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28–421 PDF 2006

S. HRG. 109–510

DISCUSSION ON AGRICULTURAL TRANSPORTATION

AND ENERGY ISSUES

HEARING

BEFORE THE

COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

NOVEMBER 9, 2005

Printed for the use of the 

Committee on Agriculture, Nutrition, and Forestry

(

Available via the World Wide Web: http://www.agriculture.senate.gov 

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

SAXBY CHAMBLISS, Georgia, Chairman 

RICHARD G. LUGAR, Indiana 

THAD COCHRAN, Mississippi 

MITCH MCCONNELL, Kentucky 

PAT ROBERTS, Kansas 

JAMES M. TALENT, Missouri 

CRAIG THOMAS, Wyoming 

RICK SANTORUM, Pennsylvania 

NORM COLEMAN, Minnesota 

MICHEAL D. CRAPO, Idaho 

CHARLES E. GRASSLEY, Iowa 

TOM HARKIN, Iowa 

PATRICK J. LEAHY, Vermont 

KENT CONRAD, North Dakota 

MAX BAUCUS, Montana 

BLANCHE L. LINCOLN, Arkansas 

DEBBIE A. STABENOW, Michigan 

E. BENJAMIN NELSON, Nebraska 

MARK DAYTON, Minnesota 

KEN SALAZAR, Colorado

MARTHA SCOTT POINDEXTER, Majority Staff Director 

DAVID L. JOHNSON, Majority Chief Counsel 

STEVEN MEEKS, Majority Legislative Director 

ROBERT E. STURM, Chief Clerk 

MARK HALVERSON, Minority Staff Director 

(II) 

(III)

C O N T E N T S 

Page

HEARING(S):

Discussion on Agricultural Transportation and Energy Issues ........................... 01

Wednesday, November 9, 2005

STATEMENTS PRESENTED BY SENATORS 

Harkin, Hon. Tom, a U.S. Senator from Iowa, Ranking Member, Committee 

on Agriculture, Nutrition, and Forestry ............................................................. 26

Baucus, Hon. Max, a U.S. Senator from Montana, Committee on Agriculture, 

Nutrition, and Forestry ....................................................................................... 03

Coleman, Hon. Norm, a U.S. Senator from Minnesota, Committee on Agriculture, Nutrition, and Forestry ......................................................................... 01

Crapo, Hon. Mike, a U.S. Senator from Idaho, Committee on Agriculture, 

Nutrition, and Forestry ....................................................................................... 04

Lincoln, Hon. Blanche, a U.S. Senator from Arkansas, Committee on Agriculture, Nutrition, and Forestry ......................................................................... 07

Salazar, Hon. Ken, a U.S. Senator from Colorado, Committee on Agriculture, 

Nutrition, and Forestry ....................................................................................... 05

Stabenow, Hon. Debbie, a U.S. Senator from Michigan, Committee on Agriculture, Nutrition, and Forestry ......................................................................... 09

WITNESSES 

Barnes, Gerald W., Chief Operations Division, U.S. Army Corps of Engineers . 11

Calhoun, Richard, V.P. Grain and Oilseed Supply Chain North America, 

Cargill Incorporated ............................................................................................. 34

Collins, Keith, Ph. D., Chief Economist, U.S. Department of Agriculture .......... 10

Elliot, Neal R., Ph. D., Industrial & Agricultural Program Director, American 

Council for and Energy Efficient Economy ........................................................ 36

Gruenspecht, Howard, EnergyInformation Adminstration, U.S. Department 

of Energy ............................................................................................................... 14

Kelley, Daniel T., National Council of Farmer Coorperatives, Normal, Illinois 32

Neiber, Ryan, Rocky Mountain Farmers Union, Burlington, Colorado .............. 38

APPENDIX 

PREPARED STATEMENTS: 

Harkin, Hon. Tom ............................................................................................ 63

Collins, Keith .................................................................................................... 46

National Council of Farmer Coorperatives ..................................................... 65

DOCUMENT(S) SUBMITTED FOR THE RECORD: 

Statement of Sherman J. Reese, President, National Association of Wheat 

Growers .......................................................................................................... 74

Statement of Peter H. Huntsman, President, CEO, Huntsman 

Coorperation .................................................................................................. 79

Statment of Howard A. Learner, Executive Director, Environmental Law 

& Policy Center of the Midwest ................................................................... 83

QUESTIONS AND ANSWERS SUBMITTED FOR THE RECORD: 

Harkin, Hon. Tom ............................................................................................ 92

Page

IV

QUESTIONS AND ANSWERS SUBMITTED FOR THE RECORD—Continued

Lincoln, Hon. Blanche ...................................................................................... 98

Stabenow, Hon. Debbie .................................................................................... 102

(1)

DISCUSSION ON AGRICULTURAL 

TRANSPORTATION AND ENERGY ISSUES 

WEDNESDAY, NOVEMBER 9, 2005

U.S. SENATE, 

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY, 

Washington, DC. 

The committee met, pursuant to notice, at 10:26 a.m., in room 

SDG–50, Dirksen Senate Office Building, Hon. Norm Coleman, presiding. 

Present or submitting a statement: Senators Coleman, Talent, 

Crapo, Harkin, Baucus, Lincoln, Stabenow, and Salazar. 

STATEMENT OF HON. NORM COLEMAN, A U.S. SENATOR FROM 

MINNESOTA 

Senator COLEMAN. This hearing of the committee on Agriculture, 

Nutrition and Forestry is called to order. Good morning, and welcome. 

The transportation and energy challenges we face this year hit 

our farmers particularly hard. But the faults revealed of late show 

us how to move farming in the Nation forward. Both transportation 

and energy are basic inputs into almost every farm and business, 

so high transportation and energy costs go to the heart of our competitiveness as a nation. It goes to the heart of our ability to create 

jobs, improve our standard of living. 

Our transportation system is the lifeblood of agriculture. U.S. agriculture is highly dependent upon the effectiveness of our integrated agriculture transportation system, and poor transportation 

directly adds to farmers’ bottom lines. Truck, rail, and river must 

be able to work together to compete with each other and keep the 

price of transportation down. 

Congress recently passed a Highway Bill to address many of our 

surface transportation needs, but we have yet to pass the Water 

Resources Development Act, known as ‘‘WRDA,’’ to authorize crucial funding for our water infrastructure. Improving our river navigation will not only lower the cost of doing business for producers, 

but also mean less highway congestion and lower air emissions. 

Hurricane Katrina certainly highlighted the importance of river 

transportation to farmers, which was devastating to the agriculture 

transportation system in and around the Mississippi Gulf region. 

Overall, this area is responsible for about 60 to 70 percent of U.S. 

world grain exports. It is estimated that one in four acres of U.S. 

production is destined for export channels; 60 percent of which goes 

through New Orleans to the Gulf. 

2

Hurricane Katrina resulted in the extended closure of the ports 

of New Orleans and South Louisiana; and still we are operating at 

only two-thirds capacity. This tells me two things. First, USDA 

needs to continue working hard to mitigate the barge backlog. And 

second, Congress needs to pass WRDA. 

Rail and truck transport have been critical for agriculture in this 

time of interrupted river traffic; but clearly, agriculture is heavily 

dependent on our rivers. And we cannot expect to compete with the 

rest of the world using locks over 70 years old, as we have on the 

Upper Mississippi River system. 

But all of us here know transportation costs can’t be just boiled 

down to infrastructure. The price paid for energy has an enormous 

impact. And beyond transportation, energy prices are taking a severe toll on our farmers. On average, energy accounts for about 13 

percent of a farmer’s expenses. The increased costs of fertilizer 

caused by high natural gas prices, combined with extraordinarily 

high diesel prices and high transportation costs, have been a true 

challenge for producers today, who can’t raise their prices and are 

forced to absorb these very severe increases. 

Katrina made a bad situation worse, as far as the price of oil is 

concerned. Before the hurricane, on August 26th, the price of a barrel of oil was 50 percent higher than a year earlier. Three days 

later, Hurricane Katrina sent these prices skyward. And even now, 

the prices for gasoline and diesel are about 50 cents higher than 

1 year ago. 

Right before harvest, farmers found themselves in the line of fire 

of these rising costs. Even before Katrina, farmers were projected 

to spend about $10.2 billion in 2005 for fuel, $2 billion higher than 

in 2004. Katrina has created a real crisis for our farmers in terms 

of energy costs, and I hope this issue will be addressed in any upcoming disaster aid package. 

Clearly, our energy problems go beyond—far beyond—Hurricane 

Katrina. I want to share three numbers with you that I find very 

significant—a few numbers with you: 37, 53, 60, 74. These four 

numbers represent the percentage of petroleum supplies we purchased overseas in 1980, 2002, today, and the projected purchases 

we will make in 2025: from 37 to 74. We were addicted to foreign 

oil in 1980; wherein our costs double our dosage down the road. 

I am serious when I say that this Nation’s energy dependence is 

the greatest threat to our economy, our security, and our freedom 

that this Nation faces. 

This energy crisis presents a tremendous opportunity for our producers to grow the fuel our Nation needs. If we think Katrina was 

bad for energy prices, just imagine what would happen if OPEC, 

which currently accounts for well over 50 percent of our oil supplies, shuts off the spigot. We must have energy independence, or 

risk losing our autonomy. 

I believe our farmers are a major part of our energy independence. That is why I want to see 10 percent of our motor fuel come 

from renewable fuels by 2010. All new motor fuels sold in the U.S. 

should contain at least 10 percent renewable fuels. 

And we need to be looking at a hard date for all vehicles to be 

able to run at E–85. Moreover, converting sugar to ethanol has 

been instrumental to Brazil’s successful push toward energy indeVerDate 0ct 09 2002 09:44 Oct 16, 2006 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\DOCS\28421.TXT TOSHD PsN: LAVERN
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pendence. We need a viable sugar-to-ethanol program here in the 

United States. 

Coupling the energy production of our farmers with commonsense conservation initiatives, we can solve our energy dependence 

problem. 

I want to hear from our witnesses today on what they think can 

be done to address our transportation and energy challenges. How 

do we become more efficient, more innovative, and more independent? What steps does Congress need to take to build an affordable, reliable, and environmentally friendly infrastructure system 

in this country? 

I look forward to hearing from our witnesses. And at this point, 

I turn to my colleague from Montana, Senator Baucus. 

STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM 

MONTANA 

Senator BAUCUS. Thank you, Mr. Chairman. Thank you very 

much for holding this hearing. I am also glad that you have assembled witnesses in order to discuss the energy crisis that the farmers and ranchers face in this country. 

Just last week, when I was home in Montana, I knew in my head 

that rising energy prices are a real problem facing farmers and 

ranchers, but I was not prepared for the onslaught of criticism and, 

more importantly, just the deep worry and concern; the deepened 

lines in people’s foreheads, just worrying about how high costs have 

increased—essentially, diesel fuel and natural gas—not only for 

producers individually, but also as it translates into fertilizer. 

I mean, I have never in my 20–some years in the Congress experienced such a strong reaction about the problems the producers 

are facing due to the high energy crisis. I mean, this is a whole 

next category. This is really real. 

As a consequence, a lot of banks are wondering whether they 

should give loans to producers; whether it is going to cost out. You 

know, banks are worried about their bottom lines, just like producers are. And the banks are very worried that they are not going 

to be able to meet their bottom line because producers won’t be 

able to get the price they need or, more importantly, because the 

energy costs might just be too high for them. 

And we all hear concerns from farmers. That is the nature of 

farming. But I have not heard anything quite this deep, this worrisome, as I have this time when I was home. 

And Mr. Chairman, clearly, since we represent our people at 

home, we have an obligation to do something significant about this; 

not just talk about it, but do something significant that addresses 

the problems that they are facing. 

I might say, too, that this is not only a domestic concern; it is 

an international concern. Data indicate that our costs are a lot 

higher than are the costs for farmers and ranchers and producers 

in other countries. Statistics provided by the American Chemistry 

Council indicate that the natural gas cost per million Btu is higher 

in the United States than in over 25 developed and developing 

countries around the world. 

As of September, the United States had a $12.60 per-million-Btu 

price for natural gas, $12.60. At the same time, South Korea, 

4

Japan, Taiwan—countries with no natural gas reserves—had costs 

around $5.25 per-million-Btu. Costs in Europe hovered around $7 

per-million-Btu, as did prices in Mexico. Again, ours were $12.60. 

For those countries I mentioned—South Korea, Japan, and Taiwan—with no gas reserves, the costs are around $5.25 per-millionBtu; in Europe, about $7. 

This clearly is a tremendous price disparity. So it is not just an 

internal problem; it is an international competitiveness problem. 

Just coincidentally, Mr. Chairman, I was talking to a couple of 

mill operators, lumber mill operators, saying they can’t compete, either; because natural gas prices in other countries are so much 

lower that the finished lumber, plywood, you know, other products 

that American producers are attempting to produce—we are being 

undercut overseas. 

And we have got a lot more imports to the United States because 

of costs. It is not just Canadian imports and stumpage fees, low 

stumpage fees, that are a problem facing American mill operators. 

It is also very low production costs facing producers in other countries; so that we Americans trying to put a sawmill together and 

a plywood plant together and sell some product in the United 

States are finding that we are being undercut by foreign competition, mainly because of energy costs overseas that are so much 

lower than they are in the United States. 

I have got some ideas of what the problem is and what is causing 

this, and we will get at that later, Mr. Chairman. But nevertheless, 

it is a real problem that we have to address. 

I just hope that maybe our witnesses can shed more light on all 

of this because, clearly, we have got a problem. And clearly, we 

have got to do something about this. 

And I just thank you for holding this hearing. 

Senator COLEMAN. Thank you, Senator Baucus. 

Senator Crapo. 

STATEMENT OF HON. MIKE CRAPO, A U.S. SENATOR FROM 

IDAHO 

Senator CRAPO. Thank you very much, Mr. Chairman. I agree 

with the comments that my colleagues have made so far today. And 

I want to thank you for holding this hearing to discuss the agriculture transportation and energy issues. These issues are of vital 

importance to Idaho farm families, and I appreciate this opportunity. 

I want to first thank the Administration for substantial work 

done to assist with the recovery in the Gulf Coast. The challenges 

have been considerable, and the transportation disruption ripples 

through the agriculture industry far beyond those immediately impacted by the hurricanes. 

I look forward to hearing more from Dr. Keith Collins today regarding the details of USDA’s efforts. 

As Idaho is a landlocked state, with a modest population and 

substantial distance to markets, the Idaho producers have limited 

shipping options. They face the same kinds of difficulties that Senator Baucus has just described from our neighboring state, Montana. And I am sure Colorado and others out in the West have the 

same types of experiences. 

5

I am consistently hearing from Idaho agriculture producers, who 

are growing increasingly frustrated with the limited availability 

and high cost of rail, truck, and barge service in Idaho. 

Specifically, much of the concern is focused on the cost of rail 

shipment and the limited availability of a consistent supply of rail 

cars to get their products to market. This is a real problem in 

Idaho and other states with similar challenges, and I support efforts to reach workable solutions. 

Additionally, U.S. producers already face enormous input costs, 

and I am deeply concerned that the cost of production is increasing 

even more through the rising cost of fuel. High fuel prices are resulting not only in higher costs around farm equipment and 

shipped goods to markets, but also in rising input costs for products such as fertilizer. 

While agriculture is certainly not alone in being impacted by rising fuel prices, I am deeply concerned with the strain that these 

increased production costs are putting on farm families and the effect that increased production costs have on U.S. agriculture’s ability to compete in our global markets. 

Again, I appreciate all of our witnesses here today and their effort to contribute to this incredibly important discussion, and for 

the opportunity we will have to share our views on finding solutions. Thank you, Mr. Chairman. 

Senator COLEMAN. Thank you, Senator Crapo. 

Senator Salazar. 

STATEMENT OF HON. KEN SALAZAR, A U.S. SENATOR FROM 

COLORADO 

Senator SALAZAR. Thank you very much, Senator Coleman. Let 

me first say thank you very much to Chairman Chambliss and to 

Ranking Member Harkin for agreeing to hold this hearing to try 

to put a spotlight on the issues that are facing rural America, especially with the hike in gas and diesel prices that we have seen over 

the last several months. I think it is important for this committee 

to do it, and I very much appreciate the hearing that we are holding today. 

I also want to thank Ryan Neibur, who is here from Colorado 

today as one of the witnesses that we will be hearing from. Mr. 

Neibur is a fourth-generation family farmer who has chosen that 

way of life. And we, as members of this committee, are dedicating 

to sustaining family farming and ranching across America. I am 

pleased that he is here today, and I very much look forward to 

hearing his story about what it is like actually on the ground in 

eastern Colorado; which I am sure is very typical of what it is like 

for farmers and ranchers all across America. 

As I travel around my own State of Colorado, I share the same 

concerns that Senator Baucus shared; because I see those concerns 

in the faces of the people that I represent. I don’t believe that at 

any time in my history in Colorado, having been to every one of 

our 64 counties many times, that I have seen the concern on the 

eyes and the minds of farmers and ranchers that I see today. 

Many of them were on the edge of the cliff financially. I think 

that the fuel spikes that we have seen over the last several months 

have all the tendency of pushing them over that cliff. And I think 

6

it is the responsibility of this committee to provide assistance to 

these farmers. 

A few weeks ago, I got on the World Wide Web, and I ‘‘Googled’’ 

the gas prices on ‘‘Google News.’’ Sixty-four pages came back from 

that search on ‘‘Google.’’ But as I worked through the reams of 

these stories, I did not see a single article on the impact of high 

fuel prices on farmers and ranchers. 

I did see a lot of stories on a lot of other things: rising gas prices 

that were hurting commuters; hurting SUV drivers; hurting local 

governments; hurting lottery sales; hurting pizza delivery services; 

hurting golf travel plans; and indeed, even hurting the leaf-watchers in the western part of our country. I have no doubt that these 

high prices are hurting families and many people around America, 

but I am certain that they are not feeling the same kind of pain 

that farmers and ranchers are feeling across our country today. 

We all know, those of us who are associated with agriculture, 

that no one is hurt more by astronomical gas prices and diesel 

prices than farmers and ranchers. That is why it is so important 

to hold this hearing today. 

We must examine what is going on in rural America, and we 

must start to find ways to address the situation, both in the short 

term as well as in the long term. 

Here is what I am hearing from my state during harvest. Agriculture producers are some of the largest fuel consumers in the 

U.S., and producers are facing enormous fuel costs. For example, 

in Grand Junction, Colorado, diesel prices today are still over $3 

a gallon. 

I have heard from a farmer in Brandon, Colorado, who has a dry 

land wheat farm of approximately 5,000 acres. He has seen a 217–

percent increase in diesel costs, and about a 71–percent increase in 

gasoline costs since the summer of 2004. This operation will use 

about 200 to 250 gallons of diesel per day during the heavy farming 

season and, if fuel prices do not moderate, this farmer will realize 

a doubling of fuel costs for 2006; equating to an additional $16,000 

annually, just for his fuel expenses on his farm. 

I have also heard from another farmer in northeastern Colorado 

who, in order to cover the increasing price of fuel, has applied for 

additional loans from his local bank; only to be turned down because he was already over-extended on his existing loans. 

These anecdotes illustrate a problem which goes far beyond the 

borders of Colorado. After 5 years of weather-related disasters, 

such as droughts, hurricanes, or fires, these higher-input costs are 

having a severe impact not only on producers’ ability to harvest 

this year, but also in their ability to secure financing to operate for 

the next year. 

This is a crisis that is undermining the stability of farming operations across our country. This is a crisis and emergency that we 

must address. Our producers need help. In the short term, I believe 

they need economic loss assistance, which will help offset the staggering increases in fuel and fertilizer costs. 

We, on this committee, must work together to provide this help 

so that our producers will be able to stay in the business of agriculture, and so that our rural communities will remain viable. I 

urge the members of this committee to join together, on a biparVerDate 0ct 09 2002 09:44 Oct 16, 2006 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 C:\DOCS\28421.TXT TOSHD PsN: LAVERN
7

tisan basis, and to pass legislation that will provide our producers 

with much-needed emergency economic loss assistance in the form 

of direct payments to producers. 

This type of economic loss assistance is not unprecedented. In 

fact, Congress has provided this sort of help in the past. We did 

it in 1999, in 2000, and 2001. Because of the economic pressures 

that our farmers and ranchers are facing today, we should do it 

again now in 2005. 

This will not be an inexpensive effort, but our producers are in 

a downward spiral, and we must help end that downward spiral. 

Each day, this energy crisis continues to drive farmers and ranchers into deeper debt, putting the life of our rural communities at 

risk. 

Over the long term, we must also address the opportunities that 

are created for ranchers and farmers through renewable energy. I 

strongly believe that that will be the next most important chapter 

for agriculture in America. And it is something that, as a member 

of the Energy committee, I intend to work on. 

Let me just finally conclude by saying there is another hearing 

that is taking place at exactly this same time, with the Energy and 

Natural Resources committee, where we are hearing from the five 

chairmen and CEOs of the largest petroleum companies in our 

world. When you look at the numbers that they are testifying 

about, in terms of the record profits, the record profits for just the 

last quarter alone were $32 billion—$32 billion. When you start 

putting the zeroes behind that 32, there are a total of nine zeroes 

that you put behind that 32. 

I can tell you that, as the farmers and ranchers of America continue to feel the pain and the reality of struggling to stay in existence, there seems to me to be something unconscionable about the 

record prices that are being made by the oil and gas industry, 

while at the same time the farmers and ranchers that feed our nation are barely able to hang on. 

On my desk when I was attorney general, and on my desk today 

as a U.S. Senator, there is a sign that says, ‘‘No farms, no food.’’ 

And I think that we, as an American Nation, need to come back 

to that reality and do whatever we can to help our farmers and 

ranchers through this crisis that we are in today. 

Thank you again, Senator Coleman. And again, thanks to Senator Chambliss and to Senator Harkin for holding this hearing. 

Senator COLEMAN. Thank you, Senator Salazar. 

Senator Lincoln. 

STATEMENT OF HON. BLANCHE LINCOLN, A U.S. SENATOR 

FROM ARKANSAS 

Senator LINCOLN. Thank you, Mr. Chairman. And I would like 

to associate myself with my good friend and colleague from Colorado. I think Senator Salazar has really put into perspective the 

pain that our agricultural producers are feeling out there. 

I know that in the South, and particularly our great State of Arkansas, not only the drought conditions but the Gulf Coast disasters which have come up hit the southern part of our state and the 

growers that are there. They have had a double-whammy on the 

weather conditions. But then, to be hit with these incredible fuel 

8

prices, it is absolutely devastating our producers down there. They 

are seeing a tremendous amount of their efforts and resources 

going into a crop, to find that they are not going to be able to recoup those costs. 

In September, I introduced emergency legislation to help agriculture producers across the country cope with record economic 

losses that were suffered this year due to persisting drought conditions and these high fuel prices. They have been devastating. 

The severe drought conditions which the country has seen, particularly in our region, combined with the high fuel costs, have 

forced our farmers to experience extremely high operating costs. 

And it is literally wreaking havoc on the heartbeat of our Nation’s 

economy. 

Now, having grown up on a farm and having seen, particularly, 

my father as a farmer—recognizing that the majority of farmers 

out there like to complain—but the fact is, they are not really that 

loud about it oftentimes. There is a real sense of pride in terms of 

what they produce and how they produce it. 

They work desperately to work by the rules. But they also have 

a real sense of pride and perfection, quite frankly, in what they do. 

And when they recognize the enormous amount of cost that they 

are having to put in to produce the crops that can be competitive 

in a global marketplace, it is just sending them into a tailspin. 

We are hearing from our bankers, as well, our financial institutions. I have got three counties of banks that are telling me that 

they are going to have a record number of farm operations that will 

not be able to pay out or cash-flow because of the record amounts 

of resource they have had to put into producing a crop, and then 

to find the natural disasters that have wreaked havoc on them at 

harvest time. 

So it is a time when we have to remember what it is our producers do. And they do it very quietly. Very quietly, they produce 

the safest, most abundant and affordable food supply in the world. 

They make sure that, per capita, we pay less for our food supply 

than any other developed nation in the world. They also reassure 

us that the grocery store shelves will be stocked, and they will be 

stocked with foods that are produced in a way that is sensitive not 

only to the environment, but also to the way that Americans want 

their food sources produced. 

So I hope that we can take a look at what it is these producers 

do in a very quiet way, in reassuring the American people that we 

can maintain that safe and abundant and affordable food supply. 

But I have to reiterate, Mr. Chairman, our farmers are devastated, in terms of these fuel costs. And it is not just in terms of 

the diesel they put in their tractors. It is also the feedstock for 

their fertilizer. They are paying record prices for fertilizer, the feedstock, in the natural gas that is causing that to happen. 

And I will just remind the committee that the projection is that 

in the next several years, we will no longer have a domestic production of fertilizer. So once again, we are going to set another 

variable onto our producers of not knowing what and when they 

can depend on the products that they need in order to produce this 

safe and abundant food supply. 

9

So I thank you, Mr. Chairman, for focusing on this. I know that 

there are multiple other issues, in terms of transportation. We do 

in our region have other issues, in terms of transport. Those small, 

rural county roads oftentimes are not able to transport the large 

cotton modules and the other crops that we grow. So we have got 

a lot of different issues there. But without a doubt, the fuel costs 

are the greatest burden that our farmers are carrying right now. 

And we have got to do something about it. 

Just in closing, I would like to also echo Senator Salazar, in 

terms of relieving our dependence on foreign oil. If there is one consistent thing I hear from our ag producers in the South, it is, 

‘‘Please, please, allow us to be a part of providing the kind of fuels, 

the renewable fuels, that we need in this country, to lessen our dependence on foreign oil and give us yet one more secondary market 

where we can market our products and our crops.’’

Now Eastman Chemical has produced its first off-line batch of 

biodiesel, which came out on-line a couple of weeks ago in Arkansas. We have got another facility that will be going into production 

as of April. There are a lot of people that want to invest. We have 

got to make sure that the incentives are there for them. And it is 

critically important to our agricultural producers. They are desperate for it, and want passionately to play a role in lessening our 

Nation’s dependence on foreign oil. 

So thank you, Mr. Chairman. I appreciate you all bringing this 

very critical issue before the Congress. And I certainly am signing 

myself up to work as hard as I possibly can to alleviate that burden 

that our agricultural producers see. Thank you. 

Senator COLEMAN. Thank you, Senator Lincoln. 

Senator Stabenow. 

STATEMENT OF HON. DEBBIE STABENOW, A U.S. SENATOR 

FROM MICHIGAN 

Senator STABENOW. Thank you, Mr. Chairman. Thank you very 

much for holding this important hearing. 

Welcome to each of you today. Thank you for your presence. 

We all are hearing the numerous stories about the impact of high 

energy costs on Americans and our economy. Most recently, we 

have heard about that in Michigan related to manufacturing and 

to our families. But there is no question about it, that our farmers 

are right in the middle of it. 

They are being hit, really, three different ways, as we all know: 

high gas prices, high diesel prices, and high natural gas prices. 

And so this is critically important for Michigan, as it is for all of 

the states that my colleagues represent; since agriculture is so important to us and our farming economy is absolutely critically hit 

by all of what is happening. 

I noticed, coming in and listening to Senator Lincoln talk about 

alternative fuels, that it certainly something that we are anxious 

in Michigan—we are very much involved with ethanol and biodiesel. And one of the reasons I was a strong supporter of the energy provision of the 2002 Farm Bill was because of the important 

ways in which we in agriculture can help to solve the problem of 

our dependence, over-dependence, on foreign oil. And we need to 

renew our efforts and move as quickly as possible on that front. 

10

I just introduced a bill called the Energy Tax Rebate Act, to give 

our farmers and families, businesses, an immediate $500 tax rebate to pay for these increased costs, fuel costs and home heating 

costs. And I hope that we will see serious consideration and enactment of this type of tax rebate, to help our families and our farmers immediately. 

I appreciate again, Mr. Chairman, this hearing, and know that 

we have some important work to do together. Our farmers are feeling squeezed on all sides, and we need to act on their behalf. 

Senator COLEMAN. Thank you, Senator Stabenow. 

For our first panel today, we will have Dr. Keith Collins, Chief 

Economist at the United States Department of Agriculture; Mr. 

Gerald W. Barnes, who is Chief of Operations, U.S. Army Corps of 

Engineers, and Mr. Howard Gruenspecht, Deputy Administrator, 

the Energy Information Administration. We will start with Dr. Collins, and then move across. 

Dr. Collins, it is always a pleasure to have you before this committee. I just would note, on a personal note, to thank you for the 

work that you did a number of years ago debunking the myths in 

the anti-ethanol study that was done a while ago. So your service 

to this Nation is really appreciated, and it is a pleasure to have you 

here today. 

STATEMENT OF KEITH COLLINS, PH. D., CHIEF ECONOMIST, 

U.S. DEPARTMENT OF AGRICULTURE 

Mr. COLLINS. Thank you, Mr. Chairman. Mr. Chairman and 

members of the committee, thank you for the invitation today to 

come up here and talk about the implications for U.S. agriculture 

of the higher energy prices and the disruption of the marketing 

system due to the Hurricanes Katrina and Rita. 

Strong world energy demand and large expected farm production 

this fall were already causing high prices for energy and lower 

prices for key crops, even before Hurricanes Katrina and Rita 

struck. The hurricanes, of course, reduced energy production and 

caused extensive damage to our trade infrastructure. In a typical 

year, about half to two-thirds of grain exports move down the Mississippi. So, of course, the disruption of that channel meant the impacts were felt over much of the Nation. 

While substantial challenges remain, Gulf Coast areas have 

made some remarkable steps toward recovery. For example, between Baton Rouge and Myrtle Grove, Louisiana, there are ten export elevators and three floating rigs that load grain from barges 

onto ships. Operational capacity right after Katrina struck went to 

zero. Today, all of these facilities are fully operational. 

The Mississippi River channels used for grain export are now 

open and operating at normal depths. On the Mississippi Gulf, 90 

percent of grain delivered there comes by barge. So recovery of 

barge traffic is crucial. The barge industry reports that only a 

small number of barges were lost, but twice as many barges as normal are currently on the lower Mississippi, and that is limiting 

grain movement from the Midwest to the Gulf. Lack of labor and 

housing, and barges holding poor-condition grain, still limit a return to normal traffic. 

11

The USDA has implemented several assistance programs to address the barge bottleneck and the related storage problems. We 

are providing assistance to move barges of damaged corn from New 

Orleans to up-river locations. We are paying incentives for alternative storage. We are providing assistance to move grain to other 

river transportation modes and locations. 

USDA has also provided flexibility for producers having 2004 

crop marketing loans. We have permitted emergency and temporary storage for new crop loans, and we have made available 

funding for emergency loans. 

The quick actions taken by the Army Corps of Engineers, the 

barge and grain companies and their employees, have helped limit 

the disruption to grain marketing. From late August through October 27th, grain inspections for export from Mississippi Gulf ports 

were 72 percent of last year’s level. They even exceeded last year’s 

pace during 1 week in October. 

Part of this decline in grain inspections has been offset with increased exports from other ports; so that during this 2–month fall 

period, combined grain inspections for export from the Mississippi 

Gulf, from the Texas Gulf, and from the Pacific Northwest, were 

94 percent of last year’s level. 

In addition, cumulative corn exports since the start of the marketing year, September 1st, through October 27th, were 1 percent 

higher than last year’s exports during the same period; although 

soybeans are only 76 percent of last year’s level. 

The hurricanes also worsened the already tight energy situation. 

Farmers paid 43 percent more for diesel fuel in October 2005 than 

a year earlier; while prices paid for fertilizer by farmers were up 

13 percent this October, compared with last October. 

The higher energy prices and marketing disruptions are raising 

farm production expenses, pressuring the storage system, lowering 

crop prices to producers, and raising farm program costs. 

On a positive note, diesel and natural gas prices and barge rates 

have all fallen sharply the past 2 weeks. Corn and soybean prices 

have started to rise the past 2 weeks. Farm product demand remains relatively strong. And farm programs are cushioning the income drop for many producers. Still, energy costs will be a financial 

problem for producers this and next year, and substantial work 

still remains to restore the marketing system to normal. 

The USDA will continue its efforts of assistance, and try to assist 

other Federal, state, and local agencies. 

While farmers and ranchers face a number of challenges for 

2006, we are confident the underlying financial strength of U.S. agriculture will enable producers to deal with the uncertainties 

ahead. Thank you, Mr. Chairman. 

[The prepared statement of Mr. Collins can be found in the appendix on page 46.] 

Chairman COLEMAN. Thank you very, very much, Dr. Collins. 

Mr. Barnes. 

STATEMENT OF GERALD W. BARNES, CHIEF, OPERATIONS 

DIVISION, U.S. ARMY CORPS OF ENGINEERS 

Mr. BARNES. Mr. Chairman, distinguished members of the committee, I am Gerald Barnes, Chief, Operations Division, Directorate 

12

of Civil Works, of the Army Corps of Engineers. I am honored to 

be testifying before your committee today on the status of the Mississippi River transportation system and the role that the Department of Army and the Corps of Engineers play in ensuring the viability of this critical energy-efficient transportation artery. 

I would like to offer my observations regarding the expected river 

conditions over the next 6 months, as well as offer a brief discussion regarding the inland navigation system in general. 

The Corps has had a navigation mission since the Survey Act of 

1824. Since that time, the Corps has established a tradition of fulfilling the vital navigation needs of this Nation through the construction and maintenance of ports and waterways across the Nation. 

The goal of the Corps’ navigation mission is to help facilitate 

commercial navigation by providing safe, reliable, highly cost-effective, and environmentally sustainable waterborne transportation 

systems. 

Water resources management infrastructure has improved the 

quality of our citizens’ lives and supported the economic growth 

and development of this country. Our systems for navigation, flood 

and storm damage reduction projects, and efforts to restore aquatic 

ecosystems contribute to our national welfare. 

The Mississippi River serves as a major transportation artery for 

the movement of bulk commodities such as agricultural products 

and petroleum products. After Katrina struck Louisiana, numerous 

barges and towboats were impacted, many of which contained agricultural products for offloading at one of the many grain facilities 

in the New Orleans area. 

At the same time, all shipping into and out of New Orleans was 

halted; which had a major impact in the short term on the ability 

to move petroleum products and grain. 

Immediately after Hurricane Katrina passed, Federal agencies, 

including NOAA, the Navy, the Coast Guard, and the Corps, began 

to assess the condition of the Mississippi River, as well as other impacted ports and waterways. This monumental task was completed 

much sooner than projected, thanks to coordinated Federal efforts 

and the outstanding support from our waterways users and partners. 

The Mississippi River has been successfully restored to full deepdraft operation, and many of the barges and vessels have been retrieved and replaced back into service. 

In review of the latest long-range forecast graphs prepared by 

the National Oceanic and Atmospheric Administration for both precipitation and temperature, they suggest that the Upper Midwestern states have a 33 percent chance of not experiencing any 

unusual dry weather conditions during the upcoming winter season. And they suggest warmer than normal conditions projected. 

From evaluations of river stage information, it is reasonable to 

anticipate some fairly low stages during the next few months. And 

it is highly likely that stages lower than those reported earlier this 

year, minus–1.5 on the Saint Louis gage, would be encountered in 

the near future. 

River stages do not directly relate to reliable drafts and tow 

sizes. There are many other factors that are taken into considerVerDate 0ct 09 2002 09:44 Oct 16, 2006 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 C:\DOCS\28421.TXT TOSHD PsN: LAVERN
13

ation when deciding what prudent restrictions should be in place. 

On the Middle Mississippi, drafts are historically unrestricted, as 

long as the Saint Louis gage is above 0 feet. 

Once stages reach, or are forecast to reach, the–2 to–3 feet stage, 

drafts have usually been reduced to less than 10 feet. Provided the 

stages fall at a reasonable rate, and there is not a catastrophic 

grounding which disturbs the bottom of the river, drafts of 9 feet 

or better can usually be accommodated with dredging. 

In addition to draft restrictions, tow sizes are also reduced as 

stages fall. Unrestricted tows on the Middle Mississippi are usually 

in the 36– to 40–barge range. With stages approaching 0, this 

would possibly be reduced to 30 barges or less. In the minus–2 to 

minus–3–foot range, tows would likely be reduced to barge configurations of 24 or less. With extreme low stages, two sizes might actually be reduced to 12 to 15 barges. This is very much dependent 

on the actual channel dimensions, however. 

Decisions regarding restrictions in tow sizes and drafts are made 

through a collaborative effort of the Corps, the Coast Guard, the 

National Weather Service, and the towing industry. 

The Corps’ primary role is monitoring channel conditions, assisting the Coast Guard in locating and marking channels, and dredging as required. 

There are three dredges currently working in the shallow-draft 

channels of the Mississippi River. The Government dustpan 

dredge, and a contract cutterhead dredge are working on the Middle Mississippi, and a Government dustpan dredge is working on 

the Lower Mississippi near Memphis. In addition, the Corps has 

the ability to bring several others into the region, if required. There 

are two other large dustpan dredges that can be called upon, if 

needed. 

Historically, ice has resulted in suspension of commercial navigation on the Upper Mississippi above Saint Louis, from mid-December until mid-March. In conjunction, Locks 11 and 19 are scheduled 

to be closed for major rehabilitation from December 15th, 2005, to 

March 15th, 2006. 

Historically, ice does not result in a complete closure of the Middle Mississippi. It can cause traffic delays and short-term stoppages. This is not an annual event, and usually occurs in late January and February. 

The Mississippi River serves as a major transportation artery for 

the movement of bulk commodities, such as agricultural products 

and petroleum products. It is part of the Federal inland waterways 

navigation system, which includes nearly 12,000 miles of commercial waterways, rivers, and harbors, developed and maintained by 

the Corps. 

The inland waterway system carries one-sixth of the Nation’s volume of inner-city cargo, about 630 million tons annually. The inland waterways include 192 commercially active locks, with 238 

lock chambers. Some locks have more than one chamber, often of 

different dimensions. These locks enable barges to stairstep 

through a series of navigation pools and reach distant inland ports, 

such as Minneapolis, Chicago, and Pittsburgh. 

14

In terms of ton-miles of cargo, the vast majority of the traffic on 

the inland waterways travels along three principal corridors: Mississippi, Ohio, and Illinois waterways. 

Since the 1960’s, the Federal Government has invested heavily 

in the maintenance and major rehabilitation of these structures on 

these high-commercial-use waterways. These investments support 

substantial movements of agricultural products, energy-related materials, and other bulk commodities. Under this Administration, 

the Corps is giving priority to continued maintenance and major rehabilitation of these waterways. 

In summary, given the uncertainty of the weather, it is impossible to predict what channel conditions will be for the rest of the 

year. However, due to the dynamic nature of the river, the Corps 

cannot guarantee that there would likely be any closures. But for 

the reasons given above, it is unlikely that there will be any longterm closures or catastrophic disruptions to barge movements due 

to inadequate channel dimensions. 

The Corps is committed to maintaining this vital waterway in 

the best condition possible. And we will remain diligent in monitoring channel conditions through surveys, communication with 

towing companies, to assure that potential problems are recognized 

early and addressed appropriately. 

Sir, this concludes my statement. I appreciate the opportunity to 

testify, and stand ready to answer questions. 

Chairman COLEMAN. Thank you, Mr. Barnes. 

Mr. Gruenspecht. 

STATEMENT OF HOWARD GRUENSPECHT, DEPUTY ADMINISTRATOR, ENERGY INFORMATION ADMINISTRATION, U.S. DEPARTMENT OF ENERGY 

Dr. GRUENSPECHT. Thank you, Mr. Chairman and members of 

the committee. I appreciate the opportunity to appear before you 

today to discuss recent developments in energy markets and their 

possible implications for the agricultural sector. 

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, but 

we do produce data, analyses, and forecasts that are meant to assist policymakers, help markets function efficiently, and inform the 

public. 

Hurricanes Katrina and Rita wrought incredible devastation on 

the central Gulf Coast; most importantly, in terms of human suffering, but also in energy impacts that have spread well beyond the 

stricken area. At its peak impact, Katrina shut down over 25 percent of U.S. crude oil production, 20 percent of our crude imports, 

10 percent of our domestic refining, and over 15 percent of U.S. 

natural gas production. 

Rita compounded those impacts. For example, nearly 30 percent 

of total U.S. refining was shut in ahead of Rita, and outages continued at nearly 20 percent of refining capacity for some weeks thereafter. 

The farm sector, as many of you have mentioned in your opening 

statements, is a significant consumer of energy, particularly diesel 

fuel, propane, and electricity. In addition to direct farm use of enVerDate 0ct 09 2002 09:44 Oct 16, 2006 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 C:\DOCS\28421.TXT TOSHD PsN: LAVERN
15

ergy, agriculture is indirectly affected by energy requirements in 

the fertilizer industry, specifically in nitrogenous fertilizers. 

With that background in mind, let me turn to recent energy market developments, starting with petroleum. Again, even before Hurricane Katrina struck, crude oil and petroleum prices were setting 

records. Oil prices worldwide have been rising steadily since 2002, 

due in large part to growth in global demand which has used up 

much of the world’s surplus production capacity. Refineries have 

been running at increasingly high levels of utilization in many 

parts of the world, including the United States. 

In the immediate aftermath of Katrina, with the extent of the actual damage still largely unknown, crude oil prices rose briefly over 

$70 per barrel, up over $4 in less than 48 hours, but in less than 

a week had fallen back below the pre-storm level. 

The more significant impact, however, was on finished petroleum 

products. Spot prices for gasoline, which are the prices by which 

large volumes are sold by refiners, importers, and traders, rose as 

much as $1.40 per gallon east of the Rockies within 3 days; spot 

diesel fuel prices rose 35 to 40 cents. 

The seemingly disproportionate change in finished product prices 

reflects the severity and expected persistence of Hurricane 

Katrina’s impacts on refining operations in the Gulf. Following 

Rita, it was the turn of diesel prices to be disproportionately affected. 

Wholesale petroleum product prices, like those of crude oil, have 

now fallen well back from their peak levels. As of Monday, November 7th, the average retail price of regular gasoline was about 23 

cents per gallon lower than its pre-hurricane level. Diesel prices, 

having fallen by 45 cents per gallon over the past 2 weeks, are now 

within 10 cents per gallon of their pre-hurricane level. But keep in 

mind, the pre-hurricane level was high, relative to the past. 

We have recently released, as of yesterday, our short-term energy 

outlook, reflecting our updated scenario for recovery of the energy 

system. The recovery of crude oil and natural gas production in the 

Gulf is occurring somewhat more slowly than we had previously assumed. However, the operation of the world oil market is substantially mitigating the impacts of these disruptions on crude and gasoline supplies. 

In our latest outlook, we project a continued drop in diesel prices, 

although prices are expected to remain substantially above yearago levels through the end of the year. 

Several of the opening statements mentioned natural gas. Like 

crude oil and petroleum products, natural gas prices were also setting records before Hurricane Katrina struck. In August, the Henry 

Hub natural gas spot price averaged over $9.00 per 1,000 cubic 

feet, as hot weather in the East and Southwest increased natural 

gas fired electricity generation for cooling demand. 

The outlook we released yesterday projects an average Henry 

Hub natural gas spot price of $9.15 per 1,000 cubic feet for 2005, 

and $9.00 for 2006. Weather is clearly a critical factor in any price 

projection for natural gas, given the importance of heating demand. 

A colder-than-expected winter will significantly raise projected 

prices, while a milder winter should lower them. 

16

The natural gas market is likely to stay tight over the next couple of months, but spot prices are expected to ease going into 2006. 

However, we do think that natural gas spot prices at the Henry 

Hub will average, on a monthly basis, over $10 per 1,000 cubic feet 

until the winter is over. 

Many of the opening statements mentioned the role of renewable 

fuels. While higher petroleum prices are viewed as a negative development by most energy consumers, higher prices could also 

serve to improve ethanol’s competitiveness as an energy source. 

EIA, in the context of energy legislation that was recently enacted, recently conducted a study on the near-and mid-term potential price and supply effects of enacting legislation mandating the 

use of renewable fuels. We considered provisions similar to those 

that were ultimately included in the recently enacted Energy Policy 

Act. 

The estimated impact of such provisions was shown to be highly 

dependent on assumptions regarding the future path of world oil 

prices, relative to the costs of ethanol. And I can get into that more 

in the Q&A. 

Let me now turn to the upcoming heating season, where the expectation is for sharply higher costs, although somewhat lower 

than in the outlook we released a month ago. We expect natural 

gas households to pay 41 percent more than the previous winter; 

heating oil households to pay 27 percent more; propane, 21 percent 

more; and 5 percent more for electrically heated households. 

Again, using previous information about energy use on farms and 

in closely related sectors, every additional dime added to the price 

of gasoline and diesel oil per gallon, sustained over a year, costs 

U.S. agriculture almost $400 million annually. Every dollar added 

to the price per 1,000 cubic feet of natural gas costs agriculture 

over $200 million annually in direct expense, and costs the fertilizer industry almost $500 million annually. Every dime increase 

in the price of propane costs agriculture over $200 million per year. 

Every penny increase in the price per kilowatt-hour of purchased 

electricity costs agriculture about $500 million annually in direct 

expense, and also adds about $35 million to the costs of the nitrogenous fertilizer industry. 

That concludes my statement, Mr. Chairman. I will be happy to 

answer any questions you or the other members might have. Thank 

you very much. 

Chairman COLEMAN. Thank you, Mr. Gruenspecht. Mr. 

Gruenspecht, let me kind of reverse order here, and ask a little bit 

about diesel. It seemed that regular gas went to $3 a gallon, and 

had a big impact, and so a lot of conversation about that. Diesel 

is up there. Regular gas seemed to fall more quickly—well, it did. 

The price fell much more rapidly. 

And two questions. I hate to ask two questions at once, but let 

me put them together. There seems to be a phenomenon where 

prices rise quickly, and then ultimately they fall, but they fall back 

much more slowly. So the impact, you are paying that price; within 

a short period of time it seems prices shoot up. And then weeks 

later, we say, ‘‘Well, they have rebounded.’’ Yes, but it took me 3 

weeks to get to where we were, still higher than a year ago. But 

the rise was very rapid. 

17

So can you help me on both those issues? Talk about the rapidity 

in the rise, and the slowness in fall, and what is controlling that. 

And then help me understand a little bit about why diesel costs, 

which really impact our producers greatly; why they seem to fall 

at a slower rate than the price of regular gasoline. 

Mr. GRUENSPECHT. OK. Well, let me try the first one first. Prices 

in the markets for gasoline and diesel fuel are affected mostly, or 

significantly, by the wholesale spot market prices. There is a 

lagged pass-through of wholesale spot market prices into retail 

prices. 

So in fact, when the wholesale prices rise, the retail prices initially don’t rise as much. When the wholesale prices then start to 

fall, you have a combination of effects of the delayed pass-through 

of the previous rise, coupled with the start of the pass-through of 

the decline. So it is pretty typical that retail prices won’t rise as 

much, but then there will be a delay in the fall. 

In terms of the diesel versus gasoline, that is really quite an interesting issue. Initially, following Katrina, gasoline took off, and 

diesel really didn’t take off as much. But following Rita, we saw 

diesel rising more. 

There are really two things going on. One is, the disruption in 

refining really affected the output of both diesel and gasoline. But 

the world oil market is better able to respond to high gasoline 

prices by sucking in a lot of gasoline imports. 

The world market for distillate fuels, which includes diesel and 

heating oil, is a lot tighter, and there is less available spare capacity to supply diesel. Part of this reflects what is going on in Europe, 

where a very large proportion—over 50 percent of the new vehicles, 

new light-duty passenger vehicles, sold in Europe are diesel-powered. So Europe is moving toward less reliance on gasoline, and 

more reliance on diesel. And that, as well as diesel demand in 

Asia—which we can talk about more—has made the diesel market 

tighter. 

So we got more help, in terms of increased imports of products, 

in terms of gasoline. In fact, gasoline imports are running about 

500,000 barrels a day above their seasonal norms. We have gotten 

much less help on diesel. So the imports helped us on gasoline; less 

on diesel. 

The other thing is, this is the time of the year for diesel generally to be tighter, because we are going into the heating season, 

which is when people in the Northeast who use heating oil start 

filling up their tanks. We are going into the harvesting season, 

when people in the farm communities start using diesel for their 

harvesting. 

So independent of the hurricanes, this is a time of year when 

there tends to be more pressure on diesel prices. For gasoline, past 

Labor Day tends to be the time when consumption is falling off. So 

it is really a combination of those factors, I think would be a fair 

description. 

Senator COLEMAN. One follow-up question. 

Mr. GRUENSPECHT. Absolutely. 

Senator COLEMAN. And then I want to go to Dr. Collins with 

what you just talked about in terms of the impact on our producers. 

18

Did you see any shifting within this country of refining capacity 

from diesel to regular gasoline? I mean, the consumer pressure is 

on regular gasoline. There are not as many farmers as there are 

folks just driving vehicles. And one of the impressions I get in my 

conversations with some of my producers is, ‘‘You know, we are getting the short end of it, with this kind of great flurry about the rise 

in gas prices.’’

So did you notice any shifting of refining capacity that would 

have increased the pressure on our producers who use diesel? 

Mr. GRUENSPECHT. I think it is fair to say that there were very 

high margins available on gasoline immediately following Katrina. 

And I think there was an effort to fill the gasoline gap, and moving 

slates somewhat to emphasize the products that produce the highest margins. So I would say, yes. 

But then, obviously, following Rita, when diesel prices rose dramatically, that pressure works the other way. The real difference 

is, you don’t get the help from the imports on the diesel that you 

were able to get on the gasoline. 

Senator COLEMAN. I am not sure if anyone on this panel can answer, but where is the line between pressure and gouging? It is one 

thing to say that there is pressure; it is another thing to say that—

you know, gas at $5 a gallon in Georgia. Can somebody help me 

draw a line between taking advantage of increased margins and 

shifting production, the difference between that and gouging? 

Mr. GRUENSPECHT. Do you want to do that, Mr Barnes? 

[Laughter.] 

Senator COLEMAN. Dr. Collins? Does anybody want to just help 

educate this Senator? 

[No response.] 

Senator COLEMAN. We are going to have to look into that. I 

mean, that is an area of serious concern. 

Mr. GRUENSPECHT. I know there are lots of hearings today. And 

I know you have a panel of state attorneys general, I think, at one 

of the other hearings. I believe you also have the Chairman of the 

Federal Trade Commission at one of the other hearings. It is my 

understanding there is no Federal law in this area. But I think the 

states have laws, and I think they differ from state to state. 

I am an energy analyst; not a lawyer. So I have to watch how 

deep I dig my hole. Maybe those hearings will produce more of 

what you are looking for. 

Senator COLEMAN. Let me turn to Dr. Collins. Can you give me 

a little bit? I thought your testimony was rather optimistic about, 

certainly, recovery from Katrina and some of the long-term economic impacts. But every member of this committee talked about 

the anecdotal conversations with our producers now; particularly 

increased diesel and natural gas right now. 

And we are looking at heating as the weather in a number of 

northern states—well, it gets cold in Colorado, too, but you have 

got a number of northern states represented. We have cold winters. 

Can you talk to me a little specifically on the impact of high diesel and natural gas prices on our producers; particularly in these 

cold-weather states? 

19

Mr. COLLINS. Sure. Perhaps if I was a little optimistic, it may be 

because I was focusing, too, on the transportation system, which I 

think has made a substantial recovery in the last month. 

With respect to higher energy prices, of course, this is a significant impact for producers. We estimated that this year, just for fuel 

alone, there is a 40–percent increase in farm production expenditures on fuel. The last time you can find a 40–percent increase in 

1 year, you have to go back to 1980, when we had the huge oil 

price spikes then. 

So economists can define a crisis as an abrupt change in relative 

prices. That is what we have seen here, an abrupt change in relative prices. So this cuts into the profitability, the bottom line, of 

producers. 

The saving grace here—which is a note of optimism—is that we 

have had very high gross cash income in 2004, and again in 2005. 

Most people have in their mind that American agriculture produces 

$200 billion worth of farm products a year. They did, four or 5 

years ago. This year, they are producing $240 billion worth of farm 

products, valued at cash receipts. 

In addition to that, we have had a substantial increase in farm 

program payments. So gross income is very strong. That is certainly not going to help every farmer, because not everybody gets 

farm program payments, and everybody faces energy costs differently. But higher energy prices at least have come at a time 

when we have been at the top of the farm cycle. 

I think that cycle is turning. I think in 2006, we are going to face 

lower farm incomes. And we are going to face higher energy costs 

in 2006, as well. So I think that that will be more of a problem for 

producers. 

Senator COLEMAN. I want to turn to my colleagues, and maybe 

do a second round. Mr. Barnes, just a question here. In your testimony, you talked about substantial investment in our waterways 

system. Does the Corps of Engineers have a position on the 2005 

Water Resources Development Act? We have been trying to get 

WRDA passed. Is the Corps weighing in on that? 

Mr. BARNES. Sir, we finished the report, and the Chief Engineer 

recommended in that report both small-scale structural and nonstructural measures on the Upper Mississippi River, to include a 

number of items I can mention later; and then new 1,200–foot locks 

at Locks 20, 21, 22, 24, and 25, on the Mississippi; and the 

LeGrange Lock and the Peoria Lock on the Illinois Waterway. The 

report is under review by the Assistant Secretary, in conjunction 

of course with the Office of Management and Budget. The Assistant Secretary is expected to recommend in that study, also, an electronic guidance system to assist tows. 

It is sufficient to say that, also, there is a reminder that authorization of the plan recommended in the report is contained in the 

Water Resources Development Act, 2005, passed by the House of 

Representatives. And it is also contained in the Senate version of 

WRDA 2005 that has been reported out of the committee. 

Senator COLEMAN. We have a bipartisan effort to modernize 

locks. This is an important issue. I notice the President indicated 

his support, endorsed modernization of the Panama Canal. I would 

20

also hope that we would have strong support for modernizing the 

Upper Mississippi River system. 

Mr. BARNES. Right, sir. 

Senator COLEMAN. Very important to us. Senator Baucus. 

Senator BAUCUS. Thank you, Mr. Chairman. 

Is it Mr. Gruenspecht? Is that how you pronounce your name? 

Thank you, very much. Is it true that natural gas prices, as I indicated in my statement—and I am just asking for confirmation—are 

much higher in the United States historically than in those other 

countries I mentioned? 

Mr. GRUENSPECHT. Today? 

Senator BAUCUS. Generally, today, and over the last several 

years. 

Mr. GRUENSPECHT. I think, actually, there was a report done by 

the Department of Commerce earlier this year that looked into the 

comparison, as part of the issue of natural gas and its effect on industrial competitiveness. I think they found that there were definitely some countries that used to have more expensive natural gas 

than the United States, that now had cheaper natural gas than the 

United States. But it is not a uniform situation, in my understanding. 

Senator BAUCUS. OK. My figures, and they could be wrong——

Mr. GRUENSPECHT. Right. 

Senator BAUCUS. These are just my figures. And this is provided 

by the American Chemistry Council. Why them; I am not sure how 

we got this. But just to repeat, the natural gas cost per million Btu 

in the United States is higher than in over 25 developed and developing countries. 

As of September, the U.S.—that is clearly after Katrina—had $12.60 per million Btu. And in South Korea, Japan, Taiwan—with 

no natural gas reserves and no supplies to speak of—costs were 

about $5 per million Btu. And Europe hovered around $7 per million Btu, as is the case in Mexico. 

And I hear this anecdotally from American business people, as 

I mentioned to you. And so let’s assume that generally it is correct. 

I don’t know if it is or not——

Mr. GRUENSPECHT. Right. 

Senator BAUCUS [continuing]. But let’s assume that it is. The 

next question is, why? Why are natural gas prices much higher??????? 

[sic] in other countries—Japan, North Korea, South Korea, Europe, Mexico—than they are in the United States? Why? What 

would explain that? 

Mr. GRUENSPECHT. OK. Let me try. Regarding the natural gas 

market in North America, although we do have a limited amount 

of liquefied natural gas coming in, primarily we have a market that 

clears within North America. In terms of United States natural gas 

use, we domestically produce about, I think, 83 percent of what we 

consume. We import a bunch——

Senator BAUCUS. Much more than the case with crude oil. 

Mr. GRUENSPECHT. Much more than the case with crude oil. We 

import natural gas from Canada, about——

Senator BAUCUS. Not much. Basically, it’s domestic. 

Mr. GRUENSPECHT. No, about 15 or 16 percent. 

21

Senator BAUCUS. Right. 

Mr. GRUENSPECHT. And then a tiny bit of liquefied natural gas. 

And actually, we export natural gas to Mexico. We are net exporters to Mexico of a small amount. 

Senator BAUCUS. But basically, it is produced pretty much domestically. 

Mr. GRUENSPECHT. It is produced domestically, and certainly in 

North America. 

Senator BAUCUS. Right. 

Mr. GRUENSPECHT. So we have a situation where you have tight 

production—and we have been in that situation for some time. Our 

domestic production has been relatively flat, despite increasing 

drilling. And we also have a situation where a lot of electric generating capacity has been built that can use natural gas. 

Senator BAUCUS. But my question is, why are they higher here 

than, say, Japan? 

Mr. GRUENSPECHT. Well, because we are clearing the market in 

North America. OK? So something like oil is a world commodity, 

like some of the agricultural commodities that this committee 

would address. And you would expect the price to equilibrate on a 

world basis; but natural gas prices don’t equilibrate, at least now, 

on a world basis. There is a North American clearing market, and 

there is a market for——

Senator BAUCUS. Why can it be lower in Japan, which does not 

have any significant domestic production? 

Mr. GRUENSPECHT. Well, again, I am not stipulating that the 

quoted prices are right, but they bring——

Senator BAUCUS. True, but you hear it. That is the kind of——

Mr. GRUENSPECHT. Right, and that could be right. And they 

bring in liquefied natural gas because, as you point out, they do not 

have domestic production. They bring that in under long-term contracts. Those contracts have whatever terms they have; in many 

cases, tied to the price of crude oil. And the pricing in that market 

comes out of those contracts. The pricing in the North American 

market, however, largely comes out of the demand and supply in 

North America. I mean, that is——

Senator BAUCUS. Let me——

Mr. GRUENSPECHT. OK. 

Senator BAUCUS [continuing]. Take the same subject, different 

direction. 

Mr. GRUENSPECHT. OK. 

Senator BAUCUS. It is my understanding—I don’t know if it is accurate or not, but again, it is my understanding. People are showing me figures which show—these are DOE figures—that the actual supply of natural gas to the United States over the last 5 

years has been pretty much constant. 

Mr. GRUENSPECHT. That is, I think, correct. Production. 

Senator BAUCUS. Right, production. They have also shown me on 

a volume basis—not price, but a volume basis—the actual demand 

for natural gas in the United States in the last 5 years is fairly 

constant. 

Mr. GRUENSPECHT. I believe that is also correct. 

Senator BAUCUS. Now, and they also show me that the price has 

not been constant although—although—the supplies have been conVerDate 0ct 09 2002 09:44 Oct 16, 2006 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 C:\DOCS\28421.TXT TOSHD PsN: LAVERN
22

stant, and the volume demand has been fairly constant. The prices 

are just all over the lot, and very high in some points. A lot of 

spikes in price. 

Mr. GRUENSPECHT. I think that is also correct. 

Senator BAUCUS. Now, my next question is, why? Why is that the 

case? And it goes to the question of, how much of natural gas prices 

in the United States is determined by the spot market, is determined by trading on the NYMEX, say, the futures markets; and 

how much is determined by provisions of long-term contracts? And 

the question is, what are the terms of those contracts and the degree to which the terms of those contracts, the price terms of those 

contracts, are in any way reflected to the spot market? Those are 

a lot of questions——

Mr. GRUENSPECHT. Those are good questions. 

Senator BAUCUS [continuing]. But you get the drift of where I’m 

going. 

Mr. GRUENSPECHT. I get the drift. I think I get the drift. It may 

be hard for me. I don’t maybe have the gift to answer this as well 

as I would like, so some of it may——

Senator BAUCUS. Well, if anybody else on the panel can——

Mr. GRUENSPECHT [continuing]. Go to the record. But it is true 

that because the market is the North American—— clearing market and, as you point out, production hasn’t increased significantly——

Senator BAUCUS. It has not. 

Mr. GRUENSPECHT. Right. So in fact, by definition, demand, if 

you can’t consume more than you have got——

Senator BAUCUS. You would think. You would think. 

Mr. GRUENSPECHT. If it ain’t there, you are not going to consume 

more. So at least we got that right. Production has been flat, and 

consumption has also been flat. 

What is going on is, people on the demand side are competing 

with each other for the natural gas that is available. And the advent of some of the new demand from electric power generation has 

tended to put more pressure on the relatively fixed amount of supply. I mean, something has to give. If there is a certain amount of 

supply, and you have to clear the market——

Senator BAUCUS. Right. 

Mr. GRUENSPECHT [continuing]. Then price is going to rise. And 

I think that——

Senator BAUCUS. Again, but how much of this is the gap between 

actual supply and demand forces, on the one hand, and perceived 

supply and demand, on the other, reflected in futures trading on 

the NYMEX? 

[No response.] 

Senator BAUCUS. And I am going to ask another question there, 

while you are thinking about that. 

Mr. GRUENSPECHT. Boy, you are really——

Senator BAUCUS. And that is this. I understand—again, I could 

be wrong——

Mr. GRUENSPECHT. OK. 

Senator BAUCUS [continuing]. I am just digging into this—that 

on other futures markets there are bans that limit volatility in 

trades. Mr. Collins is here. Is that true? With, say, wheat futures. 

23

Mr. COLLINS. Yes, sir. Commodities. 

Senator BAUCUS. Commodities. I am also told, though, that is not 

the case with natural gas and the NYMEX. There is no ban, volatility—well, maybe practically—I mean, maybe theoretically; but 

practically, there is not a ban on the limitation of volatility in 

prices. 

And then you get another area that is a little bit ‘‘iffy’’ here, and 

I am not going to go too far in this direction because I am even 

on weaker ground, because I just don’t know the facts yet. I am 

looking into the facts, believe me. The question: Who are these 

traders? 

And again, to what degree does the spot market price reflect—

is it being pushed up by traders? Because, lo and behold, my gosh, 

a hurricane hits. And even though there are lots of natural gas reserves in the ground, they will go bananas because Hurricane 

Katrina has hit. That is, the supplies are really there; but still, you 

know, they bid up the price, and that gets the prices higher. 

And traders bid up the prices. Traders pocket huge income. And 

now, the other question: Who are the traders? Who owns the traders? Who are they? And I have got some ideas about that, too. 

But the point I am trying to get at is that we have got to think 

a little more deeply about what is really causing natural gas price 

increases; and not just say, ‘‘Well, gee, it was Katrina,’’ or not just 

say it was something else. I mean, we have got to get behind the 

figures, behind the data, and follow the money; see what is really 

going on here. 

And that is why I am asking you these questions about why is 

there a price differential in natural gas between other countries 

and the United States. Why? I have got some ideas as to why. 

And you have just confirmed that, really, the actual production 

of gas, and the actual demand for gas on a volume basis, have been 

pretty constant the last 5 years; although prices are all over the 

lot. And so I am trying to figure out why is that the case. 

And frankly, we have got to find a solution to that, so that consumers, farmers, ranchers, you know, people who use natural gas, 

aren’t paying as much in price increase as they really should be 

paying; and at the same time when a lot of people are making a 

lot of money off of all these trades. And that, to me, is the issue 

here. 

Mr. GRUENSPECHT. Well, I will just say a little bit. On the trader 

thing, obviously, perhaps Dr. Collins might have more to say, and 

the Commodities Futures Trading Commission might have more to 

say. I mean, we really track the energy side of things and the fundamental energy data. 

Senator BAUCUS. Right. 

Mr. GRUENSPECHT. You know, with respect to one comment you 

made about storage being adequate, and why are prices so high, as 

you know, recently prices—and again, I am not making excuses for 

anybody, but prices have in fact been falling. 

One reason prices, I think—at a fundamental level, not talking 

about the trading aspect of things—have remained high, even 

though storage levels have been by historical standards pretty 

healthy, is that, you know, we still are down in production in the 

Federal Gulf of Mexico over 4 billion cubic feet a day, which, if you 

24

take that out over a 30–day month, would be 120 billion cubic feet. 

And we are still down in production in Louisiana, from the storms, 

as well. 

So when people look at the historical storage level that they are 

comfortable with, you know, that is comfortable given normal production. But, in fact, if you envision or are worried about production being sub-par—and it has been sustained sub-par over the 

past 2 months—then what would in a normal production environment be considered a healthy level of storage doesn’t look so 

healthy. 

Just like if you knew your income was going to be depressed over 

the next several months, you might want to have more money in 

your bank account than you normally would have going into that 

period. 

So again, I am not making excuses for anybody. But talking 

about the energy fundamentals, there are some energy fundamentals there. 

The other thing on gas, in terms of volatility, is that, unlike the 

other fuels, gas demand is very weather-dependent. And that is a 

big factor. And I am not taking issue. 

Senator BAUCUS. You just happened to be here——

Mr. GRUENSPECHT. I know——

Senator BAUCUS. You tried to answer my question. 

Mr. GRUENSPECHT. OK. 

Senator BAUCUS. So I just thank you for that. 

Mr. GRUENSPECHT. I am trying. 

Senator BAUCUS. I appreciate that. Yes, thank you. 

Senator COLEMAN. Thank you, Senator Baucus. Senator Crapo. 

Senator CRAPO. Thank you very much. Dr. Collins, I want to 

focus my questions on you. And really, I want to focus on the general issue of the availability of viable, affordable transportation options to agriculture producers. Has the USDA researched the economic impact of the lack of affordable shipping options to the overall agriculture industry? 

Mr. COLLINS. Not precisely in those terms. We do have an Office 

of Transportation at USDA that follows these markets. We do publish a transportation update every week. We try to track the proportion of agricultural commodities that are shipped by each mode, 

and we try to understand what are the driving forces behind the 

rates; whether it is truck, whether it is rail, or whether it is barge. 

But I don’t know of any long-term economic studies that we have 

produced. But we do try to keep the shipping industry up to date 

on how we see things unfolding in transportation and agriculture. 

Senator CRAPO. Well, as I indicated in my opening comments, 

rail transportation is a big sore spot in Idaho. Has the USDA conducted any studies, or are there any conclusions you can share 

with us on the rail shipping, specifically, and the impact of rail 

shipping, and the affordability, or lack of affordability, of it on the 

price of agriculture commodities? 

Mr. COLLINS. Well, I would say a couple of general things about 

that. First of all, taking the last part first, when you have an increase in transportation costs, that is going to get passed forward, 

partially, to consumers. It is going to get passed back, partially, to 

producers. Often, as a rule of thumb, we use something like a 75 

25

percent 25 percent split, where 75 percent gets passed back to producers. 

So the consequence of this is, farmers get lower income; and consumers buying farm products pay a little more, or more than they 

otherwise would. 

Senator CRAPO. But the pass-back is three-fourths of the increase? 

Mr. COLLINS. That is generally a rule of thumb that we use. It 

will depend on the market, the commodity, and so on. 

One of the things we have observed with respect to rail, and it 

is true with barge as well, is that there hasn’t been an increase in 

capacity—number of cars built or number of barges built. We 

know—barge is a good example, because the focus has been on that 

on the Lower Mississippi—that we have seen more barge retirements than new barges built for years now. 

The whole transportation system in the United States has been 

under pressure, particularly the last year. If you look at what is 

going on now with respect to rail, we have a terrific seasonal problem in rail. 

This is the season when agricultural crops are harvested; there 

is rail demand. This is the season when new cars show up in showrooms; there is a tremendous demand for rail to move new cars, including imported cars. Because of high natural gas prices, we have 

seen more demand for coal; there is more coal moving by rail. And 

we have got the Christmas season, the Thanksgiving and Christmas shopping season coming up, where most stores do most of 

their business; a lot of that stuff is transported by rail. So right 

now, we have this tremendous pressure on rail rates that comes 

from all of these different sources. 

I can remember early in my career, we used to always say that 

truck transportation was three times as expensive as rail, and rail 

was three times as expensive as barge. So if you were going to do 

something, if rail or barge wasn’t available, you did truck. If it was 

between rail and barge, you did barge. 

But that is not so true any more. Because of the high energy 

prices, because of the demand, because of an economy that grew at 

3.8 percent last quarter, there has just been tremendous demand 

for all modes of transportation. And we haven’t seen the response 

in terms of new rail cars or new barges built during that period. 

Senator CRAPO. The description you just gave of the pressed capacity of the rail industry is sort of a ‘‘downer,’’ if you will, for 

those in agriculture. And your last comment about the fact that we 

have not seen the increased production of cars or facilities raises 

the question of infrastructure. Is the solution to this problem to 

somehow see an expanded investment in infrastructure? 

Mr. COLLINS. Well, I am not sure. One of the solutions has been, 

what we have seen is grain companies buy their own cars and 

build their own cars. And so we have seen a lot of the big grain 

companies, the integrated grain companies, own their own cars 

now. And they will auction those cars off on the secondary market, 

too, to provide those available to other shippers. So that is a market response to this pressure. If the railroads weren’t doing it, the 

grain companies are going to do it. 

26

I think we have seen over the last couple of years better performance in the rails with respect to agriculture. You may remember 

a couple of years ago the tremendous problems we had, particularly 

in the Southern Plains, with respect to rail movement. I think it 

has gotten better, and I think this fall, it has actually, despite the 

hurricanes, been pretty good. We have some areas where there is 

track washout. I think the Union Pacific has some problems; but 

Burlington Northern and Santa Fe seem to have done a pretty good 

job. 

And rail rates themselves actually didn’t quite spike as much as 

barge rates this past fall. We saw the premium paid for rail cars 

go way up; but the tariff rates had gone down, so the net effect 

wasn’t that great. 

But I am not sure of the answer to the question of a public policy 

with respect to infrastructure. I know we have talked a little bit 

about locks and dams on the Mississippi. That is something that 

I think everybody has supported. The Administration has supported more investment, particularly on the Upper Mississippi and 

Illinois Rivers. And so I think that there is some support for public 

investment in those kinds of resources, locks and dams on the Mississippi. 

I am not sure it is there for rail cars or barges, because there 

are private firms that can respond to a market incentive and buy 

and build those things themselves. 

Senator CRAPO. All right, thank you. I see my time is up. But 

this is an issue I think we really need to explore, because we have 

got to figure out how to relieve this pressure that you have described. Thank you, Mr. Chairman. 

Senator COLEMAN. Thank you very much, Senator Crapo. Before 

we go to Senator Salazar, we have the presence of our distinguished Ranking Member here. And I know he is pressed for time, 

so I will turn to Senator Harkin. 

Senator HARKIN. Mr. Chairman, thank you very much. Again, I 

apologize for being late. I would just ask that my statement would 

be made a part of the record. 

Senator COLEMAN. Without objection. 

[The prepared statement of Senator Harkin an be found in the 

appendix on page 63.] 

STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM 

IOWA, RANKING MEMBER, COMMITTEE ON AGRICULTURE, 

NUTRITION , AND FORESTRY 

Senator HARKIN. And again, just picking up just a couple of 

things I have heard, our inland waterways transport 16 percent of 

our goods, at 2 percent of the cost of fuel usage. So it is very efficient, very effective. 

And I know, Mr. Chairman, you had asked earlier about the 

WRDA bill. We have got to get that through. We have got to think 

down ahead, that we need to expand these locks and dams, we 

need to make the river more accessible to our shippers and our 

farmers. 

Right now—you talked about rail—but they are captive to rail. 

I mean, you have only got one rail line, and there is no competition 

there at all. And to the extent that we can get our rivers more acVerDate 0ct 09 2002 09:44 Oct 16, 2006 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 C:\DOCS\28421.TXT TOSHD PsN: LAVERN
27

cessible and get bigger barges on those rivers, that provides that 

competition and keeps those prices down for our farmers. 

So I am hopeful, Mr. Chairman. I know you are supportive of it. 

And I hope we can get this Water Resources Development Act bill 

through as soon as possible, and get on with the business of expanding those locks and dams. 

With that, I thank you, Mr. Chairman. 

Senator COLEMAN. Thank you, Senator Harkin. I would note that 

I indicated to Mr. Barnes that there is a bipartisan focus and effort 

and commitment to this expansion of locks and dams and improving our inland waterway system. And I think certainly the Ranking 

Member’s comments reflect that. So thank you, Senator Harkin. 

Senator Salazar? 

Senator SALAZAR. Thank you. And again, Ranking Member Harkin, thank you for holding this hearing along with Chairman 

Chambliss. I think it is a very important hearing. 

Dr. Collins, let me ask you a question. You know, last night, I 

was reading your testimony. It was on page 7. You made a statement about, I quote, ‘‘The lower... prices and higher prices for energy-related products such as diesel, propane, and fertilizer, are 

cutting into farmers’ bottom lines.’’

And in response to some of the questions that were asked by my 

colleagues, you said that ‘‘crisis’’ would be defined as an abrupt 

change in relative prices, and that the increase in these costs were 

40 percent or so, which was the highest spike we have seen in 25 

years. 

Given that, what I would like to do is to just have you answer 

the following questions, as the Chief Economist. And let me just 

say, I thank you very much at the outset for the service that you 

provide to our country. As the Chief Economist for the Department 

of Agriculture, as you look at the impacts of these price spikes on 

farmers and ranchers, do you have an estimate as to how many 

farmers and ranchers will be forced into bankruptcy by these higher costs that have had to be paid for these items? 

Second, do you have an estimate as to how many farmers and 

ranchers are not going to be able to secure their operating lines for 

the coming year for their operations? 

And third, is the Administration prepared to support emergency 

assistance for farmers and ranchers that are caught in this squeeze 

this year? 

Mr. COLLINS. Regarding the first two questions on farmers that 

would be exiting agriculture or unable to finance their operations, 

those are not variables that we estimate or forecast at USDA. I 

can’t answer that question. 

There are too many factors that determine whether someone is 

going to go out of business or not. You can’t take a change in energy costs in 1 year and translate that into somebody leaving the 

business. 

American agriculture is incredibly diverse. People have tremendous sources of income outside of farming. Farm income accounts 

for 13 percent of total household income of all 2.1 million farms, 

so they have other sources of income to draw on if they wanted to 

stay in business. So it is not something that we can predict, who 

is going to go out of business. 

28

Every year, farmers go out of business. Every year, new farmers 

start farming. And the net effect is the change in the number of 

operations. And it is just a tremendously difficult variable to try 

and forecast, so we just don’t do that, because we can’t do it very 

well. 

With respect to providing assistance, I guess the best answer I 

could give you to that is that the Administration has already sent 

to Capitol Hill its proposed reallocation to provide assistance to the 

hurricane-affected states: the $800 million which you have probably seen; $550 million in conservation spending, and $250 million 

in Section 32 money for direct assistance to producers. That is 

what the Administration is proposing. 

Senator SALAZAR. If I may just interrupt you, because I know 

that we don’t have all the time in this hearing, I am aware of the 

package that the Administration has sent over, and I am supportive of the efforts to try to help the producers in the Gulf Coast 

states. 

The issue of these high costs of energy, though, that we haven’t 

seen for 25 years is something that affects the Nation as a whole. 

And so I am wondering about my producers in Colorado, or Senator 

Coleman’s producers in Minnesota, or Senator Harkin’s producers 

in Iowa. 

What are we doing in terms of trying to deal with what I consider to be an emergency crisis for farmers and ranchers across the 

country? 

Mr. COLLINS. Right. Well, if you are focusing strictly on energy, 

what I would say is that that is a national problem, and that requires a national solution. To look particularly at farmers and suggest that you are going to write them a check to offset their higher 

energy costs, I think is a difficult proposition, at best. 

I say that because we have had historical programs to try and 

cover farmers’ production costs. We used to call that ‘‘parity.’’ Then 

in the 1970’s, we used to tie our target prices to costs of production. 

As farm programs have evolved, we have focused our support on 

the value side, by providing a target price—for example, wheat 

growers, a $3.92–a-bushel target price; corn growers, a $2.63 target 

price—made up of a marketing loan, a counter-cyclical payment, 

and a direct payment. 

That is a substantial risk-reducing safety net that the American 

taxpayer now provides producers. And over time, we have tried to 

make that more market-oriented, so that we didn’t inoculate producers from changes in commodity prices that they are selling. 

In the same way, if we start neutralizing input prices that farmers have to pay, that would be moving us in the direction that we 

went once before, and have abandoned. 

Senator SALAZAR. Yes, but, Dr. Collins——

Mr. COLLINS. So it is just a precedential thing that I think you 

have to think seriously about. 

Senator SALAZAR. My time is up, but let me just make this comment to you. I think that what we have seen here in the months 

of August, September, and October, is very unprecedented. I mean, 

when we talk about the 200–percent increase in prices that people 

have had to provide into their inputs for production, I think that 

is something that we haven’t seen for a very, very long time. 

29

Mr. COLLINS. That is true. 

Senator SALAZAR. And I would expect that the number of farmers 

who aren’t going to be able to get those operating lines at the bank 

this next year is going to be very large. 

Mr. COLLINS. That’s right. 

Senator SALAZAR. I suppose many farmers are not in that category where they can go into other resources to be able to provide 

their financing. 

And I do think we have a huge disaster, emergency, on our 

hands. And we have, in the role of the U.S. Government, in the 

past in the last number of years, been able to provide some direct 

emergency assistance. And I hope to be able to work with my colleagues on this committee, as well as the Department of Agriculture, in pushing that forward. 

Mr. COLLINS. Yes, sir. 

Senator COLEMAN. Thanks, Senator Salazar. Senator Talent? 

Senator TALENT. Thank you, Mr. Chairman. I appreciate your 

holding this hearing. 

Dr. Collins, I am going to ask mostly about the river, but I really 

have to respond to something you just said. We do have a precedent of helping farmers when there has been a natural disaster. 

We did with the Florida hurricane a couple of years ago. We have 

often done it. 

And I just think maybe what is hidden here is a disagreement 

about something. I mean, I think the ability of our producers to 

continue to produce the safest and most abundant and highestquality food supply in the world is not just an economic issue. It 

is a national security issue. I don’t want to be in a position where 

we are importing food the way we import oil. 

And part of that means, when there is some extraordinary hit on 

that sector, we should ameliorate a little bit some of the costs that 

they have had to take because of that. I don’t view that from an 

ideological perspective. For me, that is just a question of trying to 

protect the food security of the people of the country. So I guess 

we disagree about that. 

We have certainly done it in the past. To say it is not 

precedented, I just would suggest to you, is factually incorrect. 

You can go ahead and respond. I am going to ask another question, first, and then maybe you can respond to all of it. 

Mr. COLLINS. OK. 

Senator TALENT. The Administration announced a cost-sharing 

program so companies could recoup their costs of installing temporary or emergency grain storage that was necessary due to the 

shutdown of the Mississippi River. Was the bidding open to rice 

producers? 

I know the needs of the corn growers, and I strongly support 

meeting those. We have a number of rice producers in Missouri. 

They had to build temporary storage, and they paid about $700,000 

for it. I wonder if any rice contracts were considered in that bidding and, if not, why it was limited to corn and wheat, when rice 

and soybeans have faced similar problems? 

And if you could, answer that. And then, I just want to make one 

other comment, and just join those who have spoken about the importance of keeping our river system open, both by fixing locks and 

30

dams—I mean, if we are going to fix the Panama Canal, which is 

fine, we need to fix our locks and dams. 

And we all understand that in the context of trade competitiveness. Everybody who argues for a trade agreement will say one of 

the reason we are competitive with low-cost countries is because we 

have a very good transportation system. And it is true. But you 

have to invest in it and keep it up. 

But I would just appreciate whatever you could do, and Mr. 

Barnes, to keep the Missouri River open. And I hope that we can 

convince the Corps somehow that keeping the river open to navigation means putting more water into it when the river is low, and 

less water into it when the river is high. 

I mean, if you ask somebody in this country, as a matter of common sense, when the U.S. Government released water from the upstream reservoirs into the rivers, ‘‘Well, should they release it in 

the spring, when the river is high; or should they release it in the 

summer, when the river is low?’’ I think most people, not trained 

in engineering or hydrology, would say, ‘‘Well, gee, I think we 

ought to release it in the summer, when the river is low.’’ And yet, 

they would be shocked to find out the policy of our Government is 

to the contrary; and that now you all are actually moving toward 

releasing it twice in the spring, causing two rounds of flooding. 

So if you want to comment on that, I would appreciate it. Thank 

you, Mr. Chairman. 

Mr. COLLINS. All right. Let me start with my comment that I 

think providing a payment for energy price increases that would affect farmers like they affect every other business in America, like 

every other household in America—would be unprecedented. I 

think that would be unprecedented. 

Certainly, in the disasters that you spoke about, we did provide 

assistance. And those were focused on agriculture; those were focused on crop losses; and they were special, localized, specific disasters. 

We face a $5 billion increase in energy costs in agriculture this 

year. We are predicting next year we will face a $2 billion increase 

in interest costs. Interest is an input just like energy is an input. 

And my comment about precedential is, how do you distinguish 

covering interest rate increases from energy increases, when this 

would be a national impact that affects everybody; not just unique 

to agriculture? 

So I was just trying to provide a little food for thought here for 

the committee as they proceed. 

Senator TALENT. Well, no, I didn’t mean to get—I don’t know, 

I’ve got a cold, so maybe I am in a bad temper. No, I was just saying, it is not unusual for us, when a disaster peculiarly affects our 

producers in a certain way——

Mr. COLLINS. Correct. It depends on the——

Senator TALENT [continuing]. To provide some funding to help 

them through that time. Now, it may be true that we have never—

I am trying to think whether we have ever looked at a disaster 

that had an increased energy price. But we have looked at drought 

disasters, I mean, with the result of the last hurricane. So it is not 

unprecedented in that sense for us to treat the farm sector a little 

bit differently. That is the only point I was making. 

31

Mr. COLLINS. OK. I am happy to agree with that. Regarding rice, 

I believe we did, under our alternative storage program, receive a 

proposal for alternative storage from a rice-storer. We did not accept that proposal. We accepted corn and wheat proposals. 

I think our logic for that was that at the time we made that decision—that was early in the post-Katrina period—that our numberone priority was to try and deal with the backup on the Mississippi 

River. 

We were also looking at the basis and price effects of commodities. And corn, wheat, soybeans, had some very wide basis changes 

during that period. Those basis changes translated into much lower 

posted county prices and soaring government farm program payment costs. 

During that period of time, we were not facing any change in the 

loan repayment rate for rice. There was no increased budget exposure for rice. And that increased budget exposure for grains, driven 

by the congestion on the Mississippi, was probably the single biggest reason why the decision was made to focus on the grains, as 

opposed to rice. 

If we had had more money, I am sure we would have dealt with 

rice. It was just a question of the scarce resources, and setting our 

priorities. 

Senator TALENT. OK. 

Mr. COLLINS. With respect to the locks and dams on the Mississippi, I can only say, just as a general statement, that is something that the U.S. Department of Agriculture has supported. We 

are concerned about the fact that the Mississippi represents the 

backbone, the spine, of our inland transportation system. When 

grain arrives in Japan or some foreign country, often half the landed price that the Japanese are paying is attributable to transportation. 

Our competitive advantage in the world market is keyed to our 

transportation infrastructure. We do some long-term forecasts. We 

don’t do the 50–year forecasts that the Army Corps of Engineers 

does. But in our last long-term baseline forecast, which goes out to 

the year 2014, we project that the corn exports by that year would 

be 3 billion bushels. And you would have to assume that a substantial portion of those bushels—perhaps 60, 70 percent—would go 

down the Mississippi. 

So we need expanded transportation capacity to stay competitive 

in the world market for the future. That is what is behind our support of maintaining and improving that infrastructure. 

Mr. BARNES. Senator Talent, good to see you again, sir. Pleased 

to take your question. The Corps has an agreement that has been 

struck with regard to the Missouri River mainstream master water 

control manual, to begin reducing releases from the Gavens Point 

Reservoir, but maintaining them at a flow rate of 23,000 Cfs. That 

was implemented in early October, to touch the fall shipping season, and gradually was reduced in modest amounts of 1,000 to 

3,000 Cfs, over generally the month of October. 

What that did, in fact, tie to, it prolonged the shipping stage on 

the Mississippi River by about 2 additional feet, and maintained 

the 0 gage in Saint Louis; such that about 4 to 5 feet of additional 

water below the minimum required by law of 9 feet was available. 

32

As to the spring rise, both the fall and the spring rises—spring 

releases, rather—are tied to minimum storage that’s maintained at 

Gavens Point. And given my earlier comments about we are in the 

midst of a fairly prolonged drought, particularly in the upper and 

the northwest area of the country, it is not likely that there will 

be minimum flows in Gavens Point such that a spring release 

would be occurring this year. 

Senator TALENT. Thank you, Mr. Chairman. 

Senator COLEMAN. Thank you, Senator Talent. 

I want to thank the members of this panel. It has been very 

worthwhile, and thank you. Thank you for your testimony. 

With that, we will have our second panel, many of whom have 

traveled a great distance to be here, be prepared to be seated. 

With us for our second panel today is Mr. Daniel T. Kelley, of 

the National Council of Farmer Cooperatives, on behalf of the Ag 

Energy Alliance, out of Normal, Illinois. Welcome, Mr. Kelley. 

Mr. KELLEY. Thank you. 

Senator COLEMAN. Mr. Rick Calhoun, Vice President, Grain and 

Oilseed Supply Chain, North America, Cargill, out of Minneapolis, 

Minnesota; on behalf of the North American Export Grain Association and the National Grain and Feed Association. It is good to see 

you again, Mr. Calhoun, and a great pleasure to have you here 

with us. 

Dr. R. Neal Elliott, Industrial and Agricultural Program Director 

of the American Council for an Energy Efficient Economy, out of 

Washington, D.C. 

And Mr. Ryan Neibur, of the Rocky Mountain Farmers Union, 

out of Burlington, Colorado. 

Gentlemen, a great pleasure to have you here. We will start with 

Mr. Kelley, and then move across the panel. You may proceed, Mr. 

Kelley. 

STATEMENT OF DANIEL T. KELLEY, NATIONAL COUNCIL OF 

FARMER COOPERATIVES, NORMAL, ILLINOIS; ON BEHALF 

OF THE AG ENERGY ALLIANCE 

Mr. KELLEY. Thank you, Mr. Chairman, members of the committee. I am Dan Kelley, a corn and soybean farmer from Normal, 

Illinois. And I also serve as Chairman and President of 

GROWMARK, Incorporated, a farmer-owned cooperative serving 

farmers throughout the Midwest. 

I am here today on behalf of the National Council of Farmer Cooperatives, and the Agriculture Energy Alliance. We commend you 

for holding this hearing, and appreciate the opportunity to share 

our views on the impact of high natural gas prices. 

NCFC is the national trade association representing nearly 3,000 

farm cooperatives across the United States, whose member-owners 

include a majority of our Nation’s more than 2 million farmers. 

NCFC members are uniquely affected by the surge in energy costs 

as producers, suppliers, and consumers of energy and related products. 

In addition my comments today, I would like to submit for the 

record a brief statement by NCFC. 

Senator COLEMAN. Without objection. 

33

[The prepared statement of NCFC can be found in the appendix 

on page 65.] 

Mr. KELLEY. Thank you. The Agriculture Energy Alliance, of 

which NCFC is a member, represents a broad-based coalition of 

100 farm organizations and agribusinesses facing a real crisis because of public policies that have created demand for natural gas, 

while at the same time restricting access to new supply sources. 

U.S. agriculture and related agribusinesses use natural gas for 

irrigation, crop drying, food processing, crop protection, and nitrogen fertilizer production. 

Since 2002, 36 percent of the U.S. nitrogen fertilizer industry, 

which uses natural gas as a raw material, has been either shut 

down or mothballed. According to the U.S. Department of Agriculture, farmers’ fuel, oil, and electricity expenses have increased 

from $8.6 billion to $11.5 billion, from the period 1999 to 2005. 

Over that same period, fertilizer expenditures went from $9.9 billion to $11.5 billion. Combined, these expenditure increases represent a $4.5 billion decline in U.S. farmers’ bottom line over that 

6–year period. 

The U.S. chemical industry has been especially hard hit by high 

energy prices, since natural gas is needed as a feedstock. Its natural gas costs increased by $10 billion since 2003, and $40 billion 

of business has been lost to overseas competitors, who pay much 

less for natural gas. 

Chemical companies closed 70 facilities in the United States in 

2004 alone, and at least 40 more have been tagged for shutdown. 

Of the 120 chemical plants being built around the world with price 

tags of $1 billion or more, only one of those is being built in the 

U.S. 

Our Nation’s current natural gas crisis has two solutions: to increase supply; and second, to reduce demand. The challenge is to 

find ways to balance our Nation’s dwindling available supply of, 

and rising demand for, natural gas. 

The Energy Policy Act recently approved by Congress and signed 

into law included a number of important provisions to help meet 

our Nation’s agricultural energy needs. Additional action, however, 

is needed to further encourage the timely development of critical 

supply sources. 

For example, Congress can adopt measures to ensure potential 

Federal lands and Outer Continental Shelf areas are open for leasing; that leases and permits are issued promptly; that the appropriate tax and royalty policies are in place; and that the necessary 

pipeline infrastructure is available to bring supplies to market; 

while leaving behind as small an environmental impact as possible. 

The agriculture community believes that it is strategically critical for Congress to remove these production barriers now, to provide new sources of natural gas and oil supplies. 

A high priority should be placed on opening up to exploration 

Lease Area 181 in the Gulf of Mexico; which is known for its abundant supply of energy resources, with access to existing pipeline infrastructure. This action would facilitate speedy delivery of muchneeded natural gas to the marketplace. This area alone could ensure that agriculture has access to natural gas to continue manuVerDate 0ct 09 2002 09:44 Oct 16, 2006 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 C:\DOCS\28421.TXT TOSHD PsN: LAVERN
34

facturing our fertilizer, to grow our crops, and to help meet the food 

and fiber needs of consumers at home and abroad. 

Again, I appreciate the opportunity to testify before the committee, and will be happy to answer any questions later. Thank 

you. 

Chairman COLEMAN. Thank you very, very much, Mr. Kelley. 

Mr. Calhoun. 

STATEMENT OF RICHARD CALHOUN, VICE PRESIDENT, GRAIN 

AND OILSEED SUPPLY CHAIN—NORTH AMERICA, CARGILL 

INCORPORATED; ON BEHALF OF THE NORTH AMERICAN EXPORT GRAIN ASSOCIATION, AND THE NATIONAL GRAIN & 

FEED ASSOCIATION 

Mr. CALHOUN. Chairman Coleman and members of the committee, I am Rick Calhoun. I am Vice President of Cargill’s Grain 

Division, and President of Cargo Carriers, which is a subsidiary 

barge line for Cargill. I am here today representing the National 

Grain and Feed Association, and the North American Export Grain 

Association. 

The transportation system in the United States has for many 

decades been one of the true competitive strengths of U.S. agriculture. For a number of reasons, this asset has turned from a potential strength to a potential weakness. Higher energy costs, congestion on railroads and highways, lack of investment in modernizing and maintaining the inland waterway system, as well as the 

recent storm-related problems, are combining to sharply escalate 

the costs of moving agricultural products to market. 

At the same time, of course, some competing countries in South 

America are building infrastructure, which will narrow the competitive advantage we previously enjoyed. 

We believe that limits on transportation capacity in the United 

States are becoming a very serious economic issue in the agricultural as well as the rest of the national economy. We submit that 

the time has come to get serious about how we can expand transportation capacity, or face the reality that economic growth in agriculture and in other economic sectors eventually will be constrained by our inability to efficiently move product. 

The U.S. transportation system serving agriculture, including 

barges, railroads, and trucks, was running at virtually full capacity 

at the time Katrina struck the United States. The loss in transport 

capacity from that storm proved how vulnerable the U.S. is to such 

disruptions. 

While most of the export elevators are now in condition to move 

product, the remaining constraints on the system, as reflected in 

barge unloadings—which remain at about 27 percent under the 5–

year average—this loss in export capacity has made U.S. FOB Gulf 

export prices relatively high. As a result, we are seeing traditional 

customers, such as Korea, sourcing corn from China and others. 

We commend Secretary Johanns and the Administration for the 

post-hurricane initiative designed to assist in the recovery. One 

program, involving incentive payments to offset costs associated 

with disposing or directing to alternative uses out-of-condition corn, 

helped get barges emptied more quickly and back into service to 

transport new crop corn from the Midwest. We appreciate the 

35

USDA’s initiative in developing the program, and recognize that 

the efforts of many individuals were necessary to make this happen. 

We would also like to call attention to Monday’s announcement 

that additional resources will be made available to ease barge congestion related to Hurricane Katrina. This step, too, will be helpful 

in restoring barge operations and assist in the possibility of raising 

internal U.S. cash grain prices. 

More barge transport capacity will help alleviate storage congestion. It will reduce government LDP payments that have risen 

sharply due to congestion, and minimize losses in U.S. market 

share to reliable customers like Korea. 

Given the critical importance of the inland waterways to efficient 

movement of export grain and many other products, modernization 

of locks and dams and improved river maintenance should be given 

a higher national priority—it should have been given a higher national priority several years ago. Now, with substantially higher 

prices, it is more important than ever. 

Barge transportation is 2.5 times as fuel efficient as rail movements, and almost nine times as efficient as trucking product. So 

as energy is likely to remain expensive, and energy conservation is 

a national goal, the time is nigh to begin seriously investing in 

modernizing the commercial navigation system. 

Many members of this committee have been leaders in trying to 

pass a water resource development bill in the Senate, and we 

thank you for that. Given that the House has passed a bill this 

year, we would respectfully request that the Senate redouble its efforts to move this bill forward. Even if a bill is passed today, we 

are decades away from completing the critical construction 

projects—not years, but decades. 

In the 25 years since the Staggers Act was passed, the rail 

freight never had a chronic capacity shortage until the past 2 

years. Since then, the problem has only gotten worse, and there are 

signs that it may take a number of years to work through the rail 

capacity challenges. 

Along with the strain in capacity, of course, we see freight rates 

increasing; sometimes very sharply. Simply adding rail cars to the 

existing system will not solve the rail capacity issue. Railroads 

need to hire crews, purchase more locomotives, build double track 

in some corridors, build passing lanes, and make structural adjustments to rail yards to improve efficiency. 

Even with a commitment by rail carriers to expand capacity, 

these kinds of changes require several years. And economic projections suggest higher volumes of intermodal freight, coal movements, and other parts of the rail business will continue to expand 

the demand for rail freight in the next several years. 

With severe capacity limits, rail service is becoming increasingly 

unpredictable; which adds to the effective costs of transportation. 

With capacity severely constrained, in particular during harvest 

months, the farmers in rail-served markets likely will be confronting increasing price risks in coming years, unless transportation capacity problems can be successfully resolved. 

Finally, the Jones Act requires that goods transported by water 

between U.S. points travel in U.S.-flagged, U.S.-built, U.S.-crewed, 

36

and U.S.-owned vessels. While we know there is strong resistance 

to any amendment to this law from industries protected by it, the 

increase in congestion of cars and commercial trucks on the Nation’s highways, the rail capacity shortage, and the need for more 

inland waterway capacity eventually should force some reassessment of the pro’s and con’s of maintaining such a law in perpetuity. 

In conclusion, it certainly appears that high energy costs are 

here to stay. And we have a transportation capacity challenge in 

the major modes serving agriculture. We need cost-effective, highly 

dependable, and responsive transportation services to respond to 

customers’ needs when they want to make purchases. 

Simply put, we must be in position to serve all types of customers, if we are to successfully compete and grow in markets. 

Katrina and the difficulties we have confronted this year only reaffirm that now is the time to reassess our strategy for transportation investments that will ensure adequate capacity in future 

years. Thank you. 

Chairman COLEMAN. Thank you, Mr. Calhoun. 

Dr. Elliott. 

STATEMENT OF R. NEAL ELLIOTT, PH. D., P.E., INDUSTRIAL & 

AGRICULTURAL PROGRAM DIRECTOR, AMERICAN COUNCIL 

FOR AN ENERGY-EFFICIENT ECONOMY 

Mr. ELLIOTT. Thank you, Mr. Chairman, and thanks to the committee for this opportunity to discuss this very critical topic with 

the committee. 

I would also like to acknowledge the contributions of my colleague, Lee Murray, who helped in preparation of the testimony. 

ACEEE is a public, non-profit, research organization dedicated to 

increasing energy efficiency as a means of promoting both economic 

prosperity and environmental protection. We were founded in 1980, 

and have been involved in a number of government policy discussions over the intervening years, including assisting some of the 

staff of this committee in the work on the Energy Policy Act—I’m 

sorry, the Farm Bill, 2002. 

I would also like to acknowledge and commend the committee, 

under the leadership of Senator Harkin and Senator Lugar, for including major energy efficiency provisions in the Farm Bill in 2002. 

I think we can now see that those activities anticipated the energy 

crisis that is currently confronting the agricultural community, and 

prepared them in some ways for the forthcoming challenges that 

they are now facing. 

As Mark Kingland, of Alliant Energy in Iowa, said of the provisions, particularly Section 9006, these are making a real difference 

out there on the farms today with small-and medium-sized farmers, because they are now making investments that they would not 

otherwise be making, that are going to have impacts on their competitiveness for decades to come. 

Not only have these provisions had direct energy impacts, but 

they also really have mobilized, if you will, the ag community and 

many in the energy efficiency community to bring forth their own 

programs in responding to the energy challenges that are now facing the farm and ag-ranch community. And these activities have leveraged Federal funding many times over in the past 3 years. 

37

To give a brief response, perhaps, to the questions that were 

raised earlier, particularly by Senator Salazar, America, I would 

say, is in an energy straitjacket right now. In contrast to sort of 

previous periods that we have seen, we now have tight markets in 

supply of all major energy sources that are available to us. 

It will take several years, if not longer, to make significant expansion in energy resources. However, there is one resource that 

is available to us today, and that is energy efficiency and conservation. This is a resource that we can bring to the market both quickly and cost effectively. And we have seen several examples of those 

in recent years. In California and New York in 2001, energy efficiency and conservation played a major role in reducing demand 

and rebalancing energy markets; which avoided major economic 

losses. 

In the current market, the very tight markets they are in, small 

changes in energy demands can have significant impacts on prices. 

We have witnessed that over the last couple of months on the upside, as small changes in availability of supply, as a result of the 

hurricanes, have resulted in the price spikes. 

In the longer term, however, what we are going to need to do is 

look at expanding our resources in the marketplace. And the ag 

sector is uniquely positioned to respond to that, by becoming more 

energy self-sufficient by using local fuels. This shift will also help 

decouple the ag sector from the market. 

So how do we go about saving energy in the farm? And it is not 

new. I ran ag programs in North Carolina, as an extension specialist, in 1980. We put together brochures like this. They are still 

relevant today. What we need to do is we need to bring that information back to the farmers and make it available to them. 

And the ag sector is uniquely positioned to take that kind of information and use it practically. The extension system, the experiment stations, the land grant universities, as well as the USDA 

rural development program, are all well positioned to deliver that 

information. What we need to do is mobilize the network. We need 

to build the awareness, provide the updated guidance to the farmers, and then provide the resources and education that they need. 

And to do that, we recommend full funding of many of the provisions that were in the Farm Bill of 2002, the Section 9006, the 

Conservation Security Program; also, funding of some programs 

that were authorized but not funded, such as Section 9005, which 

provides audits. 

So now is the time not to scrimp on funding. Now is the time to 

actually make sure that the USDA and the other folks in the ag 

community have the resources that they need in order to mobilize 

the farmers to respond to this crisis that now faces them. 

I would like to thank again the committee for the opportunity to 

give these remarks, and look forward to any questions the committee may have. Thank you, sir. 

Chairman COLEMAN. Thank you, Dr. Elliott. And to all of the 

members of the panel here, we will enter your complete statements 

in the record. Obviously, the complete statements are much more 

extensive than the 5–minute period you had here. So they will become part of this official record. We want to thank you. 

Mr. Neibur. 

38

STATEMENT OF RYAN NEIBUR, ROCKY MOUNTAIN FARMERS 

UNION, BURLINGTON, COLORADO 

Mr. NEIBUR. Senator Coleman and members of the Senate Agriculture committee, I am honored to have been asked to get off the 

combine and be here today to discuss with you one of the most important and critical issues farmers and ranchers are dealing with 

across America. 

I want to thank Senator Salazar for including me, and especially 

for taking the time and effort to hold meetings in every county in 

Colorado, listening and talking to the people about this unfolding 

energy crisis and how it affects farmers. 

I was raised on a fourth-generation family farm near Akron, Colorado, and attended Colorado State University. After college, I returned home and began doing custom application of chemical and 

fertilizer. I now farm 4,500 acres of irrigated and dry land, and 

own my own chemical and fertilizer store, Tri-County Ag. I am an 

active member of the Rocky Mountain Farmers Union, and proud 

to be here today representing the family farm and ranch members 

of the National Farmers Union. 

Wherever rural Americans gather today—at church, picking up 

parts, or getting repairs at the implement dealers, at the feed store 

and, of course, at the local coffee shop—everyone is talking about 

fuel and energy costs. 

Even before the natural disasters of the hurricanes, oil companies began to raise prices and establish record profits. For example, 

Exxon Mobil posted earnings of $25.3 billion dollars in 2004, and 

last Thursday posted the highest corporate profit ever, of $9.9 billion. 

While the reports of these profits hit the front page of all newspapers throughout the country, the impact of this price gouging on 

family farmers and ranchers, small businesses, including trucking 

and other industries, goes unreported and misunderstood. 

Let me share with you what is happening on my farm and every 

other family farm and ranch throughout America. 

The price of natural gas has increased 215 percent in the last 3 

years. This increase has raised my cost of irrigation per crop year 

from $50 an acre in 2003, to $158 expected in 2006. At this rate, 

farmers will not be able to afford irrigation, and will be forced to 

dry-land farm in an area that has been in a drought for 5 years. 

In my situation, dry-land farming irrigated ground is not an option 

with my bank. 

Natural gas is the main ingredient used to make anhydrous ammonia and liquid nitrogen. In 2003, we paid $295 a ton, compared 

to $495 a ton in 2005. In the production of our corn crop, this price 

increase translates into a cost-per-acre change of $37–per-acre in 

2003, to $62–an-acre in 2005; almost doubling the cost. 

In December 2003, I paid $1.10 a gallon for farm fuel. In October 

2005, I paid $2.85 a gallon, for the same farm fuel; an increase of 

over 155 percent. 

On my farm, fuel expense has gone from $60,700 in 2004, to over 

$135,000 in 2005. If you put this into a per-acre basis, it is extremely scary. Fuel cost for harvesting corn in 2004 was costing 

$9.80 per acre. In 2005, fuel cost for harvesting this year was over 

39

$22 per acre. Remember, the price of corn has not increased; nor 

has the yield. 

Farmers and ranchers are in a situation that does not allow us 

to pass on these additional costs as a surcharge; which other industries, such as truck lines and airlines, are able to do. 

In addition, farmers and ranchers are facing lower commodity 

prices. The price of corn in 2003 at our local market was $2.45 a 

bushel; and in 2005, the price was $1.81. So this huge increase in 

the price of natural gas and other fuels has hurt me even more. 

Regrettably, it seems that Congress is in the process of cutting 

farm commodity price support programs at a time when we need 

more help, not less. Lower income, higher production costs, and a 

reduced farm safety net do not add up to a balanced checkbook; 

and local lenders are getting extremely nervous. 

In my part of the country, farmers and ranchers are waiting for 

a clear signal that Congress and the Administration are taking seriously the economic crisis resulting from high energy and fuel 

costs, and that something will be done to address the problem. 

As a farmer, I have no means by which to pass on the higher 

costs of energy. And it seems that Congress should consider approving some type of mechanism to help farmers and ranchers offset these higher costs. 

I believe that renewable energy and fuels—like wind and solar 

for electricity, biodiesel, ethanol, and hydrogen—can decrease our 

dependency on imported and fossil fuels. Farmers must be involved 

in the manufacturing side—the value-added side—of the process, to 

benefit economically. 

NFU has been a longtime advocate for renewable fuel standards 

and renewable bio-based fuels. And we believe that more efforts 

need to be made to produce fuel and energy from our farms. We 

are also in favor of a mandate for the establishment of an extended 

biodiesel standard. 

In closing, I want to thank the Chairman and Ranking Member 

for recognizing the seriousness of these issues, and for your consideration of the actions necessary to address our crisis. Thank you. 

Chairman COLEMAN. Thank you very much, Mr. Neibur. And I 

had a meeting yesterday with wheat growers from Minnesota, and 

what you express here was expressed by them. And my meeting 

with the corn growers is going to be the same thing; and soybean 

growers, same thing. 

Everyone is paying increased surcharges, fuel surcharges, coming 

in to them; but you can’t levy a food surcharge for fuel and energy 

going out. So you find yourself squeezed. And it is a serious problem. And I am glad that we have your perspective here this morning. 

Dr. Elliott, let me, if I can, respond to some of the things Mr. 

Neibur said. Very practically—very practically—what are the one, 

two, three, four, five things that can be done today, in terms of conservation, that farmers can do to save on some energy costs? 

Mr. ELLIOTT. Well, there are a number of opportunities. I would 

say what we see first is a practice, if you will: the low-till/no-till 

opportunities. If you are doing irrigation, look at some of the advanced irrigation scheduling and soil moisture monitoring aspects. 

40

Probably more than anything else, energy awareness, and just 

being able to go out, and thinking about, ‘‘Do I need to drive the 

pickup truck out to that field today?’’ A lot of it is not doing a big 

thing. There are no silver bullets out there. What we have got is 

a lot of little, small steps that together add up to some significant 

cost savings for the farmer. 

Senator COLEMAN. And I wonder, Mr. Neibur, if you could give 

us a real kind of very specific—what are the things that you and 

your fellow producers are talking about, in terms of, right now, 

what you can do to deal with some of the energy costs, as practical 

things? 

And then give me—I think you have kind of laid out perhaps one 

or two things that you want Government to help you do. 

Mr. NEIBUR. OK. I would start off by saying, you know, as far 

as the no-till, conservation-tillage practices, I have been practicing 

those since I started: very minimum tillage across the whole board, 

no-till, strip-till. And so, you know, I am really struggling to find 

ways where we can cut back. 

We will buy motors that use less fuel for irrigation. You know, 

most of the practices that are available, we have already got implemented. I hope that answers the first question. 

The second one, as far as what I would like the Government to 

do, you know, that is a tough question. I believe I was in Mr. 

Salazar’s office a month and a half ago, and we were addressing 

the same issues. And he brought it up, ‘‘How do you do it?’’ Well, 

I don’t really know. 

You know, direct payments, obviously, have been there in the 

past. You know, I personally don’t feel that—you know, our posted 

county price for corn is $1.98. It could have been $1.98 in 1950, and 

it just hasn’t increased. 

I was joking last night with some people, and said, ‘‘You give me 

$4 corn, and I won’t be here.’’ So I guess that is the million-dollar 

question. Other than direct payments to offset the increase in fuel 

costs, I wouldn’t, you know——

Senator COLEMAN. Well, it is a conversation that we have to 

have. I think it is fair to say—my colleague and I both admit—the 

answers aren’t going to simply come from us in Washington. I 

mean, that is the purpose of these hearings. What we do need is 

input from folks who are out there dealing with it day to day. 

Mr. NEIBUR. Yes. 

Senator COLEMAN. And come up with some solutions. 

Mr. Kelley, from a co-op perspective, can you tell us a little bit 

about the specific impact of these energy prices? And are there 

things that you are doing, things that the co-op is doing, to alleviate some of the pain? 

Mr. KELLEY. Well, the impact—obviously, we are an agricultural 

co-op, and so we have been affected in terms of transportation costs 

of products. And we deal with retail cooperatives throughout the 

Midwest and to the East Coast. So all of our co-ops and all of our 

members have been impacted, as the other panelists have said. 

What we are doing is in a couple of areas. One is, we are increasing our capability in biofuels. We have been marketing ethanol for 

30 years. Ninety percent of the gasoline that we market, which is 

several million gallons, contains ethanol. 

41

We have invested, and are investing, in biodiesel—soy diesel 

plants, to further refine the vegetable oil so that it can be used in 

our producers’ equipment—tractors and whatever. 

We are also increasing our storage capacity. One of the critical 

issues around soy diesel right now is, because of the demand levels 

where it is at, it is not available at terminals. So it has to be a 

process called ‘‘splash blending’’; which means that the driver has 

to dump it in the truck manually. We are now investing in facilities 

to improve that capability, to where we will be able to blend that 

right at the terminal; be injected as the fuel is loaded. 

So we are expending some resources, some of our members’ capital, to further enhance our capability in terms of the biofuels area. 

And we believe strongly we have been producing—as a farmer, 

I have produced food and fiber all my life. We have the opportunity 

today to produce fuel to replace much of the crude oil that we are 

importing today. And so anything that we can do as a country to 

enhance the capability to deliver, to market, to process, corn, soybeans, and other products into fuel, to me, is in the national interest, and something that we should be about. 

Senator COLEMAN. I certainly share that perspective. I was in 

Brazil not too long ago; the fifth-largest country, I think, in the 

world. Half the population of Latin America at the end of this year 

will not import a drop of foreign oil. 

Sixty percent of the new cars are onto flex-fuel engines; which 

means they can run on 100 percent ethanol, or 100 percent regular 

gas; the same vehicle, just sensors in the fuel pump line kind of 

change compression ratios. So if Brazil can—and they made a commitment 30–some years ago to move in this direction. 

Mr. KELLEY. Well, I think that is our challenge. What we decide 

here in the next few months will probably take at least five to ten 

to 15 years to enact. So time is critical. 

Senator COLEMAN. Yes. And that turns to you, Mr. Calhoun, and 

your testimony—decades away from completing some of the construction projects. You know, you go from the micro, what is happening on the farm, to kind of the macro, infrastructure, construction. 

You talked about modernizing locks and dams; you talked about 

WRDA; you talked about expanded rail capacity. Could you 

prioritize the investments needed to rehabilitate our transportation 

infrastructure as it relates to agriculture? 

Mr. CALHOUN. Thank, Senator Coleman. I think they are all a 

priority. And I don’t know that I would like to rank them one, two, 

or three. The modernization and the expansion of locks and dams—

it will require decades. You don’t fix these things in a year. And 

they have been neglected for a long period of time. 

I think there are a number of groups—MARC 2000 and Waterways Conference, Inc.—which have been working with Congress to 

try to identify the priorities on the various rivers. And frankly, we 

are looking at needs on the Ohio, the Illinois, and the Mississippi 

Rivers, to try to serve all the markets. 

And it is not just agricultural. There are a lot of things moving 

up and down the inland waterway system that aren’t just grain. It 

is coal, and fertilizer, and things that are all vital to our economy. 

42

The rail situation today, throwing more cars at the system is not 

going to solve it. In fact, it might make the problem worse. We 

have to become more efficient. We have to be able to put more capacity through the same amount of infrastructure, or we are going 

to have to make some major infrastructure investments in this 

country. And those are big decisions for railroads. And to start double-tracking, you know, hundreds of miles of track, that is a lot of 

money. And that is a bet on the economy. And those decisions are 

going to be before us in the years ahead. 

Anybody that goes out in one of our major cities—you know, Senator Coleman is from my area. And if you drive around Minneapolis around rush hour, it is horrible. I moved there in 1989, 

and it is a disaster. And there is more that needs to be done there. 

And the last thing we need to do is put more trucks on the roads. 

So to say that one is more important than the other, I think 

would probably—that is a debatable situation. But I think we need 

to take a focus and look at all of them. And all of these things can 

be going on simultaneously. They don’t have to be done in a sequence. 

Senator COLEMAN. I appreciate your candor and your perspective. Senator Salazar? 

Senator SALAZAR. Thank you very much, Senator Coleman. 

First, Mr. Neibur, thank you again for getting off the combine 

and coming here with the real-life story about what is happening 

on the ground itself. 

Second, for all of you who are involved here, I think you just 

heard Senator Coleman talk about the great prospect of renewable 

energy, and what has happened in Brazil. I would ask you to join 

us, keeping your eyes on that spotlight, because I think there is 

going to be a lot happening, even this year and into the next Congress, with respect to the new Farm Bill. And I think it is going 

to open up a whole new chapter of opportunity for rural America. 

Third, in terms of a question, Mr. Neibur and Mr. Kelley, you are 

surrounded by people who actually are on the ground, farming 

every day. And you know your neighbors and you know the members of your co-op. You, yourselves, both are farmers. 

The short-term issue of this spike that we saw—August, September, October—tell us how severe that is. Do you think that you 

are going to see your neighbors and others essentially be forced out 

of business this year because of this unprecedented rise in costs we 

haven’t seen for 25 years? Mr. Kelley, how about you, and then Mr. 

Neibur. 

And then, just to finish my other question, Dr. Elliott, with you, 

with respect to conservation, the thing that could be done immediately—just reinforcing what Senator Coleman asked—if you were 

just to say what two actions the U.S. Congress could take now—

as opposed to April or May; but now, in November, in the remaining 2 weeks—what would those two actions be to move with conservation? 

So why don’t we just start with Mr. Kelley, Mr. Neibur, and then 

Dr. Elliott. 

Mr. KELLEY. Senator, thank you for your question. The immediate impact will definitely impact people’s bottom lines. The agricultural economy, because of what was said earlier, with some exVerDate 0ct 09 2002 09:44 Oct 16, 2006 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 C:\DOCS\28421.TXT TOSHD PsN: LAVERN
43

cellent years in terms of gross income, can withstand a short-term 

downturn, in terms of net income. 

However, I think there will be producers—one of the aspects of 

the current Farm Bill is that you have to have a crop in order to 

be able to get LDP payments. If you only have 50 bushel corn, 

versus 150, obviously, that changes your income structure. So I 

think there are many things besides the energy crisis that are 

going to affect farm income this year. 

But the short-term—people had the opportunity that saw this 

coming to be able to forward contract through our cooperative and 

our member cooperatives some of their fuel. Those that took advantage of that, both that and LP gas, probably kept their costs of production down. 

But as we look to the future, those opportunities aren’t there 

today to forward price next year’s inputs. We are paying, as Mr. 

Neibur said, $500 for anhydrous ammonia—probably, 35 percent, 

40 percent higher than what it was a year ago. 

So as we look at next year’s crop, being able to secure the financing to finance a higher input, both in fuel, fertilizer, and other inputs, is going to put a real question mark in bankers’ eyes. Fortunately, as to my knowledge of the farm credit system, their credit 

quality is high. I am sure the rest of the banking industry and agriculture is fairly similar. 

And so, as we look at the opportunities, I think we can weather 

this current storm with a negative-impact bottom line, but the 

long-term impact of these higher costs is going to make it very difficult. 

Senator SALAZAR. Mr. Neibur? 

Mr. NEIBUR. Thanks again, Mr. Salazar. Mr. Kelley hit the hammer on the head, I guess: the whole issue with the banks, the cashflow issues. You cannot take these fuel costs and the irrigation 

costs and the fertilizer costs in to your bank and make it cash-flow. 

So in turn, your bank is going to say, you know, ‘‘We are not 

going to supply you with an operating note, when there is no 

chance of there being a profit.’’ And you know, last year was tight; 

this year was virtually impossible; and next year looks like it is not 

going to work. 

And so the answer to your question is, yes, there is going to be 

a tremendous amount of banking issues, bankruptcies, people just 

falling out of bed. They just can’t—you know, and we are in a situation, too—maybe perhaps a little different than Mr. Kelley—of our 

drought; like I noted there, 5 years of drought. I have not raised 

a single crop of dry-land corn in 5 years. 

And so we have got that, on top of the fuel prices, on top of the 

fertilizer prices. And so I would say that the effect is going to be 

very wide, very widespread. 

Senator SALAZAR. Thank you, Mr. Neibur. 

And Dr. Elliott, 2 weeks, two things for us to do. 

Mr. ELLIOTT. Well, the first thing, Senator Salazar, is something 

not to do; which is, don’t cut funding for programs like the Conservation Security Program, 9006, and others in the USDA budget. 

And I think, also, send a directive to USDA to take a look at deploying the resources that they have, that we hope are not cut. 

44

Senator SALAZAR. Do you think those resources are being deployed now? 

Mr. ELLIOTT. I think they are being deployed. I think they could 

be deployed better, and they need to be deployed more aggressively. 

The problem is, that is hard to do in a day of shrinking budgets 

and offices, like RD and Extension. 

Senator SALAZAR. Thank you all very much. 

Senator COLEMAN. Thank you, Senator Salazar. 

Gentlemen, thank you. Your testimony has been very, very helpful. And I appreciate Mr. Neibur coming off the combine to be here. 

Gentlemen, all, thank you for what you have contributed. 

With that, this hearing of the committee on Agriculture, Nutrition, and Forestry is now adjourned. 

[Whereupon, at 12:39 p.m., the committee was adjourned.] 

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