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The Strategic Grain Reserve

February 5, 2011

by gardenserf

I wanted to lead this post on wheat with a picture from Russia and a video from Australia. Looking back on events over the past year, I have to wonder how much was lost due to the drought in Russia and the flooding in Australia. The video from Australia should be awe-inspiring, not because of the great Metallica soundtrack, but for showing the scale of modern agriculture. Five men with machines can do in a few hours what literally once took thousands of people days to do by hand.

Wheat harvest south of Barnaul in the Altai region of Russia

http://gardenserf.wordpress.com/2011/02/05/the-strategic-grain-reserve/



Now let’s look at the present situation. Prices are on the rise and the following article really grabbed my interest again on the topic of wheat and reserves (or lack thereof):
Global food prices hit new record high [Feb 3, 2011]

Algeria last week said it had bought almost a million tonnes of wheat, bringing its bread wheat purchases to at least 1.75 million since the start of January, and ordered an urgent speeding up of grain imports, a move aimed at building stocks.
Wayne Gordon, a grains analyst for Rabobank, said: “Some of the demand story is centred around high food prices then tend to lead to hoarding by a number of countries into their strategic reserves.
“So not only are they purchasing for current consumption, but they are also trying to build up strategic reserves, which basically are a bit of a double-barrelled demand event.”
Severe drought in the Black Sea last year, heavy rains in Australia and dry weather in Argentina and anticipation of a spike in demand after unrest in north Africa and the Middle East has also helped drive grain prices even higher.

Given Algeria’s recent stockpiling as quoted in that article and a rough estimate of their current population that amounts to 100 pounds of wheat per person.
Does the USA have 100 pounds of wheat stashed away for each citizen? We’ll revisit this question later in this post.
Algeria’s stockpiling is not a knee-jerk reaction to world events over the past week or two. Concern has been building for a while as evident in these articles:
Agriculture Ministers Call for G-20 Action to End Food Price Manipulation [Jan 22, 2011]

Agriculture ministers gathered in Berlin said they were “concerned that excessive price volatility and speculation” in international markets for agricultural commodities may threaten the security of the world’s food supply.
The ministers from 48 countries called on the G-20 nations to “fight the abuse and manipulation of prices” in agricultural markets, according to a joint statement handed out at a press conference in the German capital today.
….
The rising cost of food helped provoke deadly riots this year in Algeria and Tunisia, and at least 13 people died in Mozambique last year in protests against plans to increase bread prices. Surging food prices in 2008 sparked protests and riots in more than 30 countries, including Egypt, Haiti and Cameroon.
Expanding Population
Global food production will have to rise 70 percent by 2050 as the world population expands to 9.1 billion from about 6.8 billion in 2010, according to the FAO.

Part of that global supply chain:
China Puts More Grain Reserve on Market [Dec 9, 2010]

The reserve included 1.8 million tonnes of corn, 4.5 million tonnes of wheat, 2.1 million tonnes of rice and 296,000 tonnes of soybean, the NDRC said.
Previous figures showed a total of 25.5 million tonnes of stockpiled grain and cooking oil had been released on to the market since the end of October.
The NDRC said the reserve grain put on the market had begun to be effective in ensuring supplies and stabilizing prices.

Now let’s revisit my question again: Does the USA have 100 pounds of wheat stashed away for each citizen?
Even considering the distributed pipeline of the global just-in-time food “supply” chain, the short answer is No.
The last time the world had a food crisis in 2008 our grain stocks were depleted. This led to some concerns about rebuilding a national strategic stockpile, but as far as I know this did not happen.
Let’s revisit some key articles from 2008:
Surplus U.S. food supplies dry up [5/2/2008]

While the previous surpluses were costly and sharply criticized, much of the food found its way to the poor, here and abroad. Today, says USDA Undersecretary Mark Keenum, “Our cupboard is bare.”
….
Because of the current economics of food, and changes in federal farm subsidy programs designed to make farmers rely more on the markets, large U.S. reserves may be gone for a long time.
….
A coalition of religious and farm groups, in an open letter to Congress this week, warned that low supplies increase the risk of hunger and higher prices, calling for creation of a strategic grain reserve.
“As a matter or national security, our government should recognize and act on its responsibility to provide a stable market for food in an era of unprecedented risk,” says the letter from the National Family Farm Coalition and various groups.
….
The USDA’s sole remaining sizable stockpile contains about 24 million bushels of wheat in a special government trust dedicated to international humanitarian aid. The special food program, which also holds $117 million in cash, has dwindled from its original 147-million-bushel level as Republican and Democratic administrations have used it but not fully replenished it.
….
International grain supplies are the tightest in three decades, and prices of wheat, corn, rice and other food staples have doubled or tripled.
“The whole world has gotten fairly sanguine about food supplies,” says Bruce Babcock, director of the Center for Agricultural and Rural Development at Iowa State University. “Advances in logistics and just-in-time production have allowed the world to get by on very low stock levels for a very long time. We kind of undershot it this year.“

Treating grain reserves like most people treat their finances will have very concrete consequences.
Let’s do some math:
Assuming we still have the same number of bushels now as we supposedly did back in this 2008 article and decide not to export it, that would amount to a little less than 5 pounds of wheat per person in the United States.
Still putting all your faith in the just-in-time delivery system of trucks supplying your local big box store when it comes to feeding your family in tough times?
What happens when another country is willing to pay $1 more per pound? How about $10 more per pound? Suddenly, there’s a shortage with a lot of people standing around saying “How did that happen?”
This guy will know how:
AAM concerned with CCC inventories [6/18/08]

The U.S. has no remaining grain reserves
Larry Matlack, President of the American Agriculture Movement, has raised concerns over the issue of U.S. grain reserves after it was announced that the sale of 18.37 million bushels of wheat from USDA’s Commodity Credit Corporation Bill Emerson Humanitarian Trust.
“According to the May 1, 2008 CCC inventory report there are only 24.1 million bushels of wheat in inventory, so after this sale there will be only 2.7 million bushels of wheat left the entire CCC inventory,” warned Matlack. “Our concern is not that we are using the remainder of our strategic grain reserves for humanitarian relief. AAM fully supports the action and all humanitarian food relief. Our concern is that the U.S. has nothing else in our emergency food pantry.
There is no cheese, no butter, no dry milk powder, no grains or anything else left in reserve. The only thing left in the entire CCC inventory will be 2.7 million bushels of wheat which is about enough wheat to make 1/2 of a loaf of bread for each of the 300 million people in America.”
….
“This lack of emergency preparedness is the fault of the 1996 farm bill which eliminated the government’s grain reserves as well as the Farmer Owned Reserve,” explained Matlack. “We had hoped to reinstate the FOR and a Strategic Energy Grain Reserve in the new farm bill, but the politics of food defeated our efforts. As farmers it is our calling and purpose in life to feed our families, our communities, our nation and a good part of the world, but we need better planning and coordination if we are to meet that purpose. AAM pledges to continue our work for better farm policy which includes an FOR and a Strategic Energy Grain Reserve.”

I need to re-do my math based on that newer number from only a month later:
That’s 1/2 pound of wheat the US government had set aside per person in America in 2008. 1/2 lb of wheat to make 1/2 loaf of bread is close enough if you also have the sugar, salt and yeast. Does your emergency planning only involve that 1/2 loaf of government bread? I’m sure it’s there in the cupboard right next to the IOU for your Social Security.
Got grain?
Moving on:
Growers and economists push for strategic grain reserves [Aug. 4, 2008]

Shortly after the latest G-8 summit wrapped up in Japan in early July, speakers at a National Family Farm Coalition-sponsored forum pointed to the lack of a strategic grain reserve as a cause for current agriculture market conditions.
….
The current situation occurred because, over time, there came to be a belief that growers could provide needed grain stocks in a time of need. That has proven untrue, said Ray.
What about storage costs for such a reserve? “When you think about spending 25 cents to 30 cents per bushel per year for storing a portion of the crop rather than spending $1 or $2 per bushel in some cases, for (government) payments, we’re not being very truthful about how much it costs relative to the damage it can do when it isn’t in place.”
Such a reserve would cost “millions of dollars per crop, per year, for the storage. It would be in the high millions — towards $1 billion. But we’d be getting a more stable price structure for farmers here and around the world. (It would allow) those buying our commodities to pay a larger share of the cost of production and have that stock available at times like these.”
The current economic disruption — “it isn’t just livestock … it is affecting so many sectors of the economy, both domestic and international — is coming home. Maybe this is a teachable moment and people will understand. We should be preparing for the next go-around.
“In my view, the cost of a farmer-owned grain reserve is peanuts compared to what’s been spent and the damage it’s done in the past without the storage.”
….
Like other farmers in the Corn Belt, Indiana grower Troy Roush has seen “some awful weather” this growing season. “In many places, I’m into a third replant with both corn and soybeans. It’s been a very challenging year.”
Roush, vice president of the American Corn Growers Association, rejected the charge that ethanol is largely to blame for high feed prices. If that’s the case, “how do you explain why wheat prices are high? Why rice prices are high? You certainly can’t grow corn on rice land and wheat lands are largely unsuitable for corn. Is ethanol responsible for high steel prices, too? Or could there be other factors influencing commodity prices?”
As for higher food prices, Roush pointed out that farmers receive only about 20 cents of every dollar the consumer spends in the market.
“It just doesn’t track true that ethanol or even farmers’ take of the total supermarket dollar is responsible for the recent upsurge in food prices. You must look deeper.”
No one should forget, said Roush, that corn buyers have been able to purchase corn — and other subsidized commodities — at prices well below the cost of production. In those times of plenty, “the prudent thing would have been to implement a farmer-owned reserve. If we’d done it then, we’d have stabilized prices above cost of production, saved taxpayers subsidy payments, and, in turn, those reserves would now be moderating the price of corn and providing the benefits of food and energy security.”
….
In the United States, the wisdom of a strategic petroleum reserve is accepted. “Yet, we don’t have a strategic grain reserve. I don’t understand that. Are we more concerned about driving cars than eating?”
….
The United States, by eschewing a policy of grain reserves and market price supports at the behest of corporate agricultural interests, has “followed a disastrous market-oriented farm policy that has destroyed family farm agriculture in this country.”
Naylor called the WTO backing of liberalized trade and allowing the market to regulate agricultural prices and stocks “insane. It doesn’t make sense from the beginning.
“I see the G-8 leaders have (said) there may be a need for reserves after all. Well, it’s a little too late to figure that out after we’ve lost so many farmers around the world and people are starving.”
….
“Things will happen. It isn’t a case of just getting past this (current crisis) and everything will be okay. We need to use this as a teachable moment and get ready for the next time.”