As U.S. EPA prepares to make a decision on a waiver request for the suspension of the Renewable Fuels Standard, farmers in the Midwest are beginning to assess the damage incurred by this month's record flooding. During today's OnPoint, Tom Buis, president of the National Farmers Union, gives the latest on the impact of the flooding on Midwest farmers. Buis explains why he believes the renewable fuels standard should not be suspended, saying corn farmers will be able to meet the country's fuel and food requirements without issue. He also discusses the effect speculators are having on the price of corn.
Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Tom Buis, president of the National Farmers Union. Tom, thanks so much for coming on the show.
Tom Buis: Thank you for inviting me.
Monica Trauzzi: Tom, farmers in Iowa, Indiana, Illinois, parts of Minnesota have all been devastated by the recent record flooding that we've seen. What's the latest update on the status of the farms there? How severely have they been hit? Can you sort of quantify what's been lost in terms of acreage and also dollars?
Tom Buis: It's going to be difficult at this time to judge how many acres have been totally wiped out because it depends on how long the water stays on the crop, how big the crop was at the time it got on there, whether you get mud in the center of that stock of corn, and whether it survives. Beyond that, temperature, you know a crop laying there in flooded water, in a lot of heat, it kind of boils it, boils the life out if it, so to speak. But it's getting worse because the levees keep breaking up and down the Mississippi River. You know, what we witnessed yesterday was a lot more damage than what had occurred previous, which was probably limited to about five or six states, but now it just keeps coming south as that water keeps moving. So, we don't know the full extent. We don't know how much it will recover. We don't know what the weather is going to be so producers could get back in and replant a crop of some sort yet for this year. It's getting pretty late, but I think every farmer will be trying to produce if they can, but you've got to get the water off, you've got to get it dried out, and you've got to move forward. I would say there's a program in the new farm bill called the Permanent Disaster Assistance Program that will provide assistance to those producers. There's a little lag time because it's based on whole farm revenue losses that occur during the marketing year. And I just had a meeting this morning with Deputy Secretary Chuck Connor at USDA urging them to implement this in a farmer-friendly manner for all those people and give advance estimated loss payments to them because the clean up is going to be extensive. Once that water gets off you have all kinds of tree stumps and junk that flows out of the river and stays in the fields, so they're in for a long haul.
Monica Trauzzi: So in terms of government assistance, at this point, does it seem like farmers will get an adequate amount to rebuild?
Tom Buis: Well, we hope so. You know, this is the first test for the new permanent disaster program and one of the reasons we pushed so hard for that, Monica, was because up until now you always had to rely on emergency ad hoc assistance, which comes late and generally is a big political fight to find the money in Congress and the administration and get everybody on the same page. And those sometimes take years. We can't wait years. People have a lot invested in this crop, more this year in the inputs than ever in history because a lot of people like to talk about the high commodity prices, under the radar are the skyrocketing input costs because of energy. Fertilizer prices have tripled in the past year and a half. Fuel, everyone knows what fuel is doing. You name it, all the inputs and agriculture is a very energy extensive production.
Monica Trauzzi: You mentioned commodities prices. The price of corn has risen significantly as a result of the flooding. What are the long-term impacts on the price of corn and, subsequently, the price of food as a result of this flooding?
Tom Buis: Well, as you know, not too many Americans directly eat corn, field corn. Field corn is different than sweet corn. It's different than popcorn. It's different than canned corn. Probably the biggest use is into making of fructose sugar that's used in soda pops. There is some flaking for cornflakes, but that's about $0.11 out of the five dollar box of corn flakes, is the value of the corn. So, that direct correlation is not what people are trying to make it out to be. In fact, if you look at USDA's statistics, and they've tracked us over time, the farmer receives about $.20 out of the food dollar a consumer pays. That means that 80 percent of that price is set after it leaves the farm and before it gets to the fork. You've got processing, you've got transportation, you've got distribution, you've got packaging, you've got retailing, and those prices are going up. They're not just commodity prices forcing this up, but energy and the price of oil is impacting this economy beyond anyone's wildest dreams. So, if you want to look at one culprit, you have to look there. Also figured in that is the labor costs and a variety of other costs that farmers have no control over. I tell people, some products we could give away the commodity and the prices would still go up and the cornflakes is a good example. Bread is another good example. The so-called bagel shop in Bethesda that the Washington Post wrote about, the guy raising his prices of bagels over a dollar for the first time. If you had a gigantic bagel, a 4.6 pound bagel, there is $0.07 worth of wheat, $0.07, and the shop owner was going to raise his prices by $0.15. So we have very little control. We're not price makers, we're price takers. We can't set our prices.
Monica Trauzzi: Bearing all of this in mind, should the renewable fuels standard be suspended then for the remainder of this year as EPA is now considering? A lot of people are concerned that we're not going to be able to meet the new demands, especially as a result of this flooding, and that corn growers are going to be very stressed in order to meet those demands.
Tom Buis: Well, it makes a great sound bite Monica, but if you look at reality, we're already producing above the RFS mandate for this year. So, the demand is already there out of the marketplace and if you roll it back, you'll have virtually no impact on prices. Now, last year we produced a record corn crop, biggest in history by far, over 13 billion bushels. The previous record was 11. And we exported more corn than any time in history, in terms of volume and value. We had more corn to go into livestock feed than any time in history and we had more that went into energy. And so you have to look, what're the real culprits here? One, a very big one, is energy prices as I talked about. The second is speculation. Investors couldn't make money on Wall Street because of the credit bubble and the mortgage crisis. And whenever you have inflation and a weak dollar, investors put money into commodities. You're seeing that speculation ...
Monica Trauzzi: So, are they having a field day with this flooding?
Tom Buis: Oh, absolutely. And we've seen more money pour into those commodities futures markets than any time in history, which, obviously, they're going to do it because they think they can make some money. But I think it's distorting the market and if you really want to look at the fixes for food prices, you have to look at that complete picture, the full dollar. Who's causing it to go up? There's even profiteering, I would suspect, if you look at some of these big food companies that are running to say ethanol is the problem, well, look at their first-quarter profits. They went up.
Monica Trauzzi: All right, but a lot of people would say that you're not only representing the farmers who have been devastated in Iowa and Illinois, but you're also representing the farmers who haven't been devastated in Minnesota for example that do have viable corn crops and who are going to make a lot of money at eight dollars a bushel for their corn crops.
Tom Buis: Well, they're going to make more than they've been making, but you have to keep in mind those same corn farmers and soybean farmers, for the previous decade, averaged receiving 21 percent below the cost of production to produce the crop. And for those who say farmers shouldn't make a profit, I always tell people profit shouldn't be a dirty word only for America's farmers. All these food companies, the energy companies, everyone else makes a profit, a farmer should. The profits aren't as -- they're good, don't get me wrong, for a corn farmer that's got a full crop.
Monica Trauzzi: Right.
Tom Buis: But because of their inputs they're not near as much as what people could imagine, because those inputs have skyrocketed as well.
Monica Trauzzi: OK, so like I mentioned, EPA is reevaluating the RFS at this point, there's a public hearing period, a comment period ending on Monday. Do we need to have absolutely perfect weather though in order to meet the RFS? A lot of people are arguing that, that the RFS was created not bearing in mind natural disasters and other weather events.
Tom Buis: Well, no. It's a question of usage and what's the priority on usage? As I mentioned, we exported, to other countries because of our weak dollar, more corns in terms of value and volume than any time in history. What the renewable fuels have done for this country is lowered the price at the gas pump by about 15 percent less, because of less oil we're importing. It's the first generation of renewable fuels and if you start pulling the plug on RFS and the mandates, it sends the wrong message to any investor that wants to put money into the next generation, which is where we're going to get our real volume.
Monica Trauzzi: So, you're confident that the devastated Corn Belt can meet the RFS for this year?
Tom Buis: Oh, yeah, without a doubt. I guess, Monica, what upsets me is a lot of people talk about free markets as long as they're buying these inputs below cost of production. And you're going to have shifts of usage, but the market determines those shifts of usage. Let's just say we have a 10 billion bushel corn crop, we still have enough for domestic livestock production, domestic food uses of corn, and renewable energy issues. And we don't know what's going to happen ...
Monica Trauzzi: Then why is the price so high if we have such an abundance?
Tom Buis: Well, there's a variety of factors again. You've got to look at the speculation, which some people have estimated as 30 percent of the price. You have to look at the energy costs to produce it and this mindset, not just in the United States, but the world, we're the biggest corn exporting in the world.
Monica Trauzzi: OK.
Tom Buis: A lot of people are saying, oh, well, I need to secure my product. And at record high prices we had record exports and part of that is because the dollar is so cheap that they're probably buying it cheaper than they were when corn was two dollars in real terms, but also because they don't want to be caught short. So, you have the market actually working on where is it going to end up? And I think this nation has been asleep for 35 years, since the first Arab oil embargo. We didn't take the steps. We had these fits and starts, and every time oil prices would go down we go back to sleep and to back away from renewable energy. And I would be the first to say that corn ethanol is just a fraction of the whole suite of things that we need to become more energy independent, a small fraction of that. But you're talking biodiesel and wind and solar and cellulosic ethanol from biomass and other feedstocks. We can't stop or we're going to be literally over an oil barrel again.
Monica Trauzzi: Final question here. We've covered a lot of ground, but I want to get your thoughts on the farm bill which the Senate just overrode the president's veto on that.
Tom Buis: Again.
Monica Trauzzi: Again. It was a long battle. There were some interesting things happening along the way. What are your thoughts about the long road here and about the farm bill being tossed?
Tom Buis: Well, I think, number one, a lot of people think the farm bill is all about farmers and it's not. Almost 75 percent of all the spending in this five-year farm bill goes to food and nutrition programs, domestic hunger, women and children, food stamps, school lunches. The farmer, the commodity title, usually takes the criticism and why do we support farmers, especially in high prices? Well, number one, you can't predict what's going to happen down the road and usually high prices are short-lived, the lows outlive the longs. And we have always supported a countercyclical safety net, which means that if the farmer's getting the price from the market, they get no assistance. Now, Congress didn't go down that road, but they did make some changes that were beneficial, adding a permanent disaster program is the most common sense safety net that I've seen in a long time. It's a good bill. It's better than the current law. It's far from perfect, but in order to reach that threshold of two-thirds of Congress, because the president signaled a year ago they were going to veto it, the bar was too high for us to be able to make the reforms that were truly necessary. And I think we'll have another shot at that.
Monica Trauzzi: OK. Tom, we're going to end it right there. Thank you for coming on the show.
Tom Buis: Thank you.
Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.
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