The U.S. Has No Remaining Grain Reserves; the 2008 Food Crisis Is Not Over

U.S. Government Wheat Stocks Collapse

By Benjamin Gisin, Barter News
July 22, 2008

Quietly, the last of the U.S. government’s wheat reserves, held in the Bill Emerson Humanitarian Trust, were sold in late May onto the domestic market for cash. The cash was put in a trust for food aid. With no other government wheat holdings, U.S. government wheat stocks are now totally exhausted [see CCC inventory].

The following recent statements by Rebecca Bratter, director of policy for U.S. Wheat Associates, provides insights:

“While the U.S. wheat industry strongly supports the administration’s goal of maintaining current food aid programs to prevent rampant hunger worldwide, there is concern regarding the impact of selling reserve wheat on the domestic market and over the lack of commitment from the administration to replenish the Bill Emerson Humanitarian Trust.

“U.S. Wheat Associates has shared these concerns with high officials at USDA and on the President’s staff and has asked about the Administration’s intent regarding replenishment of the Bill Emerson Humanitarian Trust. Staff from the office of the President’s Special Agricultural Assistant noted that while there is no commitment at this time, the administration intends to replenish the Trust once the supply and price scenario stabilizes.”

(Note: U.S. Wheat Associates works in 90 countries promoting U.S. wheat exports.)

The Bill Emerson Humanitarian Trust was established in 1980 by an act of Congress and is authorized to hold up to 4 million metric tons of wheat, corn, sorghum and rice, as a reserve for global food crises. The wheat is purchased and managed by the Commodity Credit Corporation and included in the total amount of wheat owned and held by the U.S. government. Holdings by the BEH Trust for corn, sorghum and rice are also zero.

For the decade of the ‘80s, government wheat holdings (including those in the BEH Trust) averaged 358 million bushels. For the decade of the ‘90s, government wheat holdings averaged 133 million bushels. Since 2000, government wheat holdings dropped steadily until recently when the last of the government-owned wheat was sold.

With no formal plan for wheat stocks by the U.S. government, wheat stocks have defaulted to the arena of the private free-market sector. Unfortunately, the private sector has no plans for any kind of minimum wheat stocks that would protect the American public from a price and/or availability standpoint.

Private wheat stocks are divided into two major categories — on-farm wheat stocks owned by farmers, and off-farm wheat stocks owned by warehouses and grain companies. These two together held 305.6 million bushels of wheat as of June 1 (or roughly 1 bushel per person living in the United States) the lowest level in 60 years.

Of these stocks, on-farm wheat stocks are at 25.6 million bushels, the lowest level of on-farm wheat stocks since the USDA started keeping tabs back in 1934. So as you are driving in rural America before wheat harvest, the farmer’s bins have never been so empty.

The USDA, projects America to have a bumper wheat crop in 2008, producing 2.43 billion bushels and consuming and exporting 2.30 billion bushels. This leaves a meager 133 million bushels (5.5 percent of production) as a margin for error. Globally, the USDA projects wheat production to be 24.36 billion bushels, consumption to be 23.74 billion bushels for a relatively smaller margin of 622 million bushels or 2.6% of production.

The recent wheat crises in America was sparked by the nation exporting more wheat than it produced. This means the true 2008 wheat margin for Americans is really the global margin of 2.6%. Any decline from global projections could precipitate greater wheat exports from America and further draw down already low domestic and global wheat stocks.

Food security is emerging as a global focal point. With the U.S. government and the private sector lacking visions for stocks, food security is poised to grow as a grass-roots issue around the nation.

The U.S. Has No Remaining Grain Reserves; China Stockpiling Grain

The United States has in the past kept a strategic grain reserve, but it was largely eliminated under the 1996 Freedom to Farm Act. Since the beginning of agriculture, farmers have recognized the need to manage stocks of grain to prevent starvation in times of scarcity. Grains are an easy-to-store and nutritious way to provide the basic needs of a population facing a food emergency until alternative food supplies can be arranged. To ensure food security, many countries stockpile strategic grain reserves (SGRs) to help cope with food emergencies, but grain reserves are also used to stabilize grain prices and as a loan commodity. Today, there are no remaining grain reserves in the U.S., and there haven't been since July 2008. Millions of people may die in the next few years because of inadequate world grain reserves.

The United States has in the past kept a strategic grain reserve, but it was largely eliminated under the 1996 Freedom to Farm Act. Today, there are no remaining grain reserves in the U.S., and there haven't been since July 2008 [this was shortly after the sale of 18.37 million bushels of wheat from USDA’s Commodity Credit Corporation (CCC) to the Bill Emerson Humanitarian Trust, which left only only 2.7 million bushels of wheat in the entire CCC inventory]. In addition to having no grain reserves, the U.S. has nothing else in its emergency food pantry: there is no cheese, no butter, no rice, no corn, or anything else left in reserve except for dry milk.

Grain is the Foundation of the World's Diet

Since the beginning of agriculture, farmers have recognized the need to manage stocks of grain to prevent starvation in times of scarcity. In the Hebrew Bible, the Egyptians were directed to stockpile seven years of harvests in preparation for seven years of famine. The primary purpose of grain reserves is to help cope with food emergencies, but grain reserves are also used to stabilize grain prices and as a loan commodity.

Food security in the fullest sense would mean that all people at all times have access to adequate quantities of safe and nutritious food. To ensure food security, many countries stockpile strategic grain reserves (SGRs). Grains are an easy-to-store and nutritious way to provide the basic needs of a population facing a food emergency until alternative food supplies can be arranged. Food emergencies can result from natural causes, such as pest outbreaks sparked by drought, floods, storms, earthquakes, or crop failures, as well as from war and terrorism.

World Hunger and Grain Reserves

In 1977 the General Assembly of the Unitarian Universalist Association urged and called upon member societies to urge the governments of the United States and Canada to establish national grain reserves and to demonstrate willingness to participate in concert with other large grain-producing countries in a world food bank. The factors leading to this resolution where as follows:

• Millions of people may die in the next few years because of inadequate world grain reserves; and drought and other causes have rendered grain production unstable, which drives prices up and forces poorer countries out of the world grain market;
• It has been demonstrated that when adequate world grain reserves are maintained, price fluctuations are minimized even in times of small harvests;
• The United States, Canada and other large grain producers hold the key to stable world-wide food reserves that have been allowed to dwindle to a fraction of their former levels; and
• The United States, Canada and other large grain producers, through climatic and other circumstances, may themselves experience shortage.

Federal Agriculture Improvement and Reform Act of 1996

In 1996, the Federal Agriculture Improvement and Reform Act of 1996 ("Freedom to Farm Act") called for elimination of government stockpiles of grain, except for a very small amount in the Emerson Humanitarian Trust Reserve intended for foreign aid. The misguided policies of the Bill Clinton administration and the Republican Congresses of the 1990s (as exemplified by the 1996 "Freedom to Farm Act") eliminated historic food-security provisions and handed over control of grain stocks to corporate agribusiness giants and commodities speculators.

The National Family Farm Coalition has for years been warning that a global trading system designed to enrich agribusiness conglomerates, while undermining the interests of working farmers in the U.S. and abroad, would lead to precisely the disaster that is now unfolding. Now, the United States government has no reserves of butter, cheese, barley, corn, oats, sorghum, soybeans, wheat, rice, sugar, honey, peanuts, canola seed, crambe, flaxseed, mustard seed, rapeseed, safflower seed, sunflower seed, peas, lentils and chickpeas. [Source: U.S. Farm Service Agency, Current CCC Inventory (PDF file)]

According to Patrick Woodall, senior policy analyst with Food and Water Watch:

“Consumers see cereal prices go up when input prices rise, but they never see the pass-through when input prices fall... When the crop prices collapsed in 1996 (due to the 1996 "Freedom to Farm Act"), the grocery store prices didn’t come down at all. In many cases, they went up for things like pork chops, ground beef and milk.”

In the developing world, Woodall said, the cereal price index rose 88 percent between March 2007 and March 2008. “Much of the global cereal trading below the cost of production was a deterrent to holding onto any reserves at all.”

Woodall says another factor driving stocks down in the Third World is that “the World Bank has pressured countries to eliminate their own reserve programs, much like the United States... Countries like Kenya and Malawi were forced by the World Bank to sell off their reserves. That was partly because of fiscal austerity reasons, but it was also partly to repay debt to the World Bank.”

As these programs have been eliminated to conform with World Bank directives, “we’re now in a situation where there’s no buffer to protect people from a severe food crisis.”

We are just one drought away from possibly seeing $10/bushel corn or $20/bushel wheat with absolutely no plan in place to deal with such a calamity. The President and U.S. Congress have irresponsibly ignored this issue throughout the entire Farm Bill debate, even as other countries such as China and India build up their strategic stocks. - National Family Farm Coalition

China's Grain Reserves 'Self-Sufficient'

China is aggressively building its grain reserves. Reuters reported that China will raise spending on reserves of grain, edible oils and materials by 61% in 2009, bringing the total to CNY 178.045 billion or 4.1% of its budget spending. According to the report, the spending includes CNY 78.341 billion to stimulate domestic demand by expanding reserves of important materials such as grain, edible oils, crude oil, non-ferrous metals and specialty steel, as well as developing storage facilities. Direct subsidies to grain producers will also rise 25.8% to CNY 19 billion.

New Wheat Crisis Plagues World Food Supply
China Adds 292 Million Tons to Grain Reserve in 2008
China, South Korea, Japan, Saudi Arabia, Kuwait Grabbing Land for Food
South Asian Nations Agree to Build Grain Reserves
China Says to Spend $26 Billion on Commodity Reserves; Veg Oil, Grain
China Boosts Rural Economy Spending, Power Reform
China Adds $10 Billion to Commodity Stockpiling Budget
Food Grain Export Ban by India, China Harming Third World

In the wake of global food issues in early 2008, a number of groups in the U.S. are lobbying to create a strategic grain reserve:

Family Farmers Respond to the Food Crisis
An Open Letter to Congress on the Need for Strategic Grain Reserves
Growers and Economists Push for Strategic Grain Reserves
U.S. Farm Group Backs World Grain Reserve Proposal
Final Declaration of Farmers at High Level Meeting on Food Security, January 27, 2009

Global Food Crisis Called 'Ticking Time Bomb'

By Mark Pattison, Catholic News Service
February 26, 2009

The global food crisis was called a "ticking time bomb" at a February 24 forum during the annual Catholic Social Ministry Gathering in Washington.

Although prices for cereal grains have dropped since their spike last spring, the crisis has not gone away, according to Rajul Pandya-Lorch, chief of staff at the International Food Policy Research Institute and the head of the institute's initiative, Vision 2020 for Food. Instead, she said, the food crisis has been overshadowed by the global financial crisis.

The spike in prices was brought about by unregulated speculation in food commodities, Pandya-Lorch said.

While regulations ordinarily limit purchases of cereal grains to 11 million bushels, the U.S. financial houses Morgan Stanley and American International Group, better known as AIG, used loopholes to buy more than 2 billion bushels of grain, keeping it off the market and sending prices soaring. Rice more than tripled in price, and wheat and corn doubled, she said.

Another driver in food price hikes was the use of food for biofuels. Cereal grain use last year was up 5 percent for food, Pandya-Lorch said, but up 38 percent for energy.

The price spikes whipsawed producers and consumers alike. Because the price of oil also had spiked, producers found it harder to maintain leases on equipment in order to do more planting and take advantage of the higher prices, Pandya-Lorch said, and poor consumers, especially in developing countries, found themselves spending 50 percent to 70 percent of their income on food.

Yet cheap food is not an automatic solution to the food crisis, she said. "People think low food prices are good for the poor in the developing world. They're not," Pandya-Lorch declared. Low prices lead to a flood of cheap imported food from high-yield agricultural nations, creating a disincentive for local farmers to grow their own crops since they cannot compete on price.

A new dynamic in last year's food price upheavals was a shortage caused by growing demand, according to Pandya-Lorch. Past shortages have been primarily caused by insufficient production. Even so, the rate of increased yields is declining to about 1 percent to 2 percent a year, she noted. In the early 1990s, the rate of increase had been 1.5 percent to 3 percent, and in the early 1980s the rate of increase had been 3 percent to 5 percent, depending on the type of grain.

The use of grain as animal feed also removes food from the marketplace. It takes 2 pounds of grain to produce 1 pound of chicken, she said, but 6 pounds of grain to produce 1 pound of beef.

Steve Hilbert, an African affairs policy adviser for the U.S. bishops' Office of International Justice and Peace, called for calmer markets and the closing of regulatory loopholes. "We have to say you can't treat food commodities as you would copper," Hilbert said.

U.S. Crop Boom Not Enough to Rebuild Thin Supplies

Reuters
February 25, 2011

Huge U.S. corn and soybean plantings this spring will likely fail to refill razor-thin stocks enough to quell the surge in grain prices, the U.S. Agriculture Department said on Thursday.

In updated forecasts for the world's biggest crop exporter, the USDA warned that it could take several years to restore inventories to comfortable levels. It mostly maintained earlier forecasts on how many acres farmers would sow this spring, but said stocks at the end of the 2012 season would remain tight.

The U.S. government's forecasts are likely to fuel more concern globally that high prices could persist far longer than they did in 2008 when they hit record highs, as supplies remain too thin to cope with any further weather disasters.

"While it is often said the cure for high prices is high prices, even with additional supplies expected this year, it is likely that the tight stocks-to-use situation will not be entirely mitigated over the course of one or even two growing seasons," USDA Chief Economist Joseph Glauber told the department's annual outlook conference on Thursday.

The planting forecasts were unchanged from the department's projections made earlier this month, when it projected 92 million acres of corn -- the second largest since 1944 -- and 78 million acres of soybeans, a record amount. Analysts had expected the agency to trim both forecasts marginally.

LITTLE CUSHION IN US END STOCKS

The greater surprise was in projections for tight ending stockpiles for 2011/12. While both corn and soybean ending stocks will be higher than this year's levels -- with corn forecast to be the smallest since 1996 and soybeans amounting to a few week's supply -- they suggest very little cushion for unexpected shortfalls.

"It should be bullish all around even though the USDA stuck to their higher estimates than I probably would have done," said Jack Scoville, analyst for Price Futures Group.

"It seems to me they're implying some very strong demand here because the ending stocks estimates remain pretty tight, really across the board," he added.

USDA said 2012 corn ending stocks would rise by 28 percent to a still-thin 865 million bushels, and soybeans stocks by 14 percent to 160 million bushels. But USDA cut its outlook from a forecast made earlier this month for corn stocks by 23 percent and soybeans by 16 percent for 2012.

Contributing to the slim stocks will be soaring exports, which are expected to rise $9 billion this year to a record $135.5 billion.

"Today there are 7 billion mouths to feed and many of them depend on American agriculture," Debbie Stabenow, chairman of the Senate Agriculture Committee, told the USDA's annual outlook conference.

China will become America's top export market, surpassing Canada. China is seen importing 60 percent of the world's soybeans and 40 percent of its cotton this year.

While the tight stocks figures were bullish, grain futures at the Chicago Board of Trade fell on Thursday as investors continued to liquidate positions and seek safer havens on concerns over the turmoil in the Middle East. Wheat fell 2 percent, corn nearly 1 percent while soybeans were only slightly lower.

CORN FOR ETHANOL AT RECORD HIGH

Ethanol makers are expected to consume a record 5 billion bushels of corn this year, or some 36 percent of the harvest.

Despite criticism that using food for fuel was driving up prices and contributing to thin stockpiles, Agriculture Secretary Tom Vilsack told the conference the government had no intention of scaling back on ethanol.

"There is no reason for us to take the foot off the gas," Vilsack told the conference. "This is a great opportunity for us because we can do it all, make no mistake about it."

Tight global commodity stockpiles have pushed food prices higher, contributing to political unrest in countries with high poverty rates and unemployment.

Former U.S. President Bill Clinton struck a more cautionary tone on ethanol.

"We have to become energy independent but we don't want to do it at the expense of food riots," Clinton said in the keynote address.

In the United States, food prices are forecast to rise a sharp 3.5 percent this year -- nearly double the overall inflation rate.

"We're keeping an eye on this but I would suggest that as a result of what we went through in 2007 and 2008 we are better prepared to respond as a country and as a globe," Vilsack said.

But some analysts caution a bad crop in the United States would change everything.

"There are speculators involved... but we've had the perfect storm over the last two years, and if we don't have a great crop this year in the United States, we are going to have an even bigger storm." said Pete Nessler, president of the brokerage FCStone LLC.

California Farmers Say Feds Make Drought Worse
Guatemala experiencing rising malnutrition due to drought
UN Food Agency Says 200 Million More People Hungry
UN reports 1 billion of the world’s people going hungry

Updated 10/31/09 (Newest Additions at End of List)