STATEMENT OF KEITH COLLINS

CHIEF ECONOMIST, U.S. DEPARTMENT OF AGRICULTURE

BEFORE THE U.S. SENATE COMMITTEE ON AGRICULTURE,

NUTRITION, AND FORESTRY

November 9, 2005

Mr. Chairman and members of the Committee, thank you for the invitation
today to discuss the implications for U.S. agriculture of higher energy
prices and the disruption of the transportation system due to
hurricanes. Prior to the hurricanes, many farmers were already facing
rising energy and lower crop prices for the 2005/06 year due to strong
global energy demand and large expected crop production in the United
States. Hurricanes Katrina and Rita reduced domestic crude oil, natural
gas and refinery production temporarily and destroyed some port
infrastructure, adding significantly to energy prices and disrupting
trade. These impacts have had effects across the Nation's agricultural
producers. Energy and transportation costs remain elevated, and labor to
operate export facilities remains tight. The higher energy prices and
disruption of the transportation system are increasing farm production
expenses, lowering prices to producers and raising farm program costs.

Despite these challenges, Gulf Coast areas have made important and
remarkable steps toward recovery. USDA has implemented a number of
assistance programs to help. In recent weeks, barge traffic has
increased sharply; grain inspections for export through the Mississippi
Gulf have approached last year's levels; barge and rail forward rates
have moved well below spot rates; and cumulative corn and soybean
exports for this marketing year are now only moderately below year
earlier levels.

**Importance of Gulf Ports for Agricultural Trade**

Four of the top 10 U.S. ports used to export agricultural products are
located in the Mississippi and Texas Gulf region. They are South
Louisiana, 36 percent of total agricultural exports by weight; New
Orleans, 8 percent; Westwego, 5 percent; and Houston, 5 percent.
Fifty-four percent of agricultural exports moved through these four
ports in 2004. Key commodities include bulk grains and grain products
such as cereal and flour, soybeans, vegetables, animal feed, rice, and
tallow.

Two of the top 10 ports used to import agricultural products are also
located in the Mississippi and Texas Gulf region. They are Houston, 5
percent by weight, and New Orleans, 3 percent. In 2004, 8 percent of
total agricultural imports moved through these Gulf ports. Key
commodities include oils (coconut, soybean, palm kernel, nut), coffee,
fruit (bananas and pineapple), molasses, and beverages.

The Mississippi River system is a major transportation artery in the
U.S. agricultural marketing system, providing a low-cost way for Midwest
grain and oilseed producers to ship to international markets.  This
system is an important factor in keeping U.S. products competitive in
world markets. In a typical year, 50 to 65 percent of U.S. grain exports
move down the Mississippi and through the Gulf to their final
destinations around the globe.

**Gulf Area Transportation Situation for Agriculture**

**Initial Situation.** Immediately after Hurricane Katrina hit New
Orleans on August 29, debris, and loss of aids to navigation, loss of
power, evacuation of the city and infrastructure damage closed the
Mississippi River to navigation. In addition to the bulk grain
facilities and ports along the Mississippi River, the ports of Gulfport
and Pascagoula, Mississippi, sustained damage to warehouses and storage
for refrigerated and frozen commodities. Hurricane Rita, tracking
farther west than Katrina, added to the disruption. The pace of vessel
loading at Gulf ports fell sharply the week following Hurricane Katrina.
Prior to the storm, the weekly loading pace was 36 vessels, and the week
after the hurricane, vessels loaded fell to 10.

**Port Recovery.** USDA's Office of Transportation and Marketing in the
Agricultural Marketing Service has had the USDA lead for assembling
information on the status of the marketing system in the Gulf and
tracking the recovery effort. They report that Gulf Ports have made
substantial progress, although much work remains. There are 10 export
elevators and three floating rigs between Baton Rouge and Myrtle Grove,
LA that have a total storage capacity of about 53 million bushels of
grain and a capability of loading 970,000 bushels per hour when fully
operational. All facilities are now fully operational. Grain elevators
on the Texas Gulf generally escaped damage from Rita. Getting power
restored was their most significant delay. Initially, dredgers were not
able to get to ports like Gulfport and Pascagoula because they were busy
dredging in the Mississippi River. Dredging is now occurring in these
ports as well.

At New Orleans, the number of dock workers, truckers and crane operators
as reported are still below normal. Some workers are still living on
temporary MARAD ships provided by the Department of Transportation;
these vessels are scheduled to leave in mid-November. Demand for truck
drivers at the port remains high, with truck capacity reportedly running
at 50 percent of pre-storm levels.

In Gulfport, the storm clean-up continues, including demolition of
several damaged warehouses including some used for frozen product.
Pascagoula is providing only direct loading services, with cargo moved
directly from truck, rail, or barge to and from the vessel. The port's
warehouses are being reconstructed. The port expects to have the
warehouses open and operational within a matter of weeks. At the Texas
Gulf, public facilities at Port Arthur, which took almost a direct hit
from Hurricane Rite, are fully operational. Some private
facilities/terminals have not completely restored operations.

All Mississippi River channels used for grain export are open and
operating at normal depths. The shipping channel leading to Port Arthur
and Beaumont, Texas, is open to 40 feet with no restrictions. The Coast
Guard also cleared the Port of Lake Charles, Calcasieu Channel, to 40
feet with no restrictions.

**Barge Situation.** On the Mississippi Gulf, 90 percent of grain is
delivered by barge, the rest by rail. Prior to Hurricane Katrina, lower
water levels in the Upper Mississippi River system resulting from
drought had already led to rising barge rates in July and August and
higher overall costs of moving grain down river. The low water levels
were also causing concerns about the ability to move grain down the
river during the upcoming harvest season.

As a result of Katrina, only about 25 barges are estimated to have been
lost due to severe damage or sinking. Out of a fleet of 11,900 covered
barges, the industry reports that as many as 2,000-plus covered barges
are currently on the lower Mississippi River between Baton Rouge and
Myrtle Grove, Louisiana -- twice the normal number. The bottleneck of
barges in the south is partly due to a lack of adequate labor to unload
barges. A shortage of housing for barge crews contributes to this
problem. In addition, an unknown number of barges are reported to be
holding poor quality grain, some of which are said to have been on the
Mississippi Gulf prior to Hurricane Katrina. In addition, covered barges
are being used to move non-grain cargo back up the Mississippi River
which adds to the turnaround time of a barge.

Barge grain shipments on the Mississippi Gulf were running below the
4-year average before Hurricane Katrina. After the storm, shipments
declined further as barges began to back up waiting for ports,
elevators, and navigation channels to reopen. Despite the below-normal
turn-around time, by late October, barge grain shipments were recovering
toward their pre-storm levels, although they still lagged compared to
the 4-year average.

**Rail Situation.** Grain deliveries by rail to the Mississippi Gulf
decreased sharply after Hurricane Katrina, recovered by September 21,
lagged in mid October, but rose 45 percent from a year ago in the week
ending October 26. Deliveries to the Texas Gulf have been erratic, but
have been running well above year ago levels since the beginning of
October. Interchange service in New Orleans among five of the six major
railroads has been restored. CSX is the only major railroad unable to
interchange freight in New Orleans, and it expects to restore service by
the end of February.

Bids for guaranteed grain cars have been at record highs since August
due to large harvests and grain stocks. Secondary market rail bids for
delivery during the months of January and February finally began to
decline during mid October from sharp increases that occurred in
response to Hurricanes Katrina and Rita. Still, they remain much higher
than previous years, signaling tightness in the transportation market
overall. Bids normally ease for rail cars to be delivered in December as
harvest ends; however, ongoing pressure on freight rates is anticipated
this year.

**Export Situation.** Vessel loadings of bulk grain in the Mississippi
and Texas Gulf declined significantly after Hurricanes Katrina and Rita.
Within two weeks after Hurricane Katrina, vessel loadings were just
about back to normal, reaching the 4-year average. However, with the
approach of Hurricane Rita, the loading pace dropped again. By mid
October, vessel loadings again reached the 4-year average but slipped
some the week ending October 27.

Another indicator of export performance is grain inspections for export
through the Mississippi Gulf, which in the week after Katrina hit fell
to 21 percent of the same week in 2004. Compared with a year earlier,
grain inspections were generally at, or well below, the year earlier
levels until the week of October 13, when they were up 30 percent over
last year. The volume of grain inspected again declined during the weeks
of October 20 and 27.

In the Texas Gulf, inspections have returned to normal and have helped
offset some of the decline in the Mississippi Gulf. The Beaumont
facility remains an exception as the export grain elevator there has had
limited power and continues to clean up, but it expects to resume
loading of vessels prior to November 6. Grain inspections in the Texas
Gulf have been very strong the past two weeks, running 142 and 130
percent above a year earlier for the weeks ending October 20 and 27, far
better than the 16 percent experienced during the week immediately
following Hurricane Rita.

**USDA Efforts to Help Improve the Marketing Infrastructure.** USDA has
implemented a series of emergency provisions to help improve the
transportation and marketing situation for producers.

-   **Barge movement.** USDA is providing temporary incentives to assist
    immediate movement of barges of damaged corn from New Orleans to
    up-river locations. When empty, the barges will be available to move
    newly harvested crops. USDA has accepted proposals to move about 145
    barges of damaged corn out of New Orleans to up-river locations. On
    November 2, USDA announced that it would continue with a second
    round of the program, providing an additional \$7.6 million in
    funding.

-   **Alternative storage.** To help producers deal with insufficient
    barge transportation, USDA will pay incentives for alternative
    storage of grain. USDA has accepted proposals on 41.4 million
    bushels from 19 companies.

-   **Alternative transportation modes.** To reduce stress on the
    transportation system, USDA is providing a transportation
    differential to cover the costs of moving grain to other river
    transportation modes and locations. Freight differentials have been
    provided to move 294,770 tons of corn, wheat, and soybeans through
    the Great Lakes and Pacific Northwest ports. The shift from Gulf
    barge transportation to Great Lakes and Pacific Northwest rail
    transportation will help mitigate the temporary congestion at
    Mississippi Gulf ports.

-   **Marketing Assistance Loans.** Producers with 2004-crop corn,
    soybean and rice marketing assistance loans maturing at the end of
    September and October and who wish to forfeit the loan collateral
    securing these loans are being provided the opportunity to keep the
    commodities on their farm for 60 days, rather than move it
    immediately to commercial warehouses as normally required. During
    this 60-day period, the producer may purchase these forfeited
    commodities at the rate allowed for repaying marketing assistance
    loans.

-   **Emergency Loans.** More than \$150 million in emergency loans has
    been made available to eligible producers who have suffered at least
    a 30-percent reduction in crop production or have sustained physical
    losses to buildings, chattel or livestock from Hurricane Katrina.
    Farmers and ranchers have eight months from the date of a
    Presidential or Secretarial disaster declaration to apply for
    low-interest agency loans.

-   **Temporary and Emergency Storage.** For the 2005-crop year,
    producers may obtain marketing assistance loans for on-farm grain
    storage on the ground in addition to storage in grain bins and other
    normally approved structures. States along the river in the upper
    Midwest have requests for approval of temporary and emergency
    storage in excess of 250 million bushels.  Areas tributary to the
    Illinois River have requests for approval in excess of 37 million
    bushels.  Facilities along the Missouri River have requested
    temporary and emergency storage in excess of 138 million bushels. 
    We have requests along the Ohio River of approximately 45 million
    bushels.  In total throughout the U.S., USDA has approved 242
    million bushels of temporary storage and 302 million bushels of
    emergency storage.

-   **On-farm storage capacity.** In addition, the Farm Storage Facility
    Loan Program (FSFL) is available to provide low-interest financing
    for producers to build or upgrade on-farm grain or silage storage
    facilities.

**Energy Situation for Agriculture**

In addition to the disruption of port facilities, agricultural export
infrastructure and rising transportation rates, the hurricanes have
exacerbated an already tight energy market. Fuel and fertilizer prices
have risen, reflecting higher prices for crude oil and natural gas. USDA
estimates farmers paid 43 percent more for diesel fuel in October 2005
than in October 2004. Crude oil delivered from the Gulf accounts for 30
percent of domestic production. Ninety-percent of Gulf oil output was
disrupted by the hurricanes and caused a 30-to-40-cent-per-gallon jump
in gasoline and diesel prices as farmers were gearing up for harvest.

Number range CHAPTERProducers use energy directly for operating
machinery and equipment on the farm, transporting products to market and
indirectly in fertilizer produced off the farm. Farm expenditures on
energy-related production inputs---electricity, fuels and oils, and
fertilizers---rose from about 5 percent of total farm cash expenses in
1910 to over 17 percent by the early 1980s. From the early 1980s to
1999, improvements in efficiency and generally stable energy prices
caused energy-related expenses as a share of total farm cash expenses to
fall to about 11 percent. The share of energy-related expenses started
rising again after the energy price spikes of 2000-2001.

Rising energy costs affect farm commodities in different ways, depending
on their reliance on energy. USDA estimates the cost of production for
corn, soybeans, wheat, cotton, grain sorghum, rice, peanuts, oats,
barley, sugar beets, tobacco, milk, hogs, and cow-calf operations based
on surveys conducted every 3-8 years. These estimates indicate that
commodities with the highest energy-related expenses per acre include
tobacco, rice, sugar beets, and peanuts.

-   For example, in 2003, the average energy-related expenses for
    tobacco were about \$400 per acre, with about \$100 per acre for
    fuels, lubricants, and electricity and about \$300 per acre for
    fertilizer and soil conditioners.

-   In comparison, the average energy-related expenses for rice, sugar
    beets, and peanuts were about \$128, \$108, and \$97 per acre,
    respectively.

-   Energy-related costs for corn, sorghum, and wheat averaged \$66,
    \$51, and \$34 per acre, respectively.

-   On the lower end, energy-related costs for soybeans were only \$16
    per acre because of significantly lower fertilizer use.

-   Expressed as a percent of per acre total farm expenses, which
    includes land and depreciation, energy-related costs are the highest
    for sorghum, 23 percent; rice, 21 percent; corn, 19 percent; and
    wheat, 18 percent.

-   Energy-related expenses as a share of total farm production expenses
    were highest in the Midwest, where energy-related expenses accounted
    for about 11 percent of total farm production expenses and lowest in
    the Atlantic and West regions at about 7 percent.

-   If the 2003 cost of production data for energy-based inputs are
    indexed to reflect higher energy costs for 2005, energy-based
    production expenses for the 2005 crops are about 20 cents per bushel
    higher than 2003 costs for corn and soybeans, 31 cents higher for
    wheat, and 45 cents higher for sorghum.

Natural gas is the primary input in the production of nitrogen
fertilizer, representing 70 to 90 percent of the cost of anhydrous
ammonia nitrogen fertilizer. When U.S. natural gas prices started to
increase significantly in 2000, the cost of domestically produced
ammonia also rose significantly. These rising production costs have been
reflected in the prices paid by farmers for fertilizers, although prices
have not fully reflected increases in natural gas prices. From 1999 to
2004, the Prices Paid Index for fertilizer rose by 34 percent. The
Energy Information Administration (EIA) reports that the U.S. average
natural gas price for industrial users doubled over the same period.
More recently, the Prices Paid Index for fertilizer for September 2005
was 11 percent above September 2004, and the October Index was 13
percent above October 2004. Long-term increases in natural gas prices
will lead to an increase in the cost of U.S. nitrogen fertilizer
production and higher expenses for fertilizers. Increasing imports of
fertilizer will limit the impact of higher domestic natural gas prices
on farmers to the extent that natural gas prices in other countries do
not increase as rapidly as prices in the United States.

USDA's farm income forecast, issued on November 3, 2005, reflecting
post-hurricane conditions, placed expenses for fuels and oils,
fertilizer and electricity at 14 percent of total farm cash expenses for
2005. The estimate indicated expenses for energy-related production
inputs would be up \$5.2 billion over last year, with fuels and oils
accounting for \$3.4 billion of the increase and fertilizers \$1.7
billion

**Implications of Transportation and Energy Situation for the Farm
Economy**

**Barge rates, rail rates, energy prices and farm prices.** The price to
charter a barge on the Mississippi River from the Illinois River to New
Orleans generally ranged between \$10 and \$20 per ton during most of
2004/2005. Rates increased sharply since early September, peaking at
\$39 per ton the week of October 12. By the week of October 26, rates
fell to \$27 per ton and forward rates three months in the future were
down to \$19 per ton.

Rail will continue to struggle in a few areas until backlogs created by
Hurricane Rita are corrected. Demand for rail cars has increased due to
large grain supplies and to other, non-agricultural factors. This means
that railroads are pressed to capacity and continued pressure on rail
rates is likely.

The competition for the available barges and railcars, as well as high
energy prices, continues to pressure barge and rail rates. Higher energy
prices are also raising rail, truck, storage and processing costs. Much
of these increased marketing costs get passed back to producers in the
form of reduced farm prices. In addition, farm production costs are
rising as prices for off-road diesel, propane, and fertilizer are up.

In addition to lower market prices and higher production costs, grain
storage capacity has become a serious problem with carryover stocks of
nearly 2.5 billion bushels of corn and soybeans from the 2004 record
crops as well as the second largest harvests ever expected for 2005. As
of October 31, U.S. farmers had harvested 92 percent of their soybeans
and 80 percent of their corn. Farmers without sufficient storage
capacity face the prospect of on-ground storage, paying for commercial
storage if it can be found, or selling at lower cash market prices.

As the hurricanes disrupted the marketing system, the national average
corn basis--the local cash price minus the futures price--widened
substantially. The long-term national average corn basis, as measured
using data from Data Transmission Network (DTN), is 19 cents per bushel.
However, the basis usually widens in the fall as harvest selling begins.
This year, there are several reasons to suggest a wider-than-normal fall
basis: corn carryover from last year's record crop is exceptionally
large; the second-largest corn crop ever is estimated for this year; and
energy prices were already high, adding to transportation costs. The
national average corn basis was 38 cents per bushel on November 4, 2005,
compared with 26 cents a year earlier.

Basis changes differ by region and do not strictly reflect
transportation costs to the Gulf. For example, the North Central Iowa
corn basis was 54 cents per bushel on November 4, over double the 24
cents of a year earlier. The weaker prices in Iowa probably reflect that
State's larger than average corn supplies relative to storage capacity.
Iowa is expected to face a storage deficit of 470 million bushels,
requiring on-ground storage. Meanwhile, in Central Illinois, where
drought reduced production from trend, the corn basis on November 4 was
24 cents, only slightly wider than 20 cents a year earlier.

The combination of current low prices and upward revisions in the size
expected for this year's grain and oilseed production has led USDA to
lower farm price expectations for 2005/06. USDA forecasts an average
U.S. farm price for corn of \$1.85 per bushel for the marketing year
that began September 1, 21 cents below the 2004/05 marketing year
average. Soybean prices are expected to average \$5.40 per bushel, 34
cents below last year\'s average. The lower farm prices and higher
prices for energy-related products such as diesel, propane and
fertilizer are cutting into farmers' bottom lines.

**Food Prices.** Data on consumer food spending indicate that the farm
value represents about 19 percent of the retail cost of food, with the
remaining 81 percent attributable to food processing, transportation,
wholesaling, and retailing. The energy component of the marketing bill
for food was last estimated to account for 3.5 percent of retail food
expenditures in 2000, with eating places incurring nearly 40 percent of
the fuel and electricity costs of food marketing. The rail and
transportation costs accounted for another 4 percent of food marketing
costs, but only a portion of those expenses are energy-related costs.
The spike in energy costs in recent years has raised questions about the
effect of higher energy costs on retail food prices. Because energy and
energy-related costs represent a relatively small share of the retail
cost of food, we expect that higher energy prices to have only a small
effect on food prices. The Consumer Price Index for food rose 2.6
percent during the first half of 2005, and in September was 2.4 percent
above September 2004 on a seasonally unadjusted basis. This year's rate
of increase is likely to be at the lower end of a range of 2.5-3.5
percent, well below the 3.4 percent rise in 2004.

**Farm program costs.** A sharp increase in loan deficiency payments and
countercyclical payments triggered by low market prices will help offset
some of producers' lost income. Through loan deficiency payments alone,
corn producers could capture about 45-cents per bushel. This will, of
course, add considerably to farm program spending, which was already up.
Commodity Credit Corporation outlays, which dropped to \$10.6 billion in
fiscal 2004, were expected to be \$19.5 billion in 2005 and nearly \$22
billion in 2006, even prior to Hurricanes Katrina and Rita. On November
3, 2005, USDA estimated government payments to farmers would be \$22.7
billion for calendar year 2005, the second highest ever. The November
estimates reflect an increase in marketing loan benefits of \$1.3
billion compared with payments expected to be made prior to the
hurricanes.

**Competitiveness of U.S. Exports.** The Mississippi Gulf region is a
crucial export region for movement of U.S. grains and oilseeds to
overseas markets. Data recently released by the U.S. Bureau of the
Census indicates that the value of U.S. agricultural exports through the
Port of New Orleans fell by \$366 million (52 percent) in September
compared with a year earlier. Grain inspections for export through
Mississippi Gulf ports in September were down 100 million bushels, or
over 50 percent compared with September 2004.

This loss in exports and the adverse effects on farm prices have raised
questions about the competitiveness of agricultural exports for 2005/06.
The adverse effects on trade depend on (1) the length of time port
operations are affected, (2) the extent that foreign buyers can delay
purchases from us, and (3) the extent to which grain might be diverted
to other ports or to alternative uses, including short term storage.
Fortunately, all of these factors are working to mitigate export losses.
The quick actions taken by the U.S. Army Corp of Engineers to replace
navigation aids on the Mississippi River and to re-open the ports helped
minimize the disruption by hurricanes Katrina and Rita. While grain
inspections for export fell sharply after the hurricanes, combined
inspections from the Mississippi Gulf, Texas Gulf and the Pacific
Northwest from the week ending August 25 through the week ending October
27 were 94 percent of the 4-year average for that period. Total U.S.
Gulf vessel loadings returned to the previous 4-year average by the week
ending October 13, although the pace has slipped some since. USDA has
helped this recovery with a range of programs to move and store grain.
We also do not know of cases where major foreign buyers have indicated
they were going to switch to a foreign source because of the disruption
to Mississippi Gulf ports. Finally, USDA's U.S. Export Sales report for
the week of October 27, 2005 indicates that accumulated U.S. corn
exports this marketing year are at last year's pace, although soybeans
were running about 76 percent of last year's pace.

Based on the above considerations, USDA has not reduced its official
forecasts of the volume of corn exports for the 2005/06 crop year. As of
October, 12, USDA's estimate of this year's corn exports is 2.0 billion
bushels, the same as the early September estimate and up slightly from
the early August estimate. While actual exports were below expected
levels in September, USDA believes the shortfall will be made up as the
year progresses. The season-average corn price forecast has been reduced
for the 2005/06 crop year, from \$2.00 per bushel in early August to
\$1.85 in early October, which does reduce the value of exports. (Note
that price forecast is for the full year and includes forward contracted
prices.) But, much of the reduction in the price forecast is due to an
increasing corn production forecast, which is now placed at 10.9 billion
bushels, the second largest crop ever.

**What can farmers do?** USDA believes that the Mississippi River system
will be able to handle this year's grain movements, although it will
take longer to move grain down the river and it will cost more to do so.
USDA is working to help producers deal with the slowdown in barge
traffic and storage problems. In the short run, farmers are limited in
what they can do to mitigate the effects of lower farm and higher energy
prices. Higher loan deficiency and countercyclical payments will help
offset lower farm prices for eligible producers.

Over the longer term, research indicates energy savings are possible in
a number of areas. For example, under conservation tillage, it has been
estimated farmers can save 3.9 gallons of fuel per acre by going from
conventional tillage to no-till. Energy savings can also come from
better irrigation water management, including low-energy precision
application; improved pesticide management; improved nutrient
management; shifting to grazing systems instead of baled feed; adding
windbreaks; adopting precision agriculture; purchasing energy efficient
equipment; and generating energy on the farm using anaerobic digesters.
Some producers may also be able to switch to less energy-intensive
crops. In addition, U.S. farms and ranches have increasing opportunities
to produce biomass for biofuel and electricity production.

Another way many producers have reduced input costs is though input
purchase strategies. USDA's Agricultural Resource Management Survey for
2004 indicates 24 percent of commercial farms report locking in fuel
prices before delivery, 21 percent report negotiating fuel price
discounts, 31 percent report negotiating fertilizer price discounts, 8
percent report entering into fuel and fertilizer contracts, and over 20
percent buy fuel and fertilizer through cooperatives.

**Conclusion**

This year's devastating weather has damaged crops, livestock and
livestock products and the agricultural production and marketing
infrastructure in the Gulf Coast area. These disruptions combined with
higher energy costs have slowed farm marketings, lowered prices of some
farm commodities, and raised farm production and marketing costs. While
these impacts will reduce many producers' farm incomes, farm product
demand remains strong, and farm programs are cushioning the income drop
for many producers. USDA continues to estimate 2005 U.S. net cash farm
income to be second only to 2004. Agriculture's overall financial
strength is indicated by this year's debt-to-asset ratio, which is
expected to be the lowest since 1961.

While energy costs in particular will be a financial problem for
producers this and next year, as long as gross farm income remains
strong the farm economy should be able to absorb these costs.
Substantial work remains to restore the marketing system. USDA will
continue its assistance efforts with other Federal, State and local
agencies and will monitor the energy situation closely. While farmers
and ranchers face many challenges for 2006, we are confident that the
underlying financial strength of U.S. agriculture will enable them to
deal with the uncertainties ahead.

That completes my statement, and I will be happy to respond to any
questions.

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  **Top 10 Agricultural Commodities                                 
  Exported through Texas Gulf                                       
  Ports\*, 2004**                                                   

                                                                    

  **Commodities**                    **Thousand Metric  **Share**   **U.S.
                                     Tons**                         Share**

  Bulk grain                         7,906              76%         13%

  Tallow, grease                     546                5%          68%

  Rice, crackers, pasta              32                 3%          12%

  Bulbs and seeds                    245                2%          29%

  Grain products, flour              174                2%          2%

  Edible nuts                        145                1%          30%

  Soybeans                           121                1%          0.5%

  Poultry                            112                1%          5%

  Cotton                             104                1%          6%

  Corn oil                           79                 1%          23%

  Other                              703                7%          2%

  Total                              10,464             100%        8%

  \* Texas Gulf ports include:                                      
  Houston, Galveston, Freeport,                                     
  Corps Christi, Beaumont, Pt.                                      
  Arthur, Point Comfort, Brownsville                                

                                                                    
  ---------------------------------- ------------------ ----------- ---------

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