise next year's carry-over stocks of 
wheat.
    It was about a year ago that corn prices began soaring, 
creating anxiety about corn shortages. But, producers shifted 
from soybeans and cotton to corn and are now harvesting a 
record crop which is expected to raise corn stocks by 50 
percent this year. Wheat and soybean prices are now much 
stronger relative to corn than they were a year ago, and with 
fertilizer prices at very high levels, we expect many more 
soybean acres and fewer corn and cotton acres in 2008. These 
shifts will help replenish the tight grain supplies and reduce 
the more abundant soybean and cotton supplies. Looking ahead to 
next year, supply-demand balance for major crops will improve 
but it will remain tight, and farm prices will be near or above 
record levels.
    This expectation of sustained-type markets continues to 
hinge on a growing biofuel production. U.S. ethanol capacity is 
now estimated at 6.9 billion gallons. That is 2 billion more 
than a year ago, and it is likely to rise to over 13 billion 
gallons by late 2009. As production has grown, we have seen 
ethanol prices drop like a rock. Plant margins are now thin, 
but returns appear sufficient to bring most plants that are 
under construction online when completed. Thus, the 3.2 billion 
bushels of corn we expect to use for ethanol this year could 
rise by another billion or more for the 2008/09 year. And if 
corn acres go down, as I mentioned corn stocks would likely 
drop and corn prices rise again in 2008/09.
    Regarding livestock, U.S. production and exports are 
setting records. Pork and broiler production are on the rise 
despite higher grain prices, while flat beef supplies will help 
maintain livestock prices near this year's strong levels. The 
all-milk price will be a record high this year reflecting 
strong demand, and the high-milk feed price ratio is expected 
to raise milk production in 2008, but prices should remain well 
above average.
    In summary, Mr. Chairman, U.S. agriculture is in dynamic 
change driven by bright prospects for global food and fuel 
demand. Acreage changes and normal weather should improve 
supply-demand balance in grain markets. With biofuel demands 
still expected to grow, although slower in the future, a big 
challenge will be to produce on more acres, produce more per 
acre, protect the environment, deal with feed availability and 
costs, and ensure sufficient farm labor. Prospects are also 
highly subject to technology changes, such as new biotech 
varieties of seed and improved biofuel production methods, and 
possible key legislative changes in biofuel, farm, or trade 
policy. Fortunately, the U.S. farm economy is profitable while 
capitalized, skilled, and flexible--all qualities that should 
help it deal with the weather and policy disruptions in 
cyclical down-turns that are likely to be inevitable. Thank 
you, Mr. Chairman.
    [The prepared statement of Dr. Collins follows:]

   Prepared Statement of Keith Collins, Ph.D., Chief Economist, U.S. 
              Department of Agriculture, Washington, D.C.
    Mr. Chairman, Members of the Committee, thank you for the 
invitation to discuss recent developments in and prospects for change 
in the farm economy. As we conclude 2007, the farm economy has 
witnessed unprecedented increases in income and asset values the past 
few years. With strong food and fuel demand, prospects overall look 
bright, but they are also generating a range of issues related to the 
consequences and sustainability of the forces driving the current 
prosperity. Several key factors are shaping the current situation, 
including global economic growth; the foreign exchange value of the 
dollar; new production and processing technologies; global weather 
patterns; rising input costs for energy, labor, and land; and new 
product markets, particularly bioenergy. I will describe these 
developments in output and input markets and the challenges and 
opportunities they present for U.S. agriculture.
Macroeconomic and Trade Developments
    Global macroeconomy supporting U.S. farm markets. Strong global 
economic growth and population increases have helped drive higher food 
consumption over the past several years. World Gross Domestic Product, 
or GDP, continues to look strong, despite a slowing U.S. economy. 
Foreign economies grew by an estimated 4.1 percent in 2006, the third 
highest rate in the last 20 years and substantially stronger than the 
weak growth of less than two percent experienced earlier in this 
decade. This year, we estimate foreign economic growth to be 4.0 
percent, with a slight decline to 3.8 percent in 2008. A little slower 
growth in the EU and developing countries is expected next year, but 
developing country growth is still likely to be a strong 6.5 to 7.0 
percent, compared with 7.0 percent expected this year.
    The U.S. economy grew nearly 3.0 percent in 2006, but is expected 
to decline this year and remain slow through a good part of 2008. 
Macroeconomic forecasts are variable, as some forecasts call for slow 
growth based on continued housing market fallout, slower employment 
growth, and more modest consumer spending. Advocates of stronger growth 
cite the stimulative effects of the recent interest rate reduction of 
the Federal Reserve and strong export growth, as well as low rates of 
unemployment and inflation.
    For U.S. agriculture, despite lower domestic economic growth, 
strong foreign economic growth and the reduced value of the dollar are 
likely to support global commodity demand, keeping pressure on global 
supplies and prices particularly for meats, grains, dairy products, 
fruits and vegetables and processed products.
    U.S. agricultural exports setting records. With strong foreign 
economic growth particularly in developing countries, crop production 
shortfalls around the world, and sufficiently available U.S. supplies, 
U.S. agricultural exports are likely to continue to expand this year. 
USDA's forecast for U.S. agricultural exports for FY 2008 is a record 
high $83.5 billion, up from $79 billion in FY 2007. Imports, too, 
continue to grow and are expected to be $75 billion this fiscal year 
compared with $70.5 billion a last year. Nearly half of imports are 
horticultural products and another fifth are sugar and tropical 
products such as cocoa, coffee and rubber. This year, the agricultural 
trade balance is forecast to be +$8.5 billion, the same as last year.
    Wheat exports are forecast to be up in volume and value due to less 
foreign competition. Corn exports are forecast up in volume and value 
due to a record-large corn crop and less competition, while higher 
cotton export volume and value reflects large, available U.S. cotton 
stocks and strong Chinese demand. Livestock exports are forecast to 
rise as the volume and value of beef exports increases. Horticultural 
exports are being helped by the decline in the value of the dollar. 
Canada and Mexico continue to be our number one and two markets, 
accounting for 32 percent of expected exports this year. Japan is 
number three with an expected 12 percent share, while for the first 
time, China has moved up to number four, with an expected 10 percent 
share, slightly above the European Union our number five export market.
    U.S. Dollar depreciation spurs exports and farm prices. The U.S. 
dollar has depreciated almost 25 percent on average against major 
foreign currencies, since 2002. This year alone, the dollar has dropped 
15 percent against the Brazilian real, 13 percent against the Canadian 
loonie, seven percent against the euro, four percent against the 
Chinese yuan, and 12 percent against the Australian dollar. This 
depreciation has helped boost U.S. exports to an all-time high, and 
kept prices higher than they would otherwise be.
    An excellent illustration of the relationship between agricultural 
prices and exchange rates occurred during the week of September 17, 
when the Fed cut its Federal Funds rate target by 50 basis points. The 
result was a decline in the value of the dollar relative to other 
currencies, by about two percent on average. Very little other news 
that week directly affected agricultural commodity markets--no 
unexpected USDA reports, no abrupt weather changes, no policy changes, 
etc. Nonetheless, wheat cash prices rose by 1 percent, corn by 3.5 
percent, soybeans by six percent, and cotton by 5.5 percent.
    Despite record exports, the positive impact of the dollar's long-
term depreciation is limited by a number of factors. Trade restrictions 
in many countries and imperfect market conditions in developing 
countries limit the ability of a dollar decline to translate into lower 
prices for U.S. agricultural products. In addition, the weak market 
infrastructure and lack of market information that often characterizes 
the broader food and fiber systems in developing and transition 
economies limits the price signals that would translate into higher 
demand for imported goods.
    U.S. farm income now consistently strong. Cash receipts for 
producers are forecast at a record $276 billion in 2007, up $37 billion 
from 2006 and $60 billion from 2003. Cash production expenses are 
forecast to be a record $222 billion in 2007, up $17 billion from 2006 
and $45 billion from 2003. With receipts rising faster than expenses, 
net cash farm income is forecast at $86 billion this year, up sharply 
from last year and 4 years ago. The three highest farm income years 
ever have occurred during the past 4 years. While some states on the 
East Coast, in the Southeast, and in the Mountain region faced drought 
this year, production losses were not enough to significantly affect 
national income measures.
    For most field crops, 2007 cash receipts are forecast to be a 
record high. For example, cash receipts for wheat, corn, soybeans, and 
rice are all expected to rise to all-time highs. In contrast, cash 
receipts for cotton and fruits and nuts are expected to decline this 
year due to large cotton supplies and weather problems for tree fruits 
like peaches, pears and oranges. Cash receipts from all livestock 
species are forecast to exceed $100 billion for the fifth straight year 
and exceed the previous record high set in 2005 by $14 billion. 
Receipts for cattle, dairy, and poultry are all expected to set record 
highs. Government payments to producers in 2007 are expected to total 
nearly $14 billion, down only $2 billion from 2006. In 2007, producers 
are forecast to receive $5.3 billion in direct payments, $3.1 billion 
in conservation payments, $2 billion in disaster payments, and $1 
billion in tobacco transition program payments. In addition, producers 
are forecast to receive $2.2 billion in counter-cyclical payments and 
marketing loan assistance benefits, with upland cotton accounting for 
nearly all of these payments.
    The $45 billion increase in cash production expenses since 2003 is 
mainly due to an $13 billion increase in farm origin inputs (livestock, 
feed), $12 billion more in energy-based input costs (fuel, fertilizer, 
electricity, and pesticides), $4 billion more in labor expenses, and 
$10 billion more in other operating expenses.
    The balance sheet of U.S. agriculture is also expected to 
strengthen again in 2007. Consistent with recent trends, increases in 
debt are forecast to be offset by larger increases in farm asset 
values, with farm real estate values expected to rise 14 percent in 
2007. As a result, the farm sector's debt-to-asset ratio should drop 
further to new a historic low level of 10.7 percent in 2007. Annual 
increases in farm equity continue to greatly exceed annual net cash 
farm income, with the increase in equity in 2007 expected to be $236 
billion compared with $86 billion in net cash farm income.
Developments in Farm Output Markets
    Major crops: global supplies tight. For the 2007/08 marketing year, 
global wheat demand is again forecast to exceed global production 
causing global wheat stocks as a percent of use to fall to the lowest 
level on record. Record world production of coarse grains in 2007/08 is 
expected to maintain global coarse grain stocks at near last year's 
level, while declining world oilseed and cotton production and 
increasing demand are forecast to lead to lower global stocks of both 
commodities. In the United States, supplies of feed grains are expected 
to increase in 2007/08 leading to a rebound in carryover. In contrast, 
U.S. carryover of wheat, soybeans, rice and cotton could all decline in 
2007/08 as total use is forecast to exceed production.
    For the United States, good grain, oilseed and cotton harvests and 
strong demand have supported above average farm income in recent years. 
Market fundamentals continue to look strong as growth in demand, 
particularly for producing biofuels, has led to much higher prices for 
corn. Reduced plantings of soybeans and cotton in response to strong 
grain prices along with increasing demand have also pushed soybean and 
cotton prices higher while weather problems in several foreign 
countries have caused wheat prices to surge.
    Corn supplies up in 2007/08. Producers responded to higher prices 
and returns for corn in late 2006 increasing corn planted acreage by 
15.3 million acres in 2007 to 93.6 million acres, the largest area 
planted to corn in over 60 years. Much of this increase in corn 
plantings came from soybeans. Area for cotton, hay, and other crops 
also declined to meet the demand for more corn production. With higher 
acreage and improved yields, corn production is forecast at a record 
13.3 billion bushels in 2007/08, 26 percent more than last year. Total 
corn use is forecast to reach a record 12.6 billion bushels in 2007/08, 
reflecting the expanding ethanol industry, continued strong global 
demand for corn and increasing U.S. corn supplies. Despite greater 
total use, stocks of corn at the end of 2007/08 marketing year are 
forecast to increase by over 50 percent to 2.0 billion bushels. The 
farm price of corn is forecast to average $3.20 per bushel during 2007/
08, compared with $3.04 per bushel in 2006/07 and the record high of 
$3.24 in 1995/96.
    Corn acreage likely down in 2008/09. Corn planted area for 2008 is 
expected to fall as prices and returns for competing crops, such as 
wheat and soybeans, have improved relative to corn in recent months. 
December 2008 futures prices for corn are currently more than 30 cents 
per bushel below the peak of December 2007 futures last February. 
Current cash prices are more than $1 per bushel below their levels in 
late February. Although world demand remains strong for feed grains, 
record U.S. corn supplies are expected to put downward pressure on corn 
prices over the coming months. Given the current outlook for the 2008 
crop corn and competing crop prices, corn planted area next spring 
could decline six to eight percent from 2007 to around 87 million 
acres. Even with the potential for a six to eight percent reduction in 
planted area next spring, 2008 corn area would still be eight to 12 
percent above the 1997/06 average. Lower production combined with 
continued growth in the corn-based ethanol industry could reduce 
carryover stocks adding additional support to prices in 2008/09.
    More ethanol growth expected, but plant margins now much thinner. 
U.S. ethanol production capacity is now estimated at 6.9 billion 
gallons, up 2 billion gallons from a year ago. Production capacity is 
expected to increase sharply over the coming 18-24 months, if the 76 
plants currently under construction are completed. The new construction 
would add 6.7 billion gallons of additional ethanol production 
capacity, bringing total capacity to 13.6 billion gallons potentially 
as early as late 2009.
    Ethanol prices have weakened since mid-summer as additional plants 
have come on line adding to ethanol supplies and contributing to some 
infrastructure bottlenecks. For example, prices at ethanol plants in 
Iowa and Nebraska have fallen nearly 50 cents per gallon since late 
July 2007. During the same period, futures prices on the nearby 
contract have lost about 40 cents per gallon. Historically, ethanol 
prices have been at a premium to gasoline. Until recently, ethanol 
premiums averaged 50 cents per gallon compared with unleaded gasoline. 
This situation has suddenly reversed, with wholesale ethanol prices in 
Nebraska, for example, 39 cents per gallon below the wholesale price 
for gasoline during September. The outlook for ethanol prices appears 
even less favorable in the futures market, with the nearby Chicago 
Board of Trade contract for ethanol trading 50 cents per gallon below 
the nearby New York Mercantile Exchange contract for reformulated 
gasoline blendstock. This shift in the ethanol/gasoline price 
relationship has sharply reduced returns for ethanol producers. With 
current retail gasoline prices at $2.80 per gallon, wholesale prices 
without Federal and state excise taxes would be about $2.20 per gallon. 
Nearby futures for ethanol are trading at $1.57 per gallon, 71 percent 
of the $2.20-per-gallon estimated wholesale gasoline price and about 
equal to ethanol's energy value relative to gasoline.
    The recent declines in ethanol prices have sharply reduced 
profitability for ethanol producers. This year's record corn production 
is bringing some relief to declining ethanol producer margins. However, 
despite the expected record corn harvest, corn prices remain strong 
supported by strong demand, record-high wheat prices, and strong 
soybean prices. We estimate that a 40 million gallon Midwest ethanol 
plant, receiving the late September price of $1.52 per gallon for 
ethanol and paying $3.00 per bushel of corn, was earning 17 cents per 
gallon above variable costs of production and 3 cents below total 
variable plus capital costs of production. In the current price 
environment, the 51 cents-per-gallon ethanol tax credit is important in 
sustaining ethanol demand and prices at levels that are forestalling 
some plant shut-downs.
    Soybean supplies down in 2007/08. High corn prices relative to 
soybeans caused soybean planted area to drop by 16 percent to 63.7 
million acres this year. Lower planted area, combined with slightly 
lower yields, is forecast to lower soybean production to 2.6 billion 
bushels, down 19 percent from last year's record production. Total 
soybean supplies in 2007/08 are projected to decline about 13 percent 
from last year record, as high carry-in stocks partially offset the 
decline in this year's production. With lower exportable supplies, U.S. 
soybean exports are expected to drop about 13 percent from last year's 
record 1.1 billion bushels. Despite lower total use, carryover levels 
are forecast to decline by over 60 percent. The farm price of soybeans 
is forecast to average a record $8.35 per bushel for the 2007/08 
marketing year, compared with $6.43 last year and the previous record 
high of $7.83 in 1983/84.
    Soybean area forecast to rebound in 2008/09. U.S. soybean planted 
area is forecast to rebound to 70 million acres in 2008, regaining more 
than half of the 11 million acres lost primarily to corn in 2007. The 
soybean to corn price ratio, which declined to below 2 in the spring of 
2007, strongly favored corn planting. In contrast, current March 2008 
futures imply a soybean to corn price ratio of 2.7, favoring soybeans 
over corn. Rotation practices also favor a switch back to soybeans.
    Returns to Biodiesel shrink. U.S. biodiesel production continues to 
rise, setting new production records each month. Twenty percent of 
2007/08 soybean oil production is expected to be used to produce about 
580 million gallons of biodiesel. This compares with only eight percent 
of soybean oil production being used for biodiesel in 2005/06 when 
about 200 million gallons were produced. Similar to ethanol, biodiesel 
profit margins are eroding due to sharply rising soybean oil prices. 
Soybean oil is the feedstock for 85-90 percent of domestically produced 
biodiesel. The price of soybean oil has increased over 40 percent over 
the past year causing biodiesel returns above soybean oil costs plus 
other variable costs to decline from around 80 cents per gallon to near 
zero. Vegetable oil prices are expected to remain strong due to strong 
demand, particularly for biodiesel in the EU, which is likely to keep 
biodiesel production capacity low and slow expansion.
    Although EU demand for vegetable oils will continue to pressure the 
profitability of U.S. biodiesel production, the EU also presents an 
export opportunity. Due to the $1 per gallon tax credit for blending, 
U.S. produced biodiesel is competitive in the EU biodiesel market. 
Since March 2007, net exports of biodiesel have accounted for more than 
25 percent of U.S. biodiesel production. As long as U.S. biodiesel 
remains competitive in world markets, U.S. production is likely to grow 
despite weak margins.
    Wheat prices record high in 2007/08. For 2007/08, wheat acreage, 
which had been trending downward over the past 25 years, increased by 
over 3 million acres to 60.3 million, the highest since 2003. U.S. 
wheat production is estimated at 2.1 billion bushels, up from 1.8 
billion bushels in 2006. Although U.S. production recovered from last 
year's drought-reduced level, the 2007 crop failed to live up to early 
expectations as an early April freeze and heavy harvest time rains 
reduced production. Production prospects have also fallen sharply in 
several major wheat producing countries. Heavy harvest rains affected 
wheat production in Northern Europe and extreme drought and heat have 
reduced the 2007 wheat crops in Australia, Canada, Eastern Europe and 
parts of the Black Sea region. Higher expected exports, reflecting the 
lower production in competitor countries, are expected to push up U.S. 
wheat total use from 2.0 billion bushels in 2006/07 to 2.3 billion 
bushels in 2007/08, causing U.S. ending stocks to decline to 307 
million bushels, the lowest in nearly 60 years. Reflecting this tight 
market, the average farm price of wheat is forecast to be a record 
$6.10 per bushel in 2007/08, compared with $4.26 per bushel for the 
2006/07 crop.
    Wheat area to expand in 2008/09. Producers are expected to respond 
to record high prices by increasing wheat plantings again in 2008. In 
addition, contracts on 2.5 million acres enrolled in the Conservation 
Reserve Program expire on September 30, 2007. A large portion of these 
expiring CRP acres are located in wheat producing States. Given the 
current outlook for wheat prices next summer and the amount of expiring 
CRP acres, wheat area is expected to increase five to seven percent in 
2008, to around 64 million acres. Plantings of wheat should also be up 
in the EU in 2008 as producers will not be required to fallow the usual 
10 percent of cropland. Many analysts anticipate that this will add an 
additional 1-2 million hectares to world wheat area in 2008. Prospects 
for sharply larger world wheat area and production in 2008 are already 
being reflected in futures prices for next summer's crop. July 2008 
futures for winter wheat are trading at about $2 per bushel below the 
nearby contract price.
    Cotton area and production shrinks in 2007/08 in face of low 
relative prices. In 2007/08, strong grain and improved soybean prices 
reduced cotton plantings 29 percent to 10.85 million acres, the lowest 
area planted since 1989. The Southeast and Delta regions each cut 
cotton plantings by more than 30 percent and North Carolina, South 
Carolina, Virginia, Louisiana, Mississippi, and Oklahoma experienced 
reductions of 40 percent or more. Lower acreage and production are 
projected to keep total cotton supplies in 2007/08 about unchanged from 
the previous year. With the prospect of stronger exports due to rising 
world demand, ending stocks are projected to decline about \1/3\ to 6.4 
million bales.
    More cotton area declines in store for 2008/09. With lower domestic 
production and an improved export outlook, cotton futures prices 
increased to a 3 year high this summer. At the same time, world prices 
have risen as world stocks are declining about nine percent, putting a 
floor under prices. Given prospects for continued improvement in prices 
and returns, foreign production may increase in 2008/09, especially in 
Brazil and India. However, rising cotton prices likely will not be 
sufficient to attract acreage back to cotton production in the United 
States, given the continuation of very favorable returns for soybeans 
and corn. Thus, cotton planted area in the United States could decline 
as much as eight percent to about 10.0 million acres in 2008.
    Rice market tightens. For 2007/08, rice planted area dropped to 
2.75 million acres, down from 2.84 million acres the previous year and 
the lowest rice plantings since 1989. Higher net returns for competing 
crops--soybeans, soft red wheat and some corn, restrictions on the 
planting of long grain varieties Cheniere and Clearfield CL131, and low 
government payments contributed to the reduction in rice plantings. 
Despite the decline in rice area, total rice production is up about two 
percent from last year to 197 million cwt, reflecting a record yield of 
7,215 pounds per acre. Total supplies are about unchanged from last 
year while total use is forecast to increase by six percent in 2007/08, 
primarily reflecting much improved export prospects. Strong world rice 
prices are expected to continue to support U.S. rice prices. World 
2007/08 ending stocks of rice are projected at 71 million tons, down 
6.2 million tons from last year and the lowest world carryover since 
1983/84. The farm price of rice is forecast to average $10.50 per cwt 
in 2007/08, up from $9.74 per cwt in 2006/07.
    Sugar to open to Mexican market. In 2007/08, U.S. sugar production 
is estimated at 8.45 million short tons, nearly unchanged from last 
year's crop of 8.49 million tons. Sugar ending stocks are forecast to 
increase about nine percent to 1.9 million tons resulting in a stock-
to-use ratio of 18.2 percent, up from 16.7 percent last year. Import 
quotas for sugar have been announced at the minimums established under 
the WTO. On January 1, 2008, the tariff on Mexican exports of to the 
U.S. falls to zero, generating uncertainties in the market and 
affecting USDA's ability to operate the sugar program at no net cost to 
taxpayers. The U.S. Sugar Program currently depends on the U.S. 
Government controlling domestic sales and imports to support prices 
above loan forfeiture levels. Free trade in sweeteners between the 
United States and Mexico will commence in January 2008, which could 
prevent the United States from imposing domestic marketing allotments, 
if Mexican imports causes total sugar imports to exceed the trigger for 
imposing domestic marketing allotments of 1.532 million tons. Over the 
next several years, Mexican food and beverage producers will have a 
strong economic incentive to use corn-based sweeteners, rather than 
more expensive sugar from domestic sugarcane. While Mexico is a large 
untapped market for U.S. corn-based sweetener manufacturers, 
displacement of Mexican sugar could pressure North American sugar 
market prices as the U.S. and Mexico adjust to free trade in 
sweeteners.
    Specialty crop sales stabilize. Excluding greenhouse/nursery crops 
and mushrooms, U.S. fruits and vegetables harvested area will total 
about 11 million acres in 2007. Vegetables, potatoes, and pulses 
account for about 65 percent, and the remainder is citrus and non-
citrus fruits and tree nuts. In 2007, specialty crops will continue to 
provide a significant source of cash revenues for U.S. producers. Cash 
receipts for fruits, nuts, vegetables, and nursery/greenhouse products 
in 2007 are forecast at $53 billion, up $1.2 billion or two percent 
from 2006, while total U.S. agriculture will increase $37.1 billion, or 
16 percent. Higher cash receipts for vegetables and greenhouse/nursery 
crops are more than offsetting lower values for fruits and tree nuts. 
While per capita consumption of fruits and vegetables has seen little 
or no growth for several years, limited production of these commodities 
has raised farm and retail prices. In 2007, grower prices through 
September are up six to seven percent from a year earlier and retail 
prices are up about four percent.
    Livestock & livestock products: U.S. production and exports setting 
records.  U.S. red meat and poultry exports are expected to reach a 
record high in 2008. Pork exports are forecast to lead the way, 
reaching record high of 3.1 billion pounds carcass weight, or 14 
percent of production. After stalling in early 2006, poultry sales 
increased as foreign concerns about AI abated. Broiler exports are 
forecast to increase to 5.6 billion pounds in 2008, equally the 
previous record high set in 2001. Beef exports are expected to increase 
with the gradual expansion of exports to Japan and Korea. However, 
Korea's import restrictions and Japan's age limits on imported beef 
from the United States continue to limit growth. Although total beef 
exports are expected to increase 29 percent to 1.9 billion pounds in 
2007, the level of exports will remain below the 2003 pre-bovine 
spongiform encephalopathy level of 2.5 billion pounds.
    Total U.S. production of meat and poultry is forecast to be record-
high in calendar year 2008, but nearly flat growth in supplies of beef 
are expected to help maintain livestock prices near this year's levels. 
For livestock and poultry producers, feed prices will be an important 
component of producer production decisions in the upcoming year.
    Cattle prices record high this year and strong again in 2008. Beef 
production is currently forecast to increase 0.4 percent in 2008, 
following a 0.7 percent decline in 2007. Steer prices are expected to 
average a record-high $92.11 per cwt this year and average $91.50 per 
cwt in 2008, compared with $85.41 per cwt in 2006. Poor forage 
conditions resulted in increased cow slaughter during 2006 and 2007 as 
many producers lacked sufficient forage resources to support their 
herds. During the last several months, relatively larger numbers of 
heavier cattle have been placed on feed. With improved forage supplies 
in the Plains this year and higher grain prices, cattle are remaining 
on pasture longer and coming into feedlots at heavier weights. These 
heavier feeder cattle will generally be fed for shorter periods, 
consuming less feed. The Cattle inventory report released on July 20, 
2007, showed a total July 1, 2007, cattle-and-calf inventory of 104.8 
million head, 400,000 head below the July 1, 2006, inventory, 
suggesting that cattle inventory growth has stalled.
    The 2007 U.S. cattle import forecast is 2.2 million head. Adequate 
precipitation in Mexico has allowed ranchers to keep more of their 
cattle on pasture and has kept imports of Mexican cattle below last 
year's levels. Imports from Canada through July are above the year 
earlier levels due to higher feed costs in Canada and restructuring of 
their slaughter industry. The recently announced minimal risk rule 
expanding Canadian cattle eligible for import to the United States is 
expected to increase U.S. cattle imports late in 2007 and 2008.
    Hog slaughter reaches record high. Pork production in 2007 is 
estimated up 2.9 percent, marking the 7th year of expansion. During the 
first week of October, weekly hog slaughter was estimated at a record 
2.32 million head, and slaughter is expected to remain large into early 
2008. The estimated weekly average carcass weight was 199 pounds, 
unchanged from the previous week and a year ago. The most recent Hogs 
and Pigs report released on September 28, 2007, suggests continued 
expansion in pork production in 2008. U.S. inventory of all hogs and 
pigs on September 1, 2007, was 64.6 million head, up three percent from 
September 1, 2006. The increase in 2008 production primarily will 
reflect increased slaughter as weight gains will be limited as 
producers respond to higher feed prices. Hog prices are expected to 
reflect the increased production, declining slightly from 2007's $47.73 
per cwt to $46 per cwt in 2008.
    Broiler production to rebound in 2008. Broiler producers have 
endured several periods of low returns due to relatively low broiler 
prices in 2005 and 2006 and higher feed costs. Consequently, producers 
reduced chicks placed and broiler production is expected to fall by 0.2 
percent in 2007. With tighter broiler meat supplies, whole bird prices 
are estimated to average a record-high 76.6 cents per pound in 2007, up 
from 64.4 cents per pound in 2006. Higher broiler prices and improved 
returns are expected to lead to 2.4 percent increase in broiler 
production in 2008. In 2008, broilers prices are forecast to average 
75 cents per pound.
    Milk prices record high. Milk production is estimated to increase 
by 2.0 percent in 2007, reflecting a modest expansion in the dairy cow 
herd and below average growth in milk production per cow. High feed 
costs and tight supplies of high quality forage especially during the 
first half of 2007 reduced the growth in milk production per cow. 
Demand for dairy products, both domestically and for export, has been 
very strong reflecting very limited supplies from competing exporters, 
especially Australia and the EU. Prices of cheese, butter, nonfat dry 
milk, and whey are all up sharply in 2007 boosting the all-milk price 
to a record $19.00 per cwt. With product prices above support, no 
Commodity Credit Corporation net removals of dairy products are 
forecast.
    In 2008, milk production is forecast to increase by 2.6 percent as 
high milk feed price ratios are expected to encourage producers to 
continue to expand production. Domestic and export demand are forecast 
to remain strong in 2008 with drought continuing to adversely affect 
milk production in Australia. For 2008, the all-milk price is forecast 
to average $18.15 per cwt, the second highest on record.
    Food prices rising. In 2007, the Consumer Price Index (CPI) for all 
food is forecast to increase 3.5 to 4.5 percent. The annul CPI for all 
food increased an average 2.6 percent during the past 4 years, with a 
low of 2.1 percent and a high of 3.4 percent. Higher commodity and 
energy costs are driving the CPI increase. Future increases will depend 
on energy price increase and the extent to which agricultural market 
prices stabilize.
Developments in Farm Input Markets
    Fuel prices and farm expenditures up, but effects cushioned by high 
farm output prices. As crude oil prices have increased from $19 per 
barrel in 1999 to $80 today, farmers and others have been paying 
increasingly higher fuel prices. The annual average fuel price paid by 
farmers during 2007 is likely to reach a new high for the fifth 
consecutive year. However, this year's increase is more restrained, 
with the September 2007 gasoline price index up 8.2 percent from a year 
ago and the diesel price index up 6.7 percent. Total expenses for fuels 
were $6.8 billion in 2003, accounting for 3.6 percent of total cash 
production expenditures. In 2007, fuel expenditures are estimated at 
$11.6 billion, accounting for 5.6 percent of total cash production 
expenses. Of all types of fuels, expenditures on diesel fuel have 
increased the most. In the aggregate, fuel expenditures are not a major 
component of farm production expenditures, and with strong commodity 
market demand and prices, their increases have not had a significant 
effect on U.S. farm income. However, energy expenses vary by farm type 
and farm location and may be more significant in specific situations.
    High energy prices cause restructuring of fertilizer marketplace. 
In 2000/01, the International Fertilizer Development Center reported 
that U.S. anhydrous ammonia production capacity was 16.5 million tons 
of nitrogen. By 2006/07, capacity had dropped by nearly 40 percent to 
9.6 million tons. Prices of natural gas, the major component of 
nitrogen, rose more in the United States than in other key regions 
causing a shift in both ammonia and urea nitrogen production to 
overseas suppliers. Nitrogen imports now account for more than 50 
percent of available U.S. supplies, compared with only 21 percent of 
available supplies in 1996/97.
    Nutrient demand by U.S. and foreign farmers is expected to remain 
strong over the next several years reflecting high global commodity 
prices and expanding crop production. Thus fertilizer prices, and 
nitrogen in particular, are expected to remain at or near record-high 
levels. The U.S. demand for fertilizer expanded during the most recent 
fertilizer year ending June 30, 2007. This year's high corn prices and 
93 million planed corn acres led the increase in demand for all three 
nutrients: nitrogen use is estimated to be six to eight percent higher 
than the previous year; phosphate use, up four percent; and potash, up 
five percent. For the past 3 years, farmers have paid record prices for 
fertilizer materials. This past spring, during April 2007, farmers paid 
on average $523 per ton for anhydrous ammonia, up only slightly from 
$521 per ton in 2006, reflecting a slower rate of increases in energy 
prices.
    Fertilizer prices are likely to remain strong, supported by energy 
prices and global fertilizer demand. India and China are purchasing 
large volumes of nitrogenous, phosphatic, and potassic materials. 
Brazil is also a strong market for phosphates. Although U.S. farmers 
have increasingly relied on imports, and thus have to pay additional 
handling and transportation costs, supplies should be adequate. 
Domestic production of nitrogen is estimated to be up in 2007, as the 
fertilizer industry is currently realizing very strong margins. For 
example, it takes 33 million Btus of natural gas to produce a ton of 
ammonia, so with natural gas prices now at $6 per million Btus, the 
natural gas cost is $200 for a ton of ammonia, which is now selling to 
Midwest farmers for about $575 a ton.
    Farm labor supply remains a question for the future. Total costs 
for hired and contract farm labor are estimated at $26.3 billion in 
2007, representing about 12 percent of total farm cash expenses. In 
July 2007, the peak month for hired farm labor, there were 1.2 million 
hired workers on the Nation's farms and ranches, a one percent increase 
compared with July 2006. The average wage rate paid by farm operators 
increased to $10.04 per hour, $0.32 per hour higher than July 2006.
    It is difficult to determine the extent to which labor shortages 
are currently affecting agricultural production. Data show that U.S. 
production is forecast to increase in 2007 for most commodities, 
including those sectors of the farm economy that rely heavily on hired 
farm labor, such as specialty crops. For example, fresh vegetable and 
melon production is forecast to increase by two percent in 2007, while 
processed vegetable production is forecast to increase by 10 percent 
over 2006 levels. The U.S. pear crop is expected to be four percent 
larger than last year's crop and seven percent above the 2005 crop. The 
2007 U.S. grape crop is forecast to be nine percent larger than a year 
ago, but 11 percent smaller than the record-large crop in 2005. 
Alternatively, the 2007 U.S. apple crop is forecasted to be seven 
percent smaller than the 2006 crop, the third smallest since the 1990s.
    Farmers are concerned about current and potential labor shortages 
in the future. Data collected through the National Agricultural Worker 
Survey (NAWS) conducted for the U.S. Department of Labor (DOL) found 
that in 2005/06, 53 percent of the hired crop labor force lacked 
authorization to work in the United States. Replacing 53 percent of the 
hired agricultural work force with workers with proper documentation 
would represent a significant adjustment within certain parts of the 
agricultural sector. Should employment conditions tighten, the H-2A 
program should provide some relief.
    Under the H-2A program, agricultural employers who anticipate a 
shortage of domestic workers are allowed to hire nonimmigrant foreign 
workers to perform agricultural labor or services of a temporary or 
seasonal nature. Complexity, cost, and historical lack of enforcement 
against individuals without proper documentation employed in 
agriculture resulted in only limited use of the H-2A program. In FY 
2006, employers requested 64,000 workers under the program and DOL 
certified 59,000 workers. The 59,000 certified workers represent only 
five percent of the number of hired workers in U.S. agriculture. 
California, the state with the greatest demand for farm labor, 
requested only about 4,000 H-2A workers in FY 2006. For the existing H-
2A program to replace the current agricultural work force without 
proper documentation, the number of workers certified by the program 
would need to increase by a factor of 10. Such an expansion would be a 
serious challenge for the current program. Thus, the Administration is 
now revising the H-2A program rules to provide farmers with an orderly 
and timely flow of legal workers while protecting the rights of both 
U.S. workers and foreign temporary workers.
    Farmland costs continue to soar. For 2007, USDA expects the value 
of farm real estate to increase by 14 percent from 2006, increasing to 
slightly over $1.9 trillion. If farm real estate values meet their 
forecast, they will have more than doubled since 2000. Farm real estate 
is the major asset on the farm sector balance sheet and is expected to 
account for 86 percent of total U.S. farm assets in 2007. Farm real 
estate is the principal source of collateral for farm loans and enables 
farm operators to finance the purchase of additional farmland and 
equipment or to finance current operating expenses. While a benefit for 
existing landowners, high farm real estate values make it difficult for 
individuals who may wish to enter farming and increases operating 
expenses for individuals who rent farmland. For example, the U.S. 
average cropland cash rent increased from $79.50 per acre in 2006 to 
$85 per acre in 2007.
Conclusion
    As we conclude 2007, the U.S. farm economy is coming off 
unprecedented increases in income and asset values the past few years. 
Prospects for expanding global food and fuel demand look bright. More 
normal weather and farm production increases worldwide should lead to 
improved supply-demand balance in key markets, such as wheat. With 
biofuel demand expected to continue growing, although at a slower pace 
in the future, a big challenge will be responding to that demand by 
producing on more acres, producing more per acre, protecting the 
environment while expanding production, and dealing with feed 
availability and costs for the livestock sector. Market prospects are 
also highly subject to technology changes, such as for crop yields or 
biofuel production, and possible key legislative changes affecting 
biofuel, farm and trade policy. Fortunately, the U.S. farm economy has 
evolved into a profitable, well capitalized, skilled, and flexible 
sector that should be able to successfully deal with macroeconomic 
events, changing foreign competition, or reasonable policy changes.
    Mr. Chairman, that completes my statement.

                                                                       Attachments
                                                                Farm Economic Indicators
--------------------------------------------------------------------------------------------------------------------------------------------------------
         Ag. Trade (Bil. $)              FY00         FY01         FY02         FY03         FY04         FY05         FY06        FY07F        FY08F
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total exports                               50.7         52.7         53.3         56.0         62.4         62.5         68.6         79.0         83.5
Asia                                        19.7         20.1         19.4         21.6         24.3         22.5         24.9         28.7         30.6
Canada                                       7.5          8.0          8.6          9.1          9.5         10.4         11.6         13.1         13.6
Mexico                                       6.3          7.3          7.1          7.7          8.4          9.3         10.4         12.6         13.2
Total imports                               38.9         39.0         41.0         45.7         52.7         57.7         64.0         70.5         75.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
        Farm Income (Bil. $)             2000         2001         2002         2003         2004         2005         2006        2007F        2008F
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cash receipts                              192.1        200.1        195.0        215.6        237.3        240.7        239.3        276.4          N/A
Gov't payments                              23.2         22.4         12.4         16.5         13.0         24.4         15.8         13.6          N/A
Gross cash income                          229.0        237.4        222.3        247.8        267.4        281.3        272.5        308.0          N/A
Cash expenses                              171.7        175.2        170.8        177.6        185.2        195.5        204.7        222.1          N/A
Net cash income                             57.4         62.2         51.5         70.2         82.2         85.8         67.9         85.9          N/A
--------------------------------------------------------------------------------------------------------------------------------------------------------
         Commodity Prices 1              Unit       2000/01      2001/02      2002/03      2003/04      2004/05      2005/06      2006/07      2007/08F
--------------------------------------------------------------------------------------------------------------------------------------------------------
Wheat                                       $/bu         2.62         2.78         3.56         3.40         3.40         3.42         4.26    5.80-6.40
Corn                                        $/bu         1.85         1.97         2.32         2.42         2.06         2.00         3.04    2.90-3.50
Soybeans                                    $/bu         4.54         4.38         5.53         7.34         5.74         5.66         6.43    7.85-8.85
Rice                                       $/cwt         5.61         4.25         4.49         8.08         7.33         7.65         9.74  10.30-10.70
Cotton (Upland)                         cents/lb         49.8         29.8         44.5         61.8         41.6         47.7         47.3       2 44.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      2001         2002         2003         2004         2005         2006        2007F        2008F
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hogs                                       $/cwt        45.81        34.92        39.45        52.51        50.05        47.26        47.73        44-48
Steers                                     $/cwt        72.71        67.04        84.69        84.75        87.28        85.41        92.11        88-95
Broilers                                cents/lb         59.1         55.6         62.0         74.1         70.8         64.4         76.6        72-78
Milk                                       $/cwt        15.05        12.18        12.55        16.13        15.19        12.97  18.95-19.05  17.70-18.60
Gasoline                                $/gallon         1.47         1.39         1.60         1.89         2.31         2.62         2.80         2.87
Diesel                                  $/gallon         1.40         1.32         1.50         1.81         2.41         2.71         2.82         2.96
Natural gas (wlhd)                   $/K cu. ft.         4.01         2.95         4.89         5.50         7.45         6.41         6.34         6.95
Electricity                                $/kwh         8.62         8.45         8.70         8.97         9.45        10.40        10.60        10.90
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Agricultural commodity price forecasts are from USDA, World Agricultural Supply and Demand Estimates report, October 2007. Energy prices are from
  Energy Information Administration, Short Term Energy Outlook, October 9, 2007.
2 Average price for August 2007.
F=forecast.



 Thank you, Dr. Collins, for that testimony. Dr. Gruenspecht.STATEMENT 
                  OF HOWARD GRUENSPECHT, Ph.D., DEPUTY
                 ADMINISTRATOR, U.S. ENERGY INFORMATION
               ADMINISTRATION, U.S. DEPARTMENT OF ENERGY,
                            WASHINGTON, D.C.

    Dr. Gruenspecht. Mr. Chairman, Mr. Goodlatte, Members of the 
Committee I appreciate the opportunity to appear before you today. The 
Energy Information Administration is the independent statistical and 
analytical agency within the Department of Energy. We do not promote, 
formulate, or take positions on policy issues, and our views should not 
be construed as representing those of the Department of Energy or the 
Administration.
    Agriculture is a major energy user. It also plays a very 
significant current role as an energy supplier, as exemplified by the 
rapid growth in the use of ethanol as an older fuel and will likely 
play an even larger future role. Starting with our outlook through the 
end of 2008, the current world oil market is characterized by rising 
consumption, moderate supply growth outside of the Organization of 
Petroleum Exporting Countries, falling inventories, and rising demand 
for OPEC oil--all of which have contributed to high oil prices. While 
EIA expects some easing in crude oil prices by winter's end, the 
expectation of continued consumption growth at recent levels suggest 
that tight global oil market conditions will likely persist for 2008. 
Specifically, we expect monthly average prices to remain above $70 per 
barrel through the end of 2008.
    Turning to distillate fuels, retail diesel prices in 2008 are 
projected to average nearly $3 per gallon, up about 20 cents from their 
2007 level. This winter, heating oil is expected to be about 40 cents 
per gallon higher than last winter. These projected increases are 
consistent with higher crude oil prices and projections of lower 
distillate fuel inventories than last year going into the heating 
season. There have also been some regional supply issues in the Upper 
Midwest.
    Turning to ethanol, EIA projects continued market growth. In July 
2007, ethanol provided about 4\1/2\ percent of 2007 average daily 
gasoline consumption volume, or about three percent of the energy 
consumed by gasoline-fueled vehicles, taking account of the difference 
in BTU per gallon between ethanol and gasoline. Ethanol plants operated 
at or near their designed capacity through mid-July. However, based 
upon plants currently under construction, ethanol production capacity 
is expected to increase substantially over the next 15 months. That 
increase has really already begun. Actual ethanol production is also 
expected to increase but at a slower rate than capacity, reaching a 
projected average level of 8.7 billion gallons per year in December 
2008. As discussed in my written testimony, the projected slowdown in 
ethanol demand growth reflects the existence of several distinct 
segments in the fuel ethanol market, each with a different sensitivity 
to market price and infrastructure limitations.
    Before shifting to a long-term perspective, I should note that any 
projections are necessarily very uncertain since long-term energy 
supply and demand trends are affected by many factors that are 
difficult to predict, such as energy prices, economic growth, advances 
in technology, changes in weather patterns, and future public policy 
decisions. The EIA 2007 Annual Energy Outlook reference case released 
last December projects increased consumption of biofuels and other non-
hydro renewable energy sources between now and 2030. The growing use of 
alternative fuels reflects both the higher prices projected for 
traditional fuels and the support for alternative fuels provided in 
recently enacted Federal legislation. Ethanol use in our reference case 
grows to 11.2 billion gallons in 2012 and to 14.6 billion gallons in 
2030. Domestically grown corn is expected to be a primary ethanol 
source accounting for 13.6 billion gallons of ethanol production in 
2030. The reference case that I just discussed assumes that current 
laws and policies continue indefinitely. Other recent EIA analyses 
suggest that various policy proposals, including caps on greenhouse gas 
emissions, an increased renewable fuel standard, or a renewable 
portfolio standard for electricity sellers, could significantly 
increase reliance on biomass as an energy source. Agricultural products 
and residues, as well as dedicated energy crops, are key parts of the 
overall biomass supply.
    The two main concerns that appear to motivate many recent energy 
policy proposals are energy security, reliance on oil imports, and 
reduction of greenhouse gas emissions. EIA's recent policy analyses 
suggest there are both synergies and conflicts between these 
objectives. For example, improvements in vehicle efficiency and other 
end-use efficiency would tend to advance both objectives, while the 
adoption of coal-to-liquids conversion without carbon capture and 
sequestration would reduce our dependence on oil imports but would tend 
to increase greenhouse gas emissions.
    The situation with respect to agriculture and biomass is 
particularly complex. A policy focused on reducing oil imports would 
likely emphasize the use of biofuels to reduce reliance on imported 
petroleum. Such a policy would also serve to reduce greenhouse gas 
emissions. However, if greenhouse gas emissions were the primary policy 
focus biomass could alternatively be used as a substitute for coal-
fired electricity generation to provide significantly larger emission 
reductions. While biomass from agriculture and other sources has an 
important role to play in either case, the way in which biomass can 
best be deployed will depend on how the objectives of reduced reliance 
on imported oil and emissions reduction are prioritized. This concludes 
my statement. Mr. Chairman, I would be happy to answer any questions 
you or the other Members might have. Thank you.
    [The prepared statement of Dr. Gruenspecht follows:]

Prepared Statement of Howard Gruenspecht, Ph.D., Deputy Administrator, 
  U.S. Energy Information Administration, U.S. Department of Energy, 
                            Washington, D.C.
    Mr. Chairman and Members of the Committee, I appreciate the 
opportunity to appear before you today to discuss developments in 
energy markets and their possible implications for agriculture.
    The Energy Information Administration (EIA) is the independent 
statistical and analytical agency within the Department of Energy. We 
do not promote, formulate, or take positions on policy issues, but we 
do produce objective, timely, and relevant data, projections, and 
analyses that are meant to assist policymakers, help markets function 
efficiently, and inform the public. Our views are strictly those of EIA 
and should not be construed as representing those of the Department of 
Energy or the Administration.
Energy Use in Farming and Farming-Related Sectors
    Agriculture is a major user of energy. For 2006, EIA estimates that 
energy use on farms totaled about 910 trillion British thermal units 
(Btu) or almost one percent of total U.S. energy consumption of 99.5 
quadrillion Btu. The components of farm energy consumption are as 
follows: diesel accounts for 51 percent of total use, motor gasoline 
accounts for 16 percent, natural gas accounts for nine percent, 
liquefied petroleum gas (LPG or propane) accounts for nine percent, 
electricity accounts for 13 percent, and other fuels account for two 
percent. In addition to direct farm use of energy, agriculture is 
indirectly affected by energy requirements in the fertilizer industry, 
specifically in nitrogenous fertilizers. In 2002, the energy 
requirements of this industry, in terms of thermal content, were about 
500 trillion Btu, of which 97.5 percent (471 billion cubic feet) was 
natural gas and virtually all of the remainder (3.5 billion 
kilowatthours) was electricity. Domestic nitrogenous fertilizer 
production, however, fell by 20 percent from 2002 to 2006. 
Consequently, energy inputs are likely to have fallen a similar amount.
    Based on energy use on farms and in closely-related sectors, every 
dime added to the price of gasoline and diesel oil, sustained over a 
year, costs U.S. agriculture $400 million annually. Every dollar added 
to the price per thousand cubic feet of natural gas costs agriculture 
over $75 million annually in direct expense. Every penny increase in 
the price per kilowatt-hour of purchased electricity costs agriculture 
about $343 million annually in direct expense. The farm sector would 
probably also incur increased nitrogenous fertilizer costs as the 
higher prices incurred by the fertilizer industry are passed through to 
end-users.
Agriculture as an Energy Supply Source
    Testimony on the interaction between energy markets and agriculture 
would once have focused exclusively on agriculture's demand for energy. 
Today, however, the recent increase in the use of ethanol in motor 
fuels has focused attention to agriculture's current and potential role 
as an energy supplier. Ethanol use in motor fuels has grown from 1.7 
billion gallons per year (bgy) in 2001 to an estimated 6.9 bgy in 2007. 
This growth has had a substantial impact on corn demand, commodity and 
land prices, and planting decisions. However, notwithstanding its 
recent growth, ethanol still accounts for a relatively small share of 
overall fuel use by gasoline-powered vehicles, which is projected at 
about 140 billion gallons in 2007.
     While ethanol from grain is by far the most important current 
energy supply activity in agriculture, other energy supply 
opportunities are also receiving increasing attention. Production of 
biodiesel fuel from oilseed crops has grown substantially in recent 
years, supported by Federal incentives. Farm wastes are increasingly 
being recognized as an energy resource, and their development is being 
promoted by Federal incentives and renewable energy portfolio mandates 
in many states. Farm operators are also benefiting from the growth of 
wind power, which is providing extra income from leases and royalties 
to farm operators in areas with attractive wind resources.
    The forward-looking sections of this testimony, which follow, offer 
EIA's perspective on the future for ethanol and other energy supply 
opportunities in agriculture.
Short-Term Energy Outlook
    Turning first to the outlook through the end of 2008, I will be 
relying on EIA's Short-Term Energy Outlook, which is updated each 
month. The October edition, which was released last week, also includes 
our annual Winter Fuels Outlook.
    Global Oil Markets. The current world oil market is characterized 
by rising consumption, moderate supply growth in the non-Organization 
of Petroleum Exporting Countries (OPEC), falling inventories, and 
rising demand for OPEC oil. However, the combination of OPEC's recent 
announcement of increased supply and lower seasonal crude demand in the 
United States over the next 2 months points to crude oil prices easing 
slightly over the winter. Although some OPEC members, including Angola 
and Saudi Arabia, are expected to raise production capacity next year, 
spare capacity levels are expected to remain fairly low once demand 
growth is considered. As a result, if consumption growth continues at 
recent levels, as expected, tight global oil market conditions will 
likely persist through 2008. Continued low surplus production capacity, 
weak petroleum inventories, and strong demand worldwide have all 
contributed to recent high crude oil prices.
    Crude Oil Prices. While crude oil prices are projected to decline 
from their recent peak above $80 per barrel, monthly average prices are 
expected to remain above $70 per barrel through the end of 2008. The 
main reason for the year-over-year increase is the tight world oil 
supply and demand balance. West Texas Intermediate (WTI) crude oil 
prices are projected to average over $73 per barrel in 2008, up from a 
projected average of under $69 per barrel in 2007. Assuming continued 
tight global supplies, slower U.S. economic growth of 1.9 percent 
projected for both 2007 and 2008 (compared to 2.9 percent in 2006) may 
be a mitigating factor for even higher crude prices.
    Diesel Fuel and Heating Oil Prices. Turing to distillate fuels, 
retail diesel fuel prices in 2008 are projected to average $2.96 per 
gallon, up from a projected $2.82 per gallon in 2007, while residential 
heating oil prices are projected to average $2.88 per gallon during the 
2007-2008 winter season compared to $2.48 per gallon last winter. The 
projected increase is consistent with higher crude oil prices and 
projections of lower distillate fuel inventories than last year going 
into the heating season. As of September 30, the start of the winter 
fuel season, distillate fuel inventories were an estimated 136 million 
barrels, down 13 million barrels from the previous year, but close to 
the average of the last 5 years. Total distillate inventories at the 
end of March 2008 are expected to be 115 million barrels, down 4.5 
million barrels from March 2007 but still within the normal range. 
However, if refiners produce more gasoline than expected over the next 
few months to rebuild gasoline inventories, this could result in lower 
distillate supplies.
    Natural Gas Production, Inventories, and Prices. Total U.S. 
marketed natural gas production is expected to rise by 1.3 percent in 
2007 and by 0.9 percent in 2008. Working gas inventories by the 
beginning of November are projected to reach 3,444 billion cubic feet, 
slightly below the all-time high for natural gas storage inventories 
recorded at the end of November 1990.
    The Henry Hub spot price averaged $6.26 per thousand cubic feet 
(mcf) in September, which marked the fourth consecutive decline in the 
monthly average spot price since May. On an annual basis, the Henry Hub 
spot price is expected to average about $7.21 per mcf in 2007 and $7.86 
per mcf in 2008.
    Propane. Spot propane prices are strongly influenced by both crude 
oil and natural gas prices. Retail propane prices are projected to 
average $2.13 per gallon in 2007 and $2.20 per gallon in 2008. With 
current inventories well below year-ago levels, however, propane 
markets are likely to remain relatively tight this winter, with the 
potential for additional upward pressure on residential propane prices 
if the U.S. experiences severe weather. As of September 30, U.S. 
inventories of propane were an estimated 59.3 million barrels, 7 
million barrels below the average over the last 5 years. These 
inventories are expected to recover as higher prices draw in imports, 
ending the winter season at 27.7 million barrels--near the average over 
the last 5 years.
    Ethanol. EIA projects that the market for ethanol will continue to 
grow. In July 2007, the ethanol industry produced an average of 421,000 
barrels per day, providing about 4.5 percent of 2007 average daily 
gasoline consumption volume, or about three percent of the energy 
consumed by gasoline-fueled vehicles. Ethanol plants operated at or 
near their design capacity limit during this period.
    Based on plants currently under construction, ethanol production 
capacity is expected to increase substantially over the next 15 months. 
Actual ethanol production is also projected to increase, but at a 
slower rate than capacity, reaching a projected average level of 
570,000 barrels per day (8.7 billion gallons per year) in December 
2008. The projected average monthly increase in ethanol production over 
the period from August 2007 through December 2008 is 8,700 barrels per 
day per month, compared with an average increase of 9,300 barrels per 
day per month over the first 7 months of 2007.
    The projected slowdown in ethanol demand growth reflects the 
existence of several distinct segments in the fuel ethanol market, each 
with a different sensitivity to market price and infrastructure 
limitations. The reformulated gasoline market, which is subject to the 
strictest environmental limits, is the least price-sensitive market 
segment for ethanol. Demand for ethanol in this type of gasoline, where 
it is used in blends of six to 10 percent, increased significantly with 
the phase-out of methyl tertiary butyl ether (MTBE), which was 
completed in 2006. Since that time, virtually all reformulated gasoline 
has been blended using ethanol.
    The next most attractive market segment for ethanol is as a volume 
extender for conventional gasoline in blends of 10 percent. Current and 
projected high oil prices, the availability of a 51 cents-per-gallon 
blenders' tax credit through 2010, and the ``consumer illusion'' that 
leads choices between gasoline blended with and without low percentages 
of ethanol to be made purely on the basis of their price per gallon 
without consideration of the lower miles-per-gallon using fuel 
incorporating ethanol, all support the use of ethanol as a volume 
extender in excess of requirements of the currently enacted Renewable 
Fuel Standard (RFS). While the current level of 140 billion gallons per 
year in national sales for all types of gasoline could, in theory, 
accommodate roughly 14 billion gallons of ethanol in blends of 10 
percent or less, many regions currently lack the transportation and 
blending infrastructure to use ethanol. EIA's projection of ethanol 
demand in 2008 reflects this limitation.
    The final market segment for ethanol is use in high-percentage 
blends such as E85. Currently, high-percentage blends account for well 
under one percent of the overall U.S. market for fuel ethanol. Expanded 
use of high-percentage blends is necessary if total ethanol use is to 
grow beyond the level of 12 to 15 billion gallons per year that would 
saturate the market for low-percentage blends. Based on the Brazilian 
experience, consumers would generally expect high-percentage ethanol 
blends to be price-competitive with petroleum-based alternatives on an 
energy-content basis.
    One implication of the slower rise in ethanol production rates 
relative to capacity is that the average capacity utilization factor 
for ethanol producers is likely to decline substantially in 2008. 
Although farmers should continue to benefit from increasing corn 
demand, the availability of underutilized ethanol production capacity 
will tend to put downward pressure on the margin earned by ethanol 
producers over their variable production cost.
Energy Trends to 2030
    Turning now to the longer-term outlook, I will be relying on EIA's 
Annual Energy Outlook 2007 (AEO2007) and on several recent EIA analyses 
of energy and environmental policy proposals that could have a 
significant impact on agriculture's role as an energy supply source.
    Overview. Longer-term trends in energy supply and demand are 
affected by many factors that are difficult to predict, such as energy 
prices, U.S. economic growth, advances in technologies, changes in 
weather patterns, and future public policy decisions. It is clear, 
however, that energy markets are changing gradually in response to such 
readily observable factors as the higher energy prices that have been 
experienced since 2000; the greater influence of developing countries 
on worldwide energy requirements; recently enacted legislation and 
regulations in the United States; and changing public perceptions of 
issues related to the use of alternative fuels, emissions of air 
pollutants and greenhouse gases, and the acceptability of various 
energy technologies.
    The AEO2007 reference case projects increased consumption of 
biofuels (both ethanol and biodiesel) and other non-hydroelectric 
renewable energy sources, some growth in nuclear power capacity and 
generation, and accelerated improvements in energy efficiency 
throughout the economy. The growth in biofuels and other non-
hydroelectric renewable energy consumption roughly offsets the 
projected decline in the share of total primary energy supplied by 
nuclear power and hydroelectricity between 2005 and 2030. Therefore, 
oil, coal, and natural gas still are projected to provide roughly the 
same 86 percent share of the total U.S. primary energy supply in 2030 
that they did in 2005, assuming no changes in existing laws and 
regulations.
    Alternative Fuel Use. The use of alternative fuels, such as 
ethanol, biodiesel, and coal-to-liquids (CTL), is projected to increase 
substantially in the reference case as a result of the higher prices 
projected for traditional fuels and the support for alternative fuels 
provided in recently enacted Federal legislation. Ethanol use grows in 
the AEO2007 reference case from 4 billion gallons in 2005 to 11.2 
billion gallons in 2012--exceeding the required 7.5 billion gallons in 
the RFS that was enacted as part of the Energy Policy Act of 2005 
(EPAct2005)--and to 14.6 billion gallons in 2030 (about eight percent 
of total gasoline consumption by volume). Ethanol use for gasoline 
blending grows to 14.4 billion gallons and E85 consumption to 0.2 
billion gallons in 2030. Domestically-grown corn is expected to be the 
primary ethanol source, accounting for 13.6 billion gallons of ethanol 
production in 2030. Consumption of biodiesel, also supported by tax 
credits in EPAct2005, reaches 0.4 billion gallons in 2030.
    Renewable Fuel Consumption and Supply. Total consumption of 
marketed renewable fuels in the AEO2007 reference case (including 
ethanol for gasoline blending, of which 1.2 quadrillion Btu in 2030 is 
included with liquid fuels consumption) is projected to grow from 6.2 
quadrillion Btu in 2005 to 9.9 quadrillion Btu in 2030. The robust 
growth is a result of state renewable portfolio standard programs, 
mandates, and goals for renewable electricity generation; technological 
advances; high petroleum and natural gas prices; and Federal tax 
credits, including those in EPAct2005.
The Potential Impact of Possible Future Policies on Energy Supply From 
        Agriculture
    As previously noted, the Annual Energy Outlook reference case 
assumes that current laws and policies continue indefinitely. Other 
recent EIA analyses suggest that various policy proposals, including 
caps on greenhouse gas emissions, an increased renewable fuel standard, 
or a renewable portfolio standard for electricity sellers, could 
significantly increase reliance on biomass as an energy source. 
Agricultural products and residues, as well as dedicated energy crops, 
are a key part of the overall supply of biomass in some of our recent 
policy cases.
    The two main concerns that appear to motivate many recent policy 
proposals are energy security and reduction of greenhouse gas 
emissions. Our recent policy analyses suggest that there are both 
synergies and conflicts between these objectives. For example, 
improvements in vehicle efficiency would advance both objectives. In 
contrast, the adoption of coal-to-liquids conversion without carbon 
capture and sequestration would advance energy security while 
increasing emissions.
    The situation with respect to agriculture and biomass is 
particularly complex. A policy focused on energy security would likely 
emphasize the use of biofuels to reduce our reliance on imported 
petroleum. Such a policy also would serve to reduce greenhouse gas 
emissions. However, if greenhouse gas emissions were the primary policy 
focus, biomass could be used as a substitute for coal-fired electricity 
generation to provide significantly larger emissions reductions. While 
biomass from agriculture and other sources has an important role to 
play in either case, the way in which biomass can best be deployed will 
depend on how the objectives of energy security and emissions reduction 
are prioritized.
    This concludes my statement, Mr. Chairman, and I will be happy to 
answer any questions you and the other Members may have.

    The Chairman. Thank you, sir. Dr. Westhoff.

         STATEMENT OF PATRICK WESTHOFF, Ph.D., RESEARCH
          ASSOCIATE PROFESSOR AND PROGRAM CO-DIRECTOR,
  DEPARTMENT OF AGRICULTURAL ECONOMICS, FOOD AND AGRICULTURAL 
 POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI--COLUMBIA, 
                          COLUMBIA, MO

    Dr. Westhoff. Mr. Chairman and other Members of the 
Committee, thank you for the opportunity to talk with you today 
about some of the major changes in the agriculture economy. My 
name is Pat Westhoff. I am a Research Associate Professor at 
the University of Missouri and a Program Director with the Food 
and Agricultural Policy Research Institute, FAPRI. FAPRI is a 
joint institute at the University of Missouri and Iowa State 
University. For the past 20 years, we have received Federal 
funding to provide objective analysis of agricultural markets 
and policies. We have enjoyed the opportunity to work with you 
and Committee staff in looking at issues related to the 2007 
Farm Bill debate, biofuel policies, international trade 
negotiations, and more. Each year, FAPRI prepares a 10 year 
baseline outlook for the agricultural economy. We are just 
starting the process for the 2008 baseline at this point. In 
2006, our outlook showed average corn prices that increased 
slowly over time, but remained below $2.50 per bushel through 
2015. In the 2007 outlook, our average baseline corn price 
never dropped below $3.00 per bushel.
    So what is going on? Why do we keep changing our mind about 
the outlook? The obvious answer is biofuels. In 2006, we 
expected biofuel production to increase, but the actual pace of 
expansion has been much more rapid than we anticipated. Using 
more corn to produce ethanol puts upward pressure on corn 
prices. Higher corn prices encourage producers to shift the 
acreage away from other crops to satisfy the growing demand for 
corn. Higher U.S. prices also encourage crop producers in South 
America and elsewhere to expand production. Livestock producers 
face higher feed costs. This is a now familiar story. Many have 
said and our projections suggest that we are experiencing a 
major structural shift in the agricultural economy. We expect 
that average grain and oilseed prices will consistently be 
higher over the next 10 years than they were over the last 
decade.
    The basic outlines of this story remain believable. 
However, events of recent months remind us that we still have a 
lot to learn about biofuel markets and about how they interact 
with agricultural markets. Furthermore, we have been reminded 
that factors unrelated to biofuels continue to have major 
impacts on the farm economy. Ethanol prices that exceeded $3.00 
per gallon in the summer of 2006 have now dropped well below 
$2.00 per gallon. These lower ethanol prices have squeezed 
ethanol plant profit margins. By our estimate, net returns over 
operating costs averaged $1.56 per gallon for the 2005/06 corn 
mark in a year and 95 cents per gallon in 2006/07. With those 
kinds of returns, a plant built in 2005 could be fully paid for 
today. Current futures, in contrast, suggest a return over 
operating costs of just a few cents per gallon, and that is 
before considering capital costs. As a result, the future of 
the ethanol industry is now much less certain than it seemed 
just a few months ago.
    So what does this all mean for the agricultural sector? 
First, there has been a fundamental shift in the demand for 
agricultural products. Increased demand for corn and soybean 
oil translates into higher prices for corn, soybeans, and other 
farm products. Second, energy markets and agricultural markets 
are becoming increasingly intertwined. This does not mean that 
every time the price of petroleum changes by a dollar the price 
of corn will change proportionally on the same day. It does 
mean that it is unlikely that grain and petroleum prices will 
move in opposite directions for extended periods of time. 
Third, biofuel subsidies matter. The FAPRI outlook assumes an 
indefinite extension of the 51 cents per gallon tax credit, the 
ethanol tariff, and the tax credit for biodiesel. Earlier this 
year we estimated that letting those subsidies expire would 
reduce average corn prices by 30 cents per bushel. And, 
finally, biofuel use mandates can matter as well. Suppose there 
is a drought that severely limits corn supplies. Without a 
binding mandate, corn prices would rise until ethanol 
production becomes unprofitable. Plants would close and the 
reduction in corn use would moderate the increase in corn 
prices. Suppose instead that there is a binding mandate that 
requires blenders to continue to use biofuels regardless of the 
price. Ethanol production would continue in spite of high corn 
prices, forcing greater reductions in feed use, exports, and 
other uses of corn.
    Biofuels are extremely important to U.S. agriculture, but 
the last few months have demonstrated the importance of several 
other factors affecting agricultural markets. I would draw your 
attention to my written statement for a discussion of factors 
ranging from global economic growth and exchange rates to 
weather and policy.
    In conclusion, FAPRI's projections suggest that average 
prices for many ag products are likely to remain above the 
average levels that have prevailed prior to 2006. It would be 
premature to conclude that we are in a new world and there is 
no chance that we will ever see $2.00 per bushel corn again. I 
remind you of the experience of the mid-1990s where we thought 
we were in a new plateau and things changed unexpectedly and we 
were back down to lower prices once again. One thing I have 
learned in 20 years of making agricultural market projections 
is that someone in this business either needs a lot of humility 
or a very short memory. We do not have a crystal ball, but we 
believe that our annual baseline outlook provides a reasonable 
and useful snapshot of the agricultural economy under a 
particular set of assumptions. The baseline outlook then serves 
as a point of comparison for other analyses, such as work we 
have done at the request of this Committee to examine farm bill 
options. Thank you again for this opportunity. I would be happy 
to answer any questions.
    [The prepared statement of Dr. Westhoff follows:]

   Prepared Statement of Patrick Westhoff, Ph.D., Research Associate
     Professor and Program Co-Director, Department of Agricultural
Economics, Food and Agricultural Policy Research Institute, University 
                  of Missouri--Columbia, Columbia, MO
    Mr. Chairman and other Members of the Committee:

    Thank you for the opportunity to talk with you today about some of 
the major changes in the agricultural economy.
    My name is Patrick Westhoff. I am a Research Associate Professor in 
the Department of Agricultural Economics at the University of 
Missouri--Columbia and a Program Director at the Food and Agricultural 
Policy Research Institute.
    FAPRI is a joint institute of the University of Missouri--Columbia 
and Iowa State University. For the past 20 years, we have received 
Federal funding to provide objective analysis of agricultural markets 
and policies. We have enjoyed the opportunity to work with you and 
Committee staff in looking at issues related to the 2007 Farm Bill 
debate, biofuel policies, and international trade negotiations.
    Each year, FAPRI prepares a 10 year baseline outlook for the 
agricultural economy. The outlook we prepared for release in February 
2007 looked a lot different than the one we issued a year earlier:

   In 2006, our outlook showed average corn prices that 
        increased slowly over time, but remained below $2.50 per bushel 
        through 2015. In the 2007 outlook, our average baseline corn 
        prices never drop below $3.00 per bushel.

   Our projected prices for soybeans, wheat, and many other 
        products also were much higher in the 2007 baseline than in the 
        one prepared a year earlier.

   In the 2006 baseline, projected farm program outlays by the 
        Commodity Credit Corporation exceeded $14 billion in every year 
        through Fiscal Year 2012. In the 2007 baseline, CCC spending is 
        always below $12 billion per year.

    We are just now beginning the process that will lead to the FAPRI 
2008 baseline outlook for the farm economy. I suspect that baseline 
will also show major changes from the 2007 projections.
    What's going on? Why do we keep changing our mind about the 
outlook?
Biofuels and U.S. Agriculture
    The obvious answer is biofuels. In 2006, we expected biofuel 
production to increase, but the actual pace of expansion has been much 
more rapid than we anticipated. The combination of high petroleum 
prices and supportive policies has encouraged massive new investment in 
ethanol and biodiesel production capacity.
    All those new ethanol plants could use a lot of corn. The 2006 
outlook called for almost three billion bushels of corn to be used to 
produce ethanol by 2015. In the February 2007 outlook, we said four 
billion bushels by 2009.
    Using more corn to produce ethanol puts upward pressure on corn 
prices. Higher corn prices encourage producers to shift acreage away 
from other crops to satisfy the growing demand for corn. The resulting 
reduction in supplies of soybeans, wheat, cotton and other crops 
results in higher prices for those commodities.
    Higher U.S. prices also encourage crop producers in South America 
and elsewhere to expand production. Livestock producers around the 
world face higher feed costs. These higher costs slow the rate of 
expansion of livestock production and eventually raise the price of 
meat and dairy products.
    This is a now-familiar story. Many have said and our projections 
suggest that we are experiencing a major structural shift in the 
agricultural economy. We expect that average grain and oilseed prices 
will be consistently higher over the next 10 years than they were over 
the last 10 years.
    The basic outlines of this story remain believable. However, events 
of recent months remind us that we still have a lot to learn about 
biofuel markets and the impacts of biofuels on agricultural markets. 
Furthermore, we've been reminded that factors unrelated to biofuels 
continue to have major impacts on the farm economy.
    Ethanol prices that exceeded $3.00 per gallon in the summer of 2006 
have dropped below $2.00 per gallon. On October 11, ethanol futures 
traded on the Chicago Board of Trade closed at or below $1.60 per 
gallon for all 2007 and 2008 contracts.
    This drop in ethanol prices has occurred in spite of petroleum 
prices around $80 per barrel this fall and NYMEX futures prices that 
remain above $70 per barrel as far as the eye can see. Earlier this 
year most of us would have thought that $80 petroleum should imply 
ethanol prices well above $1.60 per gallon.
    These lower ethanol prices have squeezed ethanol plant profit 
margins. By our estimate, net returns over operating costs averaged 
$1.56 per gallon in 2005/06 and $0.95 per gallon in 2006/07. With those 
kinds of returns, a plant built in 2005 could be fully paid for today. 
Current futures, in contrast, suggest a return over operating costs of 
just a few cents per gallon, and that's before considering capital 
costs.
    As a result, the future of the ethanol industry is now much less 
certain than it seemed just a few months ago. We expect plants under 
construction to be completed. However, it is less certain whether they 
will all operate at full capacity, and the pace of new investment seems 
sure to slow dramatically.
    Similarly, profit margins to biodiesel producers have been 
declining sharply in recent months. In contrast to ethanol, however, 
the change is primarily caused by rising feedstock costs for vegetable 
oil, rather than declining prices for biodiesel. We currently expect 
vegetable oil prices to remain high by historical standards, which 
could slow or even stop expansion of the industry.
    In the long run, we expect ethanol to sell for roughly its value as 
a fuel. That would be a much lower price than ethanol sold for in 2006, 
but higher than it is trading for today. In our August 2007 baseline 
update, we projected a 2012 ethanol price (FOB Omaha) of $1.72 per 
gallon, compared to a petroleum price (West Texas Intermediate) of $69 
per barrel.
    Those projections, of course, are based on a long series of 
assumptions, some of which will certainly prove to be wrong. To take 
the most obvious example, the price of petroleum could be much lower or 
higher than $69 per barrel.
    Analysis we conducted earlier this year showed that the ethanol 
industry and agricultural markets look very different at low petroleum 
prices than at high petroleum prices. For example, we estimated that 
2015 ethanol production under current policies could be less than 8 
billion gallons if the refiners' acquisition price for petroleum falls 
to $30 per barrel or over 20 billion gallons if the oil price 
consistently exceeds $80 per barrel.
    What does all this mean for the agricultural sector?

    1. First, there has been a fundamental shift in the demand for 
        agricultural products. Increased demand for corn and soybean 
        oil translates into higher prices for corn, soybeans, and other 
        farm products. Most affected are commodities that are close 
        substitutes for corn and soybeans in supply or demand; less 
        affected are fruits and vegetables.

    2. Second, energy markets and agricultural markets are becoming 
        increasingly intertwined. This does not mean that every time 
        the price of petroleum changes by a dollar the price of corn 
        will change proportionally on the same day. It does mean that 
        it is unlikely that grain and petroleum markets will move in 
        opposite directions for extended periods of time. If corn 
        prices are low, relative to petroleum prices for a long time, 
        more ethanol plants will be built and that will drive up prices 
        for corn and other crops. If corn prices are high enough 
        relative to petroleum prices, ethanol production becomes 
        unprofitable, moderating corn demand.

    3. Third, biofuel subsidies matter. The FAPRI outlook assumes an 
        indefinite extension of the $0.51 per gallon ethanol tax 
        credit, the $0.54 per gallon ethanol tariff, and the $1.00 per 
        gallon tax credit for biodiesel made from virgin vegetable oil. 
        If those subsidies are reduced or allowed to expire, the result 
        will be less biofuel production and lower prices for corn, 
        soybean oil, and other farm commodities. For example, earlier 
        this year we estimated that letting those subsidies expire 
        would reduce average corn prices by $0.30 per bushel.

    4. And, finally, biofuel use mandates can matter, too. Biofuel use 
        in 2012 is likely to far exceed the 7.5 billion gallons 
        mandated by the 2005 energy bill. If the mandate is set at a 
        high enough level, it could be important. For example, suppose 
        there is a drought that severely limits corn supplies. Without 
        a binding mandate, corn prices would rise until ethanol 
        production becomes unprofitable. Plants would close and the 
        reduction in corn use would moderate the increase in corn 
        prices. Suppose instead that there is a binding mandate that 
        requires blenders to continue to use biofuels regardless of the 
        price. Ethanol production would continue in spite of high corn 
        prices, forcing greater reductions in feed use, exports, and 
        other uses of corn.
Other Factors Driving Agricultural Markets
    Biofuels are extremely important to U.S. agriculture, but the last 
few months have demonstrated the importance of several other factors 
affecting agricultural markets.
Global Economic Growth
    Milk prices have increased dramatically in 2007. Higher feed prices 
caused by ethanol production and weather conditions are only a small 
part of the story. More important has been strong global demand for 
dairy products, led by consumers in Asia. Rising incomes have 
contributed to the sharp increase in demand for dairy products and many 
other commodities as well.
Exchange Rates
    The weakness of the U.S. dollar has had mixed effects on the U.S. 
economy as a whole, but it has been beneficial for most U.S. 
agricultural producers. By making U.S. goods less expensive when prices 
are expressed in foreign currency, the weaker dollar encourages foreign 
consumption of U.S. products and discourages competing exporters. While 
prices of grains and oilseeds have increased around the world, the 
increases are much larger when measured in U.S. dollars than when 
measured in Canadian dollars or Brazilian reais. This is one of the 
reasons why the foreign supply response to high commodity prices has 
not been as great as one would normally expect.
Population Growth
    The world's population continues to grow, but at a declining rate. 
In general, this means population will decline in importance as a 
driver of increases in food demand. However, population growth rates 
remain high in Africa, a major export destination for commodities like 
wheat and rice.
Technology
    When we develop the FAPRI outlook, we assume that the average rate 
of growth in crop yields and other productivity indicators will 
generally be in line with past trends. Usually that is a reasonable 
assumption, but not always. Current high prices for many commodities 
provide an incentive to producers to increase input usage and make them 
more willing to pay for new technologies. Growth in demand has made it 
hard for crop supplies to keep up with demand in 2007, but that may not 
always be true. If the pace of yield growth increases in the years 
ahead, commodity prices could fall even if demand continues to grow.
Weather
    As important as biofuels and other developments are, the main 
factor driving crop prices in any given year is the weather. This is 
seen most clearly in the case of wheat, where poor weather has reduced 
2007 yields in Europe, Australia, and North America. Because consumer 
demand for wheat is not very responsive to price changes and global 
stocks were at the lowest level in decades, reduced supplies have 
resulted in remarkably high global wheat prices. Drought in Australia 
has also limited the ability of that country's producers to respond to 
current high dairy prices.
Supply Response
    That producers around the world respond to changes in market 
conditions is hardly new. However, it is worth noting just how strong 
the U.S. producer response was in 2007 to price incentives. At planting 
time, corn prices were very high relative to prices for soybeans and 
other crops. U.S. producers responded by expanding corn area planted by 
15 million acres, with most of that increase accounted for by reduced 
production of soybeans, cotton, rice, and other crops. At least for 
now, it appears that relative prices at planting time in 2008 will be 
very different than they were in 2007. The result is likely to be 
increased U.S. and world acreage devoted to wheat and soybeans, and 
corn acreage may actually decline.
Policy
    Current high commodity prices make many U.S. Government programs 
less important to producers and to market outcomes than would have been 
true just a few years ago. The outcome of the farm bill debate, of 
course, could have important implications for producers, as could the 
outcome (if any) of the Doha Development Agenda negotiations. In other 
countries governments have adjusted policies in response to high 
commodity prices. For example, the European Union is suspending land 
set-aside programs and China is limiting growth in biofuel use of 
grain.
Land Markets
    The value of agricultural land depends on a wide range of factors. 
To a large extent, recent increases in land prices and rental rates are 
a function of the expected profitability of agricultural production. In 
that sense, land prices and rental rates are a result of developments 
in the agricultural economy, including agricultural policies. However, 
it is also true that land prices are strongly affected by a wide range 
of factors largely external to the sector, ranging from interest rates 
to the housing market to tax policies. How important these various 
factors are in determining land values varies greatly across the 
country.
Other Commodity-Specific Concerns
Livestock
    Livestock, dairy, and poultry producers are paying much more for 
feed now than they were in mid 2006. For the animal agriculture sector 
as a whole, however, the increase in feed costs in 2007 relative to 
2006 is much less than the increase in cash receipts. Prices for milk, 
poultry, and beef have all been substantially higher than generally 
anticipated earlier this year, largely because demand has been stronger 
than expected for many products. Part of the strength in demand can be 
explained by income and population growth, but some is also due to 
other factors. Recent declines in hog prices are a reminder that feed 
market changes have not eliminated livestock cycles. Looking forward, 
we expect producers to continue to respond to changes in returns. For 
example, current high milk prices are likely to cause a supply response 
here and around the world that will lead to lower prices.
Cotton
    The domestic cotton milling industry has been in decline for the 
last 10 years and there are few prospects for a reversal. As a result, 
domestic cotton producers have been increasingly dependent on export 
markets--exports now account for about \3/4\ of U.S. cotton use. 
Reduced purchases by China and other factors caused a sharp reduction 
in U.S. cotton exports in 2006/07, resulting in large carryover stocks. 
The combination of low cotton prices, high production costs, and 
competition from high corn prices resulted in a sharp reduction in 2007 
cotton area and production. In the long run, global growth in demand 
for cotton will determine the size and shape of the U.S. cotton 
industry.
Concluding Comments
    Prices for grains, oilseeds and many other agricultural products 
are above their historical average levels. Growing biofuel production 
is much of the reason, but the weather and a variety of other factors 
also play important roles.
    FAPRI's projections suggest that average prices for many 
agricultural products are likely to remain above the average levels 
that prevailed prior to 2006. But, it would be premature to conclude 
that we are in a new world and that there is no chance that we will 
ever see $2.00 per bushel corn again.
    The last time the ``conventional wisdom'' said we were on a new 
higher price plateau was the mid-1990s. Demand from China and the rest 
of developing Asia was expected to cause a permanent upward shift in 
commodity prices. Then the Chinese unexpectedly reduced grain imports 
and a financial crisis caused a sharp reduction in import demand in 
other Asian countries. Grain and other agricultural commodity prices 
fell sharply.
    There are sound reasons to expect agricultural commodity prices to 
remain relatively strong over the next decade. Indeed, one can easily 
tell stories where FAPRI's current price projections are too 
conservative. However, many things could lead to prices falling again. 
Petroleum prices could decline from current levels, domestic and 
foreign crop supplies could grow more rapidly, or a global economic 
slowdown could weaken demand.
    One thing I've learned in 20 years of making agricultural market 
projections is that someone in this business either needs a lot of 
humility or a very short memory. Things never work out exactly as our 
projections indicate, because it is impossible to anticipate everything 
that can and does affect agricultural markets. We do not have a crystal 
ball, but we believe that our annual baseline outlook provides a 
reasonable and useful snapshot of the agricultural economy under a 
particular set of assumptions. That baseline outlook then serves as a 
point of comparison for other analyses, such as work we've done at the 
request of this Committee to examine farm bill options.
    Thank you again for this opportunity. I would be happy to answer 
any questions.

    Mr. Etheridge [presiding]. I thank the gentleman for his 
comments and we are going to stall for just a minute, but we 
aren't going to recess. The Chairman should be back very 
shortly. Let me go ahead and ask a question, Dr. Collins, of 
you and if I walk out the staff will get the answer for me. How 
about that? We will keep it going, because Chairman Peterson 
will be back in a minute. Let me thank you for being here, and 
I have three maps here that you are familiar with. One that the 
Secretary has declared a disaster; one the President has had a 
disaster; and the combination of the two. My question to you is 
if you combine these, while some of these are covered by the 
Agriculture Disaster Assistant package that we enacted earlier 
this year, a lot of it is. So my question is, and we will give 
you several so you can answer them all at one time. When USDA 
forecasts record receipts of $276 billion for 2007, is that 
despite all the losses that are anticipated in the amount? 
Number two, do you have estimates of the agricultural losses 
represented in the amount, and has the Department given any 
thought as to the need to extend the cut-off date for the 
current disaster package to cover these that are now in there? 
And I know I am throwing a lot at you, but let me add one more 
piece to it because I just spoke to the Department in the last 
few days. Certainly in my state we are facing the worst drought 
in 100 years. We have two poultry plants that are now currently 
operating on a half-week, may shut down because it doesn't have 
water in reserves to operate. And we have sent a letter to the 
White House signed with 55 Members, both Democrats and 
Republicans, asking for some drought assistance to help these 
farmers, so I appreciate you commenting on that. I am going to 
slip out, Mr. Chairman, and turn it over to you and run back 
and I will get your answer from the staff if you will just 
share it with all of us.
    Dr. Collins. All right. Thank you, Mr. Etheridge. Should I 
go ahead and respond to that, Mr. Chairman, then? I will wait 
until you get back.
    The Chairman. Okay. That is fine. I have a few other 
questions, and we apologize. You know how this place is. You 
have been around it.
    Dr. Collins. I do.
    The Chairman. I would like both Dr. Gruenspecht and Dr. 
Collins to expand a little bit on the uneasiness that is being 
written about the ethanol sector. You know, we have a lot of 
stories showing up in different papers. My sense is that we 
have a lot of folks with agendas that are ginning up some of 
this stuff. I have been getting some information from some of 
the folks that are in the business back home that tell me that 
it is not so much an issue of the over-production, it is more 
of an issue of getting into the system. There are problems with 
inadequate infrastructure for blending. I would like your 
perspective on what is going on here with ethanol right now in 
terms of whether you think the production has exceeded the 
demand or whether there are problems in actually getting the 
production into the systems, whichever of you would have a 
perspective on that.
    Dr. Collins. I am sure, Mr. Peterson, we both do, so I will 
start and Howard can fill in the blanks. I think that this is 
an issue of an enormous expansion in production. You know, in 
any commodity where you see the kind of increase we have seen 
in ethanol production, which is a 2 billion gallon increase 
over the past year, it is going to put some strains on the 
whole distribution system. I think that economists have long 
expected that as production of ethanol continues to increase, 
at some point the long-standing premium that it has enjoyed 
relative to gasoline, the price premium, would disappear. There 
are a lot of reasons for that: the saturation of the 10 percent 
blend market, for example; movement into E85 where you have to 
price based on BTU value if consumers are really going to pick 
ethanol for their E85 vehicle. We have long expected some price 
adjustment. The shock has been that it has come so rapidly. We 
were running at quite a price premium to gasoline until the 
mid-summer and then all of a sudden we are selling it at quite 
a discount.
    The Chairman. Can I stop you right there?
    Dr. Collins. Yes.
    The Chairman. Are you talking about this price premium in 
relation to the spot market?
    Dr. Collins. Spot market, right.
    The Chairman. But very little of this ethanol is actually 
sold on the spot market, is it?
    Dr. Collins. I have a chart in my testimony which plots the 
rack price of ethanol versus the spot price of gasoline, and it 
is those two series that I am comparing when I talk about a 
premium.
    The Chairman. When you are talking about the rack price, 
that is what is actually being paid----
    Dr. Collins. To plants.
    The Chairman.--to the plants----
    Dr. Collins. Right.
    The Chairman.--based on these long-term contracts and so 
forth.
    Dr. Collins. Right.
    The Chairman. And because a lot of what was being reported 
in the press in terms of what the price of ethanol was, none of 
the plants in my district, that I am aware of, were getting 
that price. They were all out of long-term contracts.
    Dr. Collins. They were getting less.
    The Chairman. Yes, quite a bit less, and now when they 
report the lower amount they are actually getting more. So, I 
mean, this whole argument is not--am I wrong?
    Dr. Collins. No. Ethanol price discovery is still early in 
its history. If you were to look at the published rack prices 
for ethanol, for example, just recently I saw about a 50 cents 
difference between the price in Indiana and the price in Ohio. 
Now, how do you explain a 50 cents difference in price when the 
transportation cost is far less than that from one state to the 
other? So I can't tell you that I fully understand the 
relationship among all the quoted ethanol prices that are out 
there, so we tend to use an average and something that is 
typical. You know, we have seen futures prices of ethanol, for 
example, that is one market that you could look at where you 
could deliver a product. Those prices have dropped very sharply 
in Chicago. Recently, they have been running in the $1.55 range 
or something like that, so there is no question that the price 
complex has come down. But, to the extent that individual 
plants have long-term contracts, they may or may not be seeing 
that. Their adjustments may lag. So I do think that the lower 
prices do reflect a big increase in production; probably the 
saturation of some niche markets or specialty markets or local 
markets. You know, we have states that are already using 
ethanol near full capacity so the more you produce it has to go 
somewhere else if states are close to using it at a 10 percent 
level. You also, perhaps, could saturate the octane market or 
the RFG market or the special uses for ethanol and some of that 
may be what is going on; some of it may be the infrastructure 
problems that you mentioned. I think those have those been 
widely reported. They have been widely reported by blenders as 
well as ethanol plants. They are anecdotal but I tend to 
believe them. You can look at the backlog of orders for ethanol 
tank cars. The Department of Agriculture just recently 
published a study on transportation and infrastructure for 
ethanol. It was put out by the Agricultural Marketing Service, 
and they tracked the backlog of orders for ethanol railcars and 
it has gone up dramatically over the last couple of years, so 
there is pressure on the rail system. Sixty percent of all 
ethanol from plants is shipped by rail, and of course there has 
been a tremendous demand for railcars in the United States 
because the rail industry has not really expanded. It went 
through a couple of decades of fairly low returns and very 
little capital expenditure. It has only been the last couple of 
years that they have really started to increase, and a lot of 
those capital expenditures have gone to maintenance. So there 
is pressure on the distribution system, the storage system, 
pumps at blending facilities, and so all of those things are 
probably combining to cause this price to decline to the extent 
that it has. My own thought is that over time that we will 
start to see the price pick back up until we get closer to the 
10 percent level of total gasoline consumption in the United 
States. We could move back up closer to the price of gasoline 
and even above it again at some point. After all, we still have 
a 51 cents tax credit. The 51 cents tax credit ought to enable 
blenders to bid against one another to bid up the price of 
ethanol. So I am of the mind that this very low price that we 
are seeing on things like the Chicago Board of Trade is 
something that is going to come up a little bit in the future. 
And it also may get help from the very strong crude oil prices 
that we have been seeing, which I guess would translate into 
higher gasoline prices into the future.
    The Chairman. Dr. Gruenspecht?
    Dr. Gruenspecht. I think Dr. Collins could come and work at 
the Department of Energy, but I think he has it about right. 
Over the last 12 months ethanol has clearly expanded its reach 
into the domestic gasoline market. If you look at penetration 
at the 10 percent blend market, on a national basis the 
penetration has increased from 35 percent to about 47 percent 
of all gasoline sold. In early 2006, as Dr. Collins pointed 
out, there were very significant increases in the ethanol 
market penetration and the reformulated gasoline markets as 
MTBE was phased out. Initially, some of that ethanol came from 
pulling ethanol out of the Midwest where it was being used as a 
mix with conventional gasoline. It is really the Midwest that 
has used a lot of the ethanol and conventional gasoline and 
that penetration is very high, so ethanol has the entire RFG 
market. As ethanol production capacity increased most of the 
Midwest conventional market settled back at 10 percent blends.
    There is some ethanol market share growth in the Rockies, 
but the volume growth has been small because the Rockies are a 
pretty small volume market. Ethanol's market share in other 
conventional gasoline regions--conventional gasoline outside of 
the Midwest and the Rockies is where there is the greatest 
potential for ethanol market penetration to grow. The East 
Coast, particularly the Southeast and the Gulf Coast states, 
are what we in the, I guess, in the energy business would call 
PADD 1C and PADD 3--the Gulf Coast and the South Atlantic--
however, these regions also have the greatest barriers to 
market entry because of gasoline fuel quality regulations and 
other impediments. There are issues with meeting an evaporation 
standard that some of these states have. I guess the bright 
news is that there is really a tremendous incentive for 
increased penetration to occur. Between the price difference 
that you have cited, wholesale gasoline is up above $2; the 
spot price of ethanol is in the $1.50-$1.60 range. Then there 
is also a 51 cents blenders' credit that is currently about a 
$1 per gallon difference between the price of ethanol after tax 
credit and the price of gasoline. That gives terminal operators 
a tremendous incentive to overcome some of their issues with 
infrastructure. You can pay off an investment in preparing a 
blending terminal to blend ethanol very quickly. The blending 
market might now be sort of like the ethanol market was when 
the RFG MTBE phase out occurred, where you could make back your 
capital costs of an ethanol plant very quickly. I think right 
now we have an ethanol-on-ethanol competition effectively. It 
takes about 6 to 24 months to convert facilities to handle more 
ethanol, and as we see that we should see greater demand for 
ethanol.
    The Chairman. I have taken away more time than I should 
have, but if the Members would indulge me. I have been asking 
for the last year or so that given the fact that there looks 
like there is this opportunity in this blending business, why 
don't the people in the ethanol industry build blending 
facilities and buy the gasoline and sell it themselves? I mean, 
wouldn't there be an opportunity to make money to flip this 
thing around instead of letting the oil companies be the ones 
that do this? Why wouldn't the ethanol guys get into this and 
buy the gasoline and blend it and market it themselves? Is 
there some reason that is not happening or is some impediment 
to that happening?
    Dr. Collins. I don't have a good answer to that other than 
that buying, storing, handling, distributing a gasoline-blended 
product is not the business the ethanol plants are in. They 
would have to learn a new----
    The Chairman. Well, I understand they are not in it. I just 
said----
    Dr. Collins. It is that they have these barriers to 
overcome. They have the transaction cost to learn the business, 
to build the facilities. I think right now they have--with the 
profits they have been drawing in ethanol, the investments they 
have had to make, and the education to acquire to get better at 
ethanol--I think you specialize in what you do best at this 
point. Maybe that is something that they would do down the 
road.
    The Chairman. Yes. Well, thank you very much. Mr. Etheridge 
was in the middle of asking questions when he had to leave to 
vote. I am going to get a question that he had asked on the 
drought. Mr. Etheridge, we will have them respond to your 
question.
    Mr. Etheridge. Do I have to repeat that, Dr. Collins?
    Dr. Collins. I wrote it down, Mr. Etheridge, so if I don't 
get it right you can remind me.
    Mr. Etheridge. If you could make it rain in the Southeast 
that would settle a lot of our problems, but I am not sure I am 
going to call on you to do that today.
    Dr. Collins. No. I actually was at a European meeting 2 
weeks ago where there were experts on cloud seeding, and they 
are doing a lot of cloud seeding in Greece. But what they were 
telling me is that they are very successful with moving the 
paths of storms but not necessarily creating more rain, so 
there is a little status report on clouds.
    Mr. Etheridge. Well, the problem we have is we can't get 
any clouds.
    Dr. Collins. Right. Your first question was regarding all 
of the Presidential and Secretarial disaster declaration areas. 
Do we take into account in our farming forecasts the losses 
that underlie those disaster declarations? And the answer to 
that is yes, we do. It turns out that where most of those 
disaster declarations are the crop losses have not been that 
big a contribution to reducing national farm income. And also, 
a lot of those losses are in forage areas where--we don't put 
forage directly into our farm income accounts. I also would 
mention despite the map that you held up which shows most of 
the continental United States covered by a disaster declaration 
area, we now, at this point, in the fall season have a pretty 
good estimate of what our losses look like under crop 
insurance. And as you know, 80 percent of major crops are 
covered by crop insurance, and our losses right now look like 
we are on track to have the second lowest loss ratio in 
history. Our current internal projection is about .64, with the 
record being about .6, which means that from a national 
perspective despite the color of that map the losses are not 
that significant--at least judged from the crop insurance data.
    Mr. Etheridge. But we haven't paid the losses in most 
cases, have we, in the Southeast?
    Dr. Collins. We have not.
    Mr. Etheridge. Production is not yet in.
    Dr. Collins. We are paying some of them now. The peak 
period will be in October and November, but nevertheless, we 
still make loss ratio projections based on the NASS production 
data reports and the crop condition reports. That loss ratio 
estimate is based on those inputs. Your second question was do 
we have specific estimates of those losses in those areas. We 
have what the National Agricultural Statistics Service would 
put out and so you can come up with losses by state. For 
example, most of Georgia or Alabama is covered, and we would 
have crop-by-crop estimates of those losses which we could 
develop. Your third question was have we considered moving the 
cut-off from February 28? The current disaster assistance 
legislation allows producers to pick 2005, 2006, or 2007 
losses. For 2007 the crop has to be planted before February 28. 
The answer is no, the USDA has not considered trying to move 
that date. That date is legislatively mandated.
    Mr. Etheridge. Why have they not?
    Dr. Collins. Well, the----
    Mr. Etheridge. I mean, USDA has responsibility over 
agriculture, and I would think they would be concerned about 
the farmers.
    Dr. Collins. We are concerned about farmers. We have 
responsibility over agriculture. My recollection of the 
February 28 date was that it was set as a necessity to limit 
the budget exposure of the disaster assistance bill. And so, 
relaxing that February 28 would add to the cost of disaster 
assistance. From a general perspective, as you well know, the 
Administration has usually opposed ad hoc disaster assistance 
and prefers to rely on crop insurance. In truth, ad hoc 
disaster assistance looks like it is going to be a reality and 
it is going to eventuate. The Administration has always taken 
the position that it should be offset in the budget. And so 
those would be two qualifications to try and move the February 
28 forward.
    Mr. Etheridge. Let me help you with that a little bit. I am 
informed that the reason for that date was the threat of a 
Presidential veto. Of course, we allow those now and again, but 
for my farmers in North Carolina, when the whole State of North 
Carolina has now been declared a disaster area, they are not 
really excited about that because they are not going to be able 
to remedy it. And as I said earlier some of these things are 
beyond your control and mine, when our water supply is gone and 
we are going to shut down plants, which in turn will affect the 
farmer in production. I mean, for our folks this is as serious 
as anything for those who had to cut off in February. They are 
not going to be eligible for any of these benefits for the 
people in the Southeast, so I look forward to working with you 
on that as we move forward because this is something that we 
are going to have to get engaged with the Department and with 
the White House to get done. Thank you, Mr. Chairman. Thank you 
for your indulgence now you are back.
    The Chairman. At this time the Chair recognizes the 
gentleman from Oklahoma, Mr. Lucas.
    Mr. Lucas. Thank you, Mr. Chairman, and I would like to 
turn to our panel and discuss under the title of structural 
changes that have gone on, discuss the effect of the last 10, 
now almost 12 years of farm policy on rural America. Clearly in 
the 1930s to 1990s period we had a more supply-oriented 
management style of Federal farm bill. The flexibility that has 
been available to our producers for the last decade is the same 
flexibility that at one time there was much discussion they 
would not use. I guess, Dr. Collins, my question is this 
shifting from one crop to another as country ag economists, 
those farmers and ranchers respond to the price changes, do you 
see that accelerating over time?
    Dr. Collins. Mr. Lucas, I don't know that I see it 
accelerating. I think the shift that we saw in 2007 was 
staggering. We now have revised our acreage estimates as of 
last week, and the increasing corn acreage now, from last year 
to this year, is up over 15 million acres, something I never 
thought I would see. It is hard for me to say that that is 
going to accelerate and get even bigger. But I do think it 
shows a tremendous ability to shift on the part of American 
producers to increase their income. I think that we are in a 
period over the next couple of years of having some oscillation 
as we move from crop to crop as things sort out. I think we are 
going to see probably less corn acreage in 2008, but I 
certainly don't expect a 15 million acre decline. I think the 
effect will be dampened, so I continue to expect to see 
shifting back and forth by producers, that increases their 
income, and that increases their profits. That is a good thing 
for producers, and it also helps address the supply-demand 
imbalances. And I don't know that I see it accelerating, but I 
see this type of a pattern continuing.
    Mr. Lucas. So clearly those producers out there are making 
decisions that will reflect their best economic interest, and 
we have seen them move in that fashion very aggressively. You 
remember, 10 years ago there was some debate about would the 
world come to an end when we went to this system of producers 
deciding how to use their property in the most sufficient 
fashion. And so far they appear to be trying very aggressively 
to maximize their return. Another question, Dr. Collins, and 
maybe for Dr. Westhoff also. At what price level do commodities 
have to stay before we see real changes in the size of the CRP 
pool out there. Is there a cost in taking land back into 
production, an opportunity cost, a structural cost? Producers 
have to believe under the contracts we have that expire over 
various periods of time that to put it back into production the 
rate of return will be sufficient to cover all of those costs 
before they will make the decision. How close from an 
economist's perspective are we to that? Are we over that point? 
Will we see trends in CRP acreage change?
    Dr. Collins. Well, that is a complicated answer to that 
question.
    Mr. Lucas. Well, you are a complicated guy.
    Dr. Collins. Yes, thank you. Off the top of my head on 
that, I think at the kind of wheat prices they are looking at 
right now, and understanding that most of the land in the CRP 
is in wheat country. It is in spring wheat or winter wheat 
country. And the kind of wheat prices that we are looking at 
right now, the CBOT wheat price is now $8.50 a bushel for 
December delivery which is extraordinary. I think that kind of 
a wheat price would encourage people who don't have 
extraordinarily environmentally sensitive land to exit the CRP 
and go back into wheat production. Now, I don't expect the 
wheat price to stay at $8.50, but I think in this $5 to $6 
range, that is going to be very attractive for an awful lot of 
land that is in the CRP. Now, the impediments to exiting are 
that do people want to farm this land, or are they using this 
as an income stream as part of their portfolio. They may be 
retired for all we know. In fact there are a lot of retirees 
that are in the CRP, so there are other factors that would 
prevent land from coming out. Also there is a fair amount of 
land that is very highly environmentally sensitive land. The 
land capability classes, III, IV, V, VI, VII, and VIII which 
aren't going to have good yields, which are going to have 
problems with a conservation plan, and are going to be high 
cost to farm, and they may remain in the CRP. I think we were a 
little surprised at the percent of producers that accepted the 
re-enrollments and extensions when we offered them last year. 
Particularly, not so much for the 2007 exits, but for the 
producers' contracts who are going to expire in 2008, 2009, and 
2010. We gave them until December of last year to decide 
whether to do that or not. Prices had already shot up quite a 
bit by then, and yet most of them took the re-enrollment or 
extension. The 2.5 million acres that we had come out on 
September 30 were those who consciously chose not to stay in 
the CRP because they wanted to presumably put that land back 
into production. If prices stay at these kind of levels for a 
sustained period of time, I think we will see more acreage come 
out of the CRP. Now, of course, the other side of that is what 
kind or enrollments will USDA offer and how aggressive will 
USDA be on the rental rate that it is offering producers? The 
higher prices go, if we offer higher rental rates we can bid 
that land into the CRP. So that is another factor that is going 
to determine what the net exits look like.
    Mr. Lucas. And I think it is worth noting, Mr. Chairman, 
with our acreage limitations as those acres that are perhaps 
not so environmentally sensitive come out it creates 
opportunities for potentially millions of acres of greater 
sensitivity to come out. Thank you, Mr. Chairman.
    The Chairman. Well taken. I thank the gentleman. The 
gentleman from North Dakota, Mr. Pomeroy.
    Mr. Pomeroy. Thank you, Mr. Chairman. I apologize for 
missing some of the hearing during the break, so if these 
questions are redundant forgive me. I want to direct my 
questions to Dr. Collins, because back in North Dakota we are 
having an unbelievable year. The pricing for commodities, the 
debate ranges from well, ``Is this the best in 10 years,'' or, 
``Is it the best since Nixon sold grain to the Soviet Union,'' 
thinking more along that line. Once in a generation maybe you 
see a year like this one. I would like your initial 
observations on nationally is it as good as it looks in parts 
of North Dakota this year, and what does that mean in terms of 
things that we know are going to cycle from the kind of fall 
that we are having.
    Dr. Collins. That is a very good question, Mr. Pomeroy, and 
it caused me to re-write the last line of my opening statement 
to caution about the coming cyclical down-turn. As easy as it 
is to get mesmerized by the fact that we have had record high 
net cash farm income in 3 of the last 4 years, the history of 
the agricultural economy is that it is cyclical and down-turns 
come, as we are seeing in ethanol prices right now. But I do 
think that this is historic in an unusual period of time, and 
the extent to which it lasts is really going to depend on the 
whole bioenergy equation. There are a lot of factors driving 
the record high prices. The global economy has been 
extraordinarily strong. Exchange rates depreciated 
dramatically. We have seen unprecedented growth in developing 
countries. We have seen some bad production in many countries 
around the world the last couple of years. We have been in, 
since 1999, a pretty historic drought in the western states of 
the United States, the third most significant in the last 100 
years which has really destroyed forage and capped the 
expansion of the cattle sector. So there are a lot of factors 
going on that have driven these higher prices which can turn. 
But if biofuel production from row crops, major crops, 
continues to grow and continues to grow steadily, then I think 
that that is going to keep upward pressure on prices. It is 
going to continue to keep prosperity in North Dakota and in 
other states as well. That is going to be a function of what 
happens with crude oil prices over time and what kind of 
production response we get in the United States and the rest of 
the world. And one of the key factors in production response is 
going to be output per acre. We are seeing some startling 
things with the latest generation of biotech seeds, and so all 
of these things are going to work themselves together. The 
world economy could slow down, crude oil prices could decline, 
biotech seed yields could grow dramatically, weather in the 
United States could be poor, any one of those things could 
cause this to start to roll over. So it could happen. For right 
now I would say enjoy it and make sure the producers of North 
Dakota are adding to their savings accounts.
    Mr. Pomeroy. That is it, pay down debt. I appreciate your 
response. It is what I think also, and when times get really 
good and begin to feel like boom times then you know look out, 
you have rough water ahead. And I am wondering about ethanol. 
We have ethanol plants under construction, increased North 
Dakota production ten-fold, but at the same time we have one of 
our older plants closed because profitability wasn't there. 
What are we to make of ethanol futures being as low as they 
are; and what are we going to see in terms of a stabilizing or 
maybe even a shakeout of this upstart ethanol industry?
    Dr. Collins. Well, I think the future depends on what 
happens to crude oil prices and gasoline prices and it will 
very much depend on what happens with Federal renewable energy 
policy. There is quite a range of policy options on the table 
from eliminating the tariff on ethanol to eliminating or 
reducing the 51 cents tax credit for ethanol to mandating the 
use of ethanol to as much as 36 billion gallons by 2022, or 
under the President's proposal, 35 billion gallons by 2017. 
These are dramatic policy changes and could all affect what 
happens with ethanol. Abstracting from that, ethanol is 
progressing now on the basis of the existing tax preferences 
and the price of gasoline. And we talked a little bit before 
you came in about the slump in ethanol prices right now being a 
result of ethanol fulfilling the demand in a lot of the 
mandated markets, the seven states that mandate minimum ethanol 
consumption as well as the reformulated gas market. And ethanol 
now having to push out into the opportunities which are the 
Mountain states, the Southeast, and so on where the 
infrastructure is not there to handle it. But as Dr. 
Gruenspecht noted the financial incentive right now, because 
ethanol prices are low, the financial incentive for blenders 
are to make that investment in those facilities and move that 
ethanol into blending. And so I think those kinds of things, 
Dr. Gruenspecht said that kind of investment could take 6 to 24 
months, as they happen should provide some strength to the 
ethanol price and then ethanol runs up against this so-called 
blend wall. When you start to move toward the full 10 percent 
of the 140 billion gallons or so of gasoline that is consumed 
in the United States, unless the E85 market is really taking 
off, you have that constraint as well. So there is no simple 
answer to your question. It looks to us like we are going to 
see continued sharp growth over the next 12 to 18 months 
because of the plants that are under construction now, where 
permits have been pulled, concrete has been poured. We think 
that most of those will come online, but then we would expect 
some much slower growth after that based on ethanol prices 
coming down relative to gasoline, relative to their historical 
relationship, and higher corn prices reducing the margin on 
production. But as that continues to grow steadily, as long as 
that yield growth doesn't outstrip that growth in corn going to 
ethanol production, it will keep prices looking fairly robust.
    Mr. Pomeroy. Very interesting. Thank you very much, Mr. 
Chairman.
    The Chairman. The Chair recognizes the Ranking Member of 
the full Committee, the gentleman from Virginia, Mr. Goodlatte.
    Mr. Goodlatte. Thank you, Mr. Chairman. Dr. Gruenspecht, on 
the issue of cellulosic ethanol, ethanol made from cellulosic 
materials, what is your anticipation of how quickly that sector 
will develop and come online, and what effect do you think that 
will have on ethanol prices?
    Dr. Gruenspecht. As I described in my testimony, in our 
reference or baseline case we do see corn ethanol and possibly 
imported ethanol from sugar as being by far the dominant 
sources of ethanol. I have also noted that any kind of long-run 
projection is really very dependent upon these technology 
factors. There certainly could be a break through in 
technology. There can also be policy factors as Dr. Collins 
just discussed that could certainly lead to a larger role for 
cellulosic ethanol. Absent technological break through or 
absent a policy change that dramatically increases the amount 
of liquid renewable fuels that are used, the combination of the 
large amount of corn ethanol plants that are already under 
construction and what Dr. Collins described as the blend wall, 
if you add them up, they kind of take you to about the same 
place and don't leave a lot of room for significant penetration 
of cellulosic ethanol. If you are going to get past that blend 
wall then you are looking at E85, which the Chairman noted and 
I think Dr. Collins as well, that will need to compete with 
gasoline on an energy-content basis, not a dollars-per-gallon 
basis, but a dollars-per-BTU basis. I guess, the $64,000 
question for cellulosic ethanol is can cellulosic ethanol 
compete on a dollars-per-BTU basis with gasoline? And as Dr. 
Collins pointed out that is going to depend a lot on the crude 
oil price, but that is a pretty tall order, and we don't have 
that in our reference case scenario, but we recognize there is 
certainly a possibility of that.
    Mr. Goodlatte. One of the major inhibiting factors for 
forest biomass to be used as a renewable fuel are the 
transportation costs associated with hauling trees and waste 
from remote places to facilities that can use the material, and 
particularly in places like my district in western Virginia, 
this means the difference between forest biomass being used for 
energy or not. Do you see any changes in the near future that 
would reduce these energy costs and make these projects 
economical?
    Dr. Gruenspecht. I think that is really a great question. 
Yes, transportation considerations are really important for 
fuels with relatively low energy density and relatively low 
economic value, such as forest biomass. However, this is not a 
unique problem for forest biomass. If you look at fossil fuels 
like coal from the Powder River Basin, transportation cost 
represents \2/3\ of the delivered cost of that coal to power 
plants in the East. Ultimately, I think it is the availability 
of what market opportunity can encourage advances in 
technologies to collect and move material. That is certainly 
what happened in the Powder River Basin, for example: made that 
coal competitive in the East. Another option is to disburse the 
facilities that use renewable fuel to limit the need for 
expensive transportation. I mean, this is one reason that corn 
ethanol refineries are sized at about 50 million gallons a 
year, maybe 50, 100 million gallons a year which are sort of 
\1/60\ the size of a medium-sized oil refinery. A 200,000 
barrel-a-day oil refinery does 3.1 billion gallons a year. 
Similarly, in power generation we would expect a new-build 
biomass plant to be \1/10\ to \1/20\ the size of a typical new 
coal-fired plant. The smaller plants could be more widely 
disbursed and that would reduce the average transportation cost 
for biomass fuel to fuel the plant. Of course, as in the 
ethanol sector there is a need to find, what you would call the 
sweet spot that strikes a balance between scale efficiencies 
and operation and the minimization of transport costs. But, I 
guess, I am maybe more optimistic about the opportunity for 
some combination of collection and transportation improvements 
with some dispersion of the facilities that use the fuel to 
help overcome the problem that your question identifies.
    Mr. Goodlatte. Thank you. Dr. Collins, let me switch over 
to another issue and ask if you might comment on some problems 
we have with fertilizer production. I am told that the U.S. 
fertilizer industry in the last 7 years has permanently closed 
25 nitrogen plants, or about 40 percent of the capacity, 
primarily due to high and volatile natural gas costs. Your 
testimony states that U.S. anhydrous ammonia production 
capacity was 16.5 million tons in 2000. It is only 9.6 million 
tons today. Ten years ago U.S. farmers imported only 15 percent 
of the fertilizer they use today. More than 50 percent of 
fertilizer use is imported. For some fertilizers, such as urea, 
we import more than 70 percent of what farmers use. I wonder if 
you might comment on two things. First of all, address the 
factors that are causing this decline in fertilizer production 
in the U.S. and second, with domestic fertilizer production 
already in decline does $1.25 per million BTU tax on some 
domestically-produced natural gas, a tax I might note has been 
added to several bills including the farm bill, would that 
increase or decrease our dependency on foreign sources of 
natural gas to make fertilizer for our farms?
    Dr. Collins. Mr. Goodlatte, in response to the reduction in 
production capacity of particularly ammonia nitrogen fertilizer 
in the United States, I would trace that to one primary factor. 
That really accelerated beginning around 2000, 2001, when 
natural gas prices prior to that were running at $2 per million 
BTU and in the early part of this decade soared to in the range 
of $13 per million BTU. Meanwhile, in many other countries 
around the world natural gas prices were $1, $1.50, $2, $3 
while ours were three and four and five times that, so it put 
our domestic fertilizer, hydrogen fertilizer industry at a 
disadvantage and plants began closing. And that is correct 
since 2000, about 40 percent of the capacity has closed. The 
second part of your question is this $1.25 charge on some 
natural gas. You know, obviously if that raises the natural gas 
price to domestic fertilizer plants, that raises their cost of 
production. I think a ton of anhydrous ammonia has about 33 
million BTUs of natural gas in it, so $1.25 times 33 is roughly 
$40 a ton increased production cost. Anhydrous ammonia right 
now is selling for about $550 or so a ton in the Upper Midwest. 
Now, I don't know to what extent. I haven't studied that $1.25. 
I don't know how much of the natural gas supply that is going 
to affect. The number may be a heck of a lot less than the $40 
or so I mentioned because the $1.25 only applies to some of our 
production.
    Mr. Goodlatte. Thank you.
    The Chairman. I thank the gentleman. The gentleman from 
Kansas.
    Mr. Moran. Mr. Chairman, thank you very much. Thank you to 
the economists for joining us today. Let me ask first, I don't 
know whether--the topic of this hearing is structural changes. 
I don't know whether this qualifies as a structural change, but 
our inability to export beef to South Korea and Japan has been 
around now a long time. I assume that that lack of market has 
been built into the price structure for livestock. I am looking 
for your analysis of where we are in regard to the economic 
consequences of our failure to open that market. And perhaps, 
Dr. Collins, if you know anything from your relationship at 
USDA as to whether there is any light at the end of the tunnel. 
And then my second question is related to WTO. We have seen 
some evidence of a decision at WTO since the passage of the 
House farm bill related to enforcement or implementation of the 
decision related to cotton. I would be delighted to hear your 
thoughts as to what this latest decision in regard to WTO means 
for the structure in which we operate in agriculture. Also 
particularly what it means to us as policy makers as we 
continue to try to determine what farm policy should be. And 
finally, the International Monetary Fund has been complaining 
in a study that our increasing reliance on corn, on grain-based 
fuels, is fueling an increase in the cost of food around the 
world, complaining about increasing food prices in poor 
countries. That is an unusual charge by the international 
community of the United States. Usually we are increasing 
commodity prices as a result of our farm program, so I would be 
interested in knowing if you have any take on what it is we 
should learn from the international community's continual 
complaining about prices too high, prices too low in our 
policies.
    Dr. Collins. Okay. Mr. Moran, those are three very 
different questions. Let me try and do those quickly. On the 
first question, yes, our cattle industry has absorbed and 
adjusted to the loss of export sales as a result of the closure 
of principally Asian markets due to BSE. In 2003, we exported 
about 2\1/2\ billion pounds of beef. This year we expect to 
export about 1\1/2\ billion pounds of beef, so in the absence 
of ever having found BSE, we would probably be well above 2\1/
2\ billion pounds and now we are only at 1\1/2\. However, we 
are making some progress. Two years ago we were only at 700 
million, so we are twice the level we were 2 years ago. And for 
2008, our official projection is exports of 1.9 billion pounds, 
so we are making some progress. Part of that 1.9 billion pounds 
are increases to Japan, one of the key countries that we have 
not been exporting to. So we have increased our sales to Japan. 
It is at a slow rate, but our beef has been going there. Now, 
with respect to Korea, I am afraid I don't have anything very 
positive to report on that. We have some sales to Korea. So far 
this year, I think, in the neighborhood of $75 million--very 
tiny. And then, of course, most recently there was another 
discovery in a box of beef of a vertebral column and they shut 
off all of our trade, all the trade with us. And so we are now 
back in negotiating with Korea again to try to establish a 
protocol to resume trade.
    Mr. Moran. Dr. Collins, on the point of South Korea or even 
Japan, in the absence of U.S. beef exports to those two 
countries are there other countries that are filling that gap 
or is there less beef consumed in those countries?
    Dr. Collins. There are other countries that are filling 
that gap and there are other species that are filling that gap. 
We are setting record levels for pork exports, which are going 
to those markets as well, for example. And we have also been 
able to offset some of these losses by exporting much more to 
other countries around the world, such as Mexico and even 
Canada has been taking a lot of our beef. The second question 
you asked about was the findings of the compliance panel in the 
WTO with respect to the ongoing cotton case. I really can't say 
anything about the specifics of that finding. At this point the 
finding has been provided to us by the WTO. It is confidential 
until they make it public. I know that there have been public 
comments made by the other side, and there have been some 
general comments made in response to that. I would only go back 
to the original finding which had concluded that we were not in 
compliance, that we had not adjusted our domestic programs and 
our GSM program to ameliorate the serious prejudiced charge 
that we were found to have violated, the price depression 
charge along with respect to our domestic programs causing 
lower cotton prices in the world. We will just have to wait and 
see what comes out when the final report is issued, which is 
probably still several weeks away. I can only tell you the 
process then. A decision will have to be made as to whether to 
appeal that report. If it is appealed and the final report that 
would come after that and be adopted by the WTO would be the 
end of the compliance process. Then at that point presumably if 
we were to lose this case, then the Brazilian Government would 
seek to establish damages and retaliate, seek to establish 
damages and achieve compensation from us. Short of receiving 
compensation they could then retaliate. So there is still a lot 
yet to unfold on this and no matter how it works out I am sure 
we will have implications for our domestic farm policy. The 
third question you raised was about an IMF comment that food 
prices are rising because of policies and events here in the 
United States. Food prices are rising for people around the 
world and isn't this kind of an in contradistinction to the 
general claim that our farm policies depress world prices which 
is the basis for the cotton case against us. I guess, my only 
observation about that is that whenever prices go to extremes 
people come out of the woodwork to complain about it, whether 
it is very low prices like cotton reaching 29 cents in 1999 and 
2000 which precipitated the Brazilian challenge against our 
program or with wheat prices reaching $6 or $7 which presumably 
precipitated IMF's comments. There is a wide range for markets 
to work and for prices to vary and resources to adjust 
efficiently. And when prices start to move toward those bounds 
then people start to get concerned. I guess, I would say let 
this thing play out. We were early. American producers, and not 
just American but global producers, are adjusting to this. We 
were just talking about fertilizer. One of the things that has 
struck me about fertilizer is the incredible global demand for 
fertilizer over the last couple of years. It is soaring, and 
that is because countries all over the world are trying to 
increase their yields. Their yields are much lower than ours in 
general. And you can look at places like China or India or 
Brazil or Argentina and demand for fertilizer is soaring there, 
and that is another factor behind the high price of fertilizer. 
So we are going to see a production response around the world 
to these prices. And the other thing I would say to the IMF is 
a lot of these developing countries are agriculturally-oriented 
countries. They have large agricultural sectors that are poor 
and higher prices are going to help their agricultural sectors, 
and oh by the way, renewable energy might give their farmers a 
new opportunity to produce as well. So I think there are a lot 
of factors to take into account here. Whenever prices go to the 
extremes they are certainly worth monitoring and being sure 
that Federal policy is not intervening in some adverse way and 
it is time to think about that. But on the whole, I think that 
this can represent an opportunity for the economies of 
developing countries.
    Mr. Moran. Thank you, Dr. Collins. I always appreciate when 
you are a witness. It makes my mediocre questions even seem 
intellectual based upon your answers, so I am grateful for 
that. Thank you.
    Dr. Collins. Thank you.
    The Chairman. The gentleman from Nebraska, I wanted to 
follow up on this and then I will go to you if that is okay. 
You know, Dr. Westhoff and Dr. Collins, following up on this 
discussion, clearly the United States ag policy is not the 
reason we have high wheat prices.
    Dr. Collins. Absolutely.
    The Chairman. Canada is complaining about corn subsidies 
when it was not the U.S. subsidy system that has caused the 
corn prices to go up. How did we get into a situation where we 
have allowed ourselves to become involved in a WTO process that 
uses outdated data, and actually allows them to cherry-pick 
years. So they can go after us for people's agendas whether it 
be the poor African countries that claim that it is us that 
causes them all the trouble when it is actually the French 
Government and those people that run that system. Am I out of 
line here when I say we have a WTO system that is 
dysfunctional? It is based on data that has no reality to what 
is going on, and so here we are fighting cases using timeframes 
that are completely irrelevant to what is going on today and we 
are into this system. I mean, I don't see how this serves us as 
a country to be in this kind of system, so if you would comment 
on this.
    Dr. Collins. I would like to comment. I am sure Dr. 
Westhoff will have something to say. But I think stepping back 
and looking at our involvement in the WTO is really an 
indispensable affiliation for our country. It is through the 
WTO that trade liberalization, not just in agriculture but in 
everything, has been achieved, and if you look at the growth of 
the global economy since the GATT was first founded in 1947 it 
has been phenomenal.
    The Chairman. I am not arguing about that.
    Dr. Collins. Okay. You are talking about--oh, wait. Let me 
go to the specific----
    The Chairman. How did we agree to this process where you 
can use----
    Dr. Collins. Okay.
    The Chairman.--timeframes to challenge things that are 
completely irrelevant to what is going on?
    Dr. Collins. Well, going back to the Uruguay Round 
Agreement which we adopted in 1994 and it had a life through 
2000, and it was some hope that we would negotiate a successor 
agreement. Well, we haven't and in the interim the peace clause 
expired. The peace clause protected our farm programs against 
challenges. Now, that allowed Brazil to come in and file a 
complaint under the subsidies code.
    The Chairman. I understand that, but why are we using 
whatever it is 2000, 1999?
    Dr. Collins. 1999/2000.
    The Chairman. Well, yeah. I mean, that has no relevance to 
what is going on today.
    Dr. Collins. It doesn't have any relevance to what is going 
on today. I can't remember when this case was first filed but 
it was some time ago and it was closer to that period when it 
was first filed. The WTO is not prescriptive. It doesn't 
anticipate what might happen in the future and cause people to 
file complaints based on that. People file complaints based on 
actual historical data.
    The Chairman. Does the WTO court, or whatever it is, take 
into account what the current situation is when they are using 
outdated----
    Dr. Collins. They do not. They cannot.
    The Chairman. Dr. Westhoff, what do you think about all 
this?
    Dr. Westhoff. Well, I think you are raising an important 
point. I don't disagree with anything that Dr. Collins said, 
but I agree with you that it does seem a bit odd to be looking 
backwards when policies then may perhaps have very different 
effects than they have today. And, again, where we are at with 
markets today we don't expect, the USDA does not expect that we 
will have much in the way of marketing--cyclical payments over 
the next 10 years. And if that is the case and those are the 
points where we seem to be hung up on, it does raise some 
questions about the process.
    The Chairman. Yes. Well, thank you. And that was part of 
what spurred this, is that you are saying, Dr. Collins, ``It 
looks like if the biofuel things keep going that these prices 
are going to be better.'' We are here fighting these rear-guard 
actions against some of these folks who, in my opinion, are 
probably doing things as bad as we are and we seem to kind of 
turn our eye to that. It just mystifies me how we got into this 
whole deal. The gentleman from Nebraska.
    Mr. Smith. Thank you, Mr. Chairman. For Dr. Collins, I hear 
from constituents repeatedly on the high cost of initial 
operating capital for farmers and ranchers, primarily the cost 
of land and they see Section 1031 like-kind exchanges as a 
mechanism that perhaps is creating a false market--that there 
are folks rushing to make a deal, paying more than they would 
maybe have to if we extended the timeframe for a 1031 exchange. 
Do you see increase in values? I know this wouldn't be the 
solution to that, and, again, strong property values can be a 
good thing, but not if it is a false market and especially in 
an area with high property tax.
    Dr. Collins. The Section 1031 like-kind exchanges have 
really exploded over the last couple of years as farmland 
values have been going up in double-digit rates. I have done a 
little bit of searching of the literature to find a good 
analysis of what Section 1031 of the IRS Code has meant for 
farmland values. Quite frankly I haven't found much. I do know 
that it, for example, economists in Illinois have frequently 
cited it as a cause for higher farmland values in the State of 
Illinois where a very high percentage of farmland purchases 
have involved like-kind Section 1031 exchange. Based on that in 
the belief that you just expressed, as you probably know, USDA 
and the Administration in their 2007 Farm Bill proposal had a 
proposal on Section 1031 like-kind exchanges and that was that 
if someone were to buy farmland and to defer the capital gains 
from the sale of other land to buy the farmland, they couldn't 
get farm program payments on that farmland if they were going 
to get a 1031 deferral of capital gains tax treatment. So that 
in and of itself tells you that the Administration and USDA 
believe that there is some merit to the argument that like-kind 
exchanges have increased farmland values, and so the 
Administration wanted to do something about it. You may know 
that 2 weeks ago the Senate Finance Committee reported out a 
bill that would deny the deferred tax treatment on a like-kind 
exchange if developed property was sold and farmland was bought 
and there was a stream of farm program payments or CCC loans on 
that land. So there are several groups then who support the 
thinking that you just mentioned.
    Mr. Smith. So you are saying that perhaps, and they are 
wishing to narrow or, I guess, tighten up the like-kind 
definition, land-for-land.
    Dr. Collins. Yes, I think the general thinking is people 
don't care if people engage in a like-kind exchange and sell 
developed real property for undeveloped farmland. But they just 
don't want to facilitate that with farm program payments, 
because that just gives the buyer of the farmland extra income 
to bid up the price of that farmland. It is fine if it takes 
place without farm program payments helping in the transaction. 
I think that is the logic of what the Administration proposed 
and what the Senate Finance Committee action was 2 weeks ago.
    Mr. Smith. Very well. Thank you, Mr. Chairman. I yield 
back.
    The Chairman. Thanks, gentlemen. Any other Members seek to 
be recognized? Hearing none, gentlemen, we appreciate your 
involvement, being here today, and taking the time out of your 
schedules, and with that the Committee on Agriculture is 
adjourned.
    [Whereupon, at 11:30 a.m., the Committee was adjourned.]

                                  
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