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AFIA President Joel Newman Sees “Perfect Storm” For Food Prices To Continue Rising

ARLINGTON, VA -- Consumers will see another major runup in food prices this summer due to rapidly increasing animal feed costs, a result of competition for corn and oilseeds between livestock and poultry feeding and alternative fuels production, the American Feed Industry Association (AFIA) board of directors was told at its recent meeting.

AFIA President & CEO Joel Newman, in his state of the industry report to the AFIA board, said Congress and the Bush Administration must recognize that $5 a bushel corn – and similar price jumps for soybeans and other food grains -- can no longer be viewed as anomalies or temporary. “$5 corn looks to be closer to the new ‘normal,” Newman said, adding ethanol’s use of corn will hit 27% of the U.S. corn crop during the 2007-2008 crop year.

The AFIA Board was told the average 5% increase in consumer food prices experienced last year is just the beginning, with food prices likely jumping another 10-12% this year.

“The industry’s cost of production escalation has only just started to work its way through the system. Feed price increases will be pushed through the food chain over the next six months,” Newman said, “Consumers can expect to see even higher prices for meat, poultry and dairy products.”

Newman laid out the “perfect storm” of factors forcing food prices higher, starting with crude oil prices topping $100 a barrel and increasing demand for alternative fuels. Couple that demand surge with the effect of global livestock liquidation, particularly in the swine industry, increasing export demand for U.S. grains and oilseeds to meet stronger global demand for animal protein, an 11% increase in world feed production – which has led to record low U.S. stocks-to-use ratios – combined with a weak U.S. dollar and significant increase in ag commodity speculators, and you have the inevitable pressure on U.S. food prices, Newman said.

Supporting the AFIA internal analysis is a report released this week by the Coalition for Balanced Food & Fuel, of which AFIA is a member. In his report, presented at the Annual Meat Conference this week in Nashville, TN, Dr. Tom Elam, president of Farm Econ, an analysis firm, said he estimates the cumulative costs to the food industry of the federal renewable fuel program will be about $100 billion for 2005-2010.

Elam said broiler industry input costs this year are up $3.4 billion (53 cents per bird); turkey input costs are up $646 million ($3.40 per turkey); swine input costs are up $2.9 billion ($38 per hog); cattle input costs are up $2.24 billion ($117 per fed beef animal) and dairy input cost are up $2.7 billion.

AFIA is the world’s largest organization devoted exclusively to representing the business, legislative and regulatory interests of the animal feed industry and its suppliers. Membership includes over 500 domestic and international companies; state, national and regional associations. Firms are feed and pet food manufacturers, integrators, pharmaceutical companies, ingredient suppliers, equipment manufacturers and companies which supply other products, services and supplies to feed manufacturers.

If you would like more information or have questions on this issue, please contact Joel Newman, AFIA, 703/558-3562, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

Joint GEAPS/NGFA OM&T Seminar Receives High Advance Praise

Registration opened last month for the annual Operations, Management and Technology Seminar, jointly planned and organized by GEAPS and the National Grain & Feed Association (NGFA), and while the event is still a few months away, the program is receiving lots of advance praise.
“The OM&T seminar will provide a unique, cost-effective educational opportunity developed explicitly for professionals in the grain handling and processing industry,” said Kevin Danner, chair of the GEAPS/NGFA Safety, Health & Environmental Quality Committee. “The information provided will be timely and presented in a format that attendees will immediately benefit from.”

This year’s seminar, “Safety, Health, Environmental Quality and Facility Security,” will be held July 29-30 in St. Louis, Mo., and features a program designed for professionals in grain-handling, processing, milling and feed industries. The seven educational sessions will cover topics such as OSHA priority issues; safety standards for grain handling facilities; employee training; environmental quality and responsibility; electrical safety; transportation safety; and facility security.

In alternate years, the OMT seminar deals with grain-quality management issues. GEAPS and NGFA leaders find this year’s focus on safety and environmental issues particularly timely.

GEAPS International President Mark Daniels hopes members appreciate the relevance of this year’s seminar. “OSHA's recent issuance of a ‘National Emphasis Program’ (NEP) for combustible dusts is a direct reminder of the potential hazards we live with daily. In addition, 2007 was a very bad year for confined space related fatalities,” said Daniels. “Don't spend another minute wondering if you are doing all you can and should be to protect your employees.”

When asked about the seminar, NGFA President Kendell Keith said that “our industry has experienced a major reduction in fire and explosion incidents over the past 30 years, largely attributable to facility managers’ commitment to provide ongoing education and training for employees on these hazards.” Keith added, “I encourage you and your employees to take advantage of this incomparable NGFA/GEAPS seminar. Do it now, because you won't have another opportunity until 2010!”

For a complete program, including full descriptions of educational sessions as well as registration information go to http://geaps.com/omt/08/index.cfm.

NGFA Tells Congress of Concerns Over Rail Capacity

WASHINGTON – The National Grain and Feed Association (NGFA) voiced to Congress recently its “paramount concerns” over rail capacity constraints and their impacts on service predictability for agricultural shippers, particularly smaller firms.

“The days of surplus rail capacity are over,” testified NGFA President Kendell W. Keith at a hearing conducted May 1 by the House Small Business Committee, chaired by Rep. Nydia Valazquez, D-N.Y. “In the last four years, there have been growing signs that the rail industry is nearing its capacity limits, at least in some shipping corridors,” largely as a result of increased intermodal shipments, particularly for transporting manufactured goods imported from Pacific Rim nations.

Keith noted that rail carriers have responded by rationing rail transportation capacity, in part by increasing freight rates to levels intended to discourage the use of rail service. The NGFA noted that average revenue-per-unit for agricultural shipments received by Class I rail carriers increased by a range of 27 percent to 52 percent over the last three years. Further, with the exception of the BNSF Railway, the revenue-per-unit was greater for agricultural shipments than for the average of all other types of shipments.

“While one cannot conclude with certainty that agricultural shippers are incurring generally higher freight rate increases…compared to other rail customers, it is a situation that should be monitored over a period of years to see if current trends continue and how increasing rail rates may affect rural communities and small businesses,” Keith said.

To enhance rail capacity, the NGFA said it intended to support legislation (H.R. 2116) that would amend the Internal Revenue Code to allow tax credits to help finance up to 25 percent of the cost of new qualified freight rail infrastructure property, provided shippers also are eligible and the funds are used solely to add capacity rather than replace existing track and equipment. “While railroads already are reinvesting some of their increasing profits into expanded infrastructure, we think that legislation like this could encourage higher levels and more rapid investment,” Keith said.

The NGFA said it also may request assistance from Congress if, as expected, the federal Surface Transportation Board’s (STB) recent changes do not make the process for filing smaller rail rate complaints more viable and less costly. The NGFA estimated that the cost of challenging an unreasonable rail rate at the STB via the method most likely to be used for typical agricultural shipments still will amount to about $250,000, and noted the agency had capped at only $1 million the maximum regulatory relief that could be obtained through a successful rate complaint.

“This cap is much too low, and effectively will put many potential agricultural rail rate cases out of reach economically,” Keith said. While the NGFA said it does not anticipate a significant increase in the number of rail rate cases being brought by shippers even if the STB’s rules were more practical, “we do think it’s important to have access to reasonable litigated solutions so that carriers are encouraged to negotiate with customers over rates.”

The NGFA also cited the impacts that changes in rail practices are having on agricultural shippers. It noted that only about one-third of domestic commercial grain shipments now move by rail, down from more than 50 percent in 1980 when the landmark Staggers Rail Act was enacted by Congress. By comparison, nearly half of domestic grain shipments are transported by truck and 20 percent by barge.

Further, the NGFA said, physical access to rail service has become more limited in rural areas, reflecting rail carriers’ preference for large unit-train loading facilities. This, in turn, has led to an increasing concentration of grain handling at fewer loading points, causing the average farm-to-market distance to be longer. “So, the efficiency gains accruing to rail carriers by moving to larger unit trains has had the effect of putting added traffic on highways and local roads, whose repairs are borne by taxpayers,” Keith said.

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