“With input prices through the roof, our farmers must depend on a stable price for their product. Any change in price could jeopardize the livelihood of their farm or their family, said Congressman Berry.  “The security of our agriculture industry rests on a fair and honest system. It is the responsibility of Congress to see that this is the case. Farmers should have some explanation for this downward pressure on the price of grain.”

The average terminal price of grain dropped significantly this year compared to the price offered in the futures market. This spring, the price of July soft red winter wheat offered by the Chicago Board of Trade was 70 cents more than the price offered at a Mississippi River grain elevator. This divergence in price is inconsistent with historical patterns for the MidSouth region. Even at the height of shipping disruption following Hurricane Katrina, the wheat basis only reached 65 cents before returning to 1 cent in December of 2005.

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A copy of Congressman Berry’s letter is attached below.

August 18, 2006

The Honorable Bob Goodlatte

Chairman

House Committee on Agriculture

1301 Longworth House Office Building

Washington, DC 20515

The Honorable Collin Peterson

Ranking Member

House Committee on Agriculture

1305 Longworth House Office Building

Washington, DC 20515

Dear Chairman Goodlatte and Ranking Member Peterson:

I write to you today to request that the House Agriculture Committee hold hearings on the historically wide negative basis impacting grain farmers in Northeast Arkansas and regions beyond the Mid South.

As you are likely aware, this spring the basis for a July soft red winter wheat futures contract offered by the Chicago Board of Trade and a Mississippi River grain elevator reached negative 70 cents.

This is a significant change from historical basis patterns in the region.  The University of Missouri's Extension Service provides the following historical basis for nearby wheat contracts in the area for the first of June: 15 year average of -6 cents, 12 year average of -9 cents, 10 year average of -9 cents, 7 year average of -7 cents, 5 year average of -3 cents, 3 year average of +1 cent.  Even at the height of last year's river transportation disruption caused by Hurricane Katrina, the average basis was 65 cents below the nearby contract, before returning to 1 cent above average in December.  Unlike the post-Katrina experience, no unexpected transportation crisis existed this spring and diesel prices for river barges had fallen, however, barge supply and demand remained tight.  In the weeks before harvest, the Ports at the Gulf of Mexico also experienced a negative basis, a rare event.  In a two week period in May the basis fell 37 cents to -4 cents, the first negative wheat basis since September 2000.

As you know well, farmers are the only businessmen to pay retail, sell wholesale, and pay shipping both ways.  The prices of farm inputs such as diesel and fertilizer have risen dramatically over the past year. And now, farmers in our districts are also facing significant downward pressure on the prices they receive for their crops right at the critical harvest time.  I ask that the Committee investigate the reasons for the wide basis, and I hope the Committee will take this opportunity to investigate options to help farmers overcome an abnormally wide basis in the future.  The need for increased storage is evident as we travel our districts; however, the ability to expand this storage remains out of reach for many producers in our districts.

Thank you for your attention to this matter.

Sincerely,

MARION BERRY

Member of Congress