Iraq food aid may depress wheat prices

Agriculture groups fear effort could hurt market in short term

? The decision to sell stockpiled U.S. wheat to get cash for humanitarian relief efforts in Iraq has raised concerns the flood of reserve grain into the market will depress grain prices.

But industry leaders in the nation’s wheat belt also contend the move may help the wheat market in the long run — saying the food aid provides a significant market for U.S. farmers in a country where they have been shut out since 1991.

“I’m glad to see them do it, and I think it would be great if they start replenishing the humanitarian trust fund. They have not replenished it after Afghanistan,” said David Frey, administrator of the Kansas Wheat Commission and chairman of a coalition of national farm groups working on food aid issues.

Days after the war with Iraq began, the USDA announced an emergency donation of wheat to Iraq from the Bill Emerson Humanitarian Trust.

The trust, named after the late U.S. Rep. Bill Emerson of Missouri, is the U.S. government’s hedge against famine in the event of massive crop failure. The United States also uses the trust to help alleviate starvation in the developing world.

The USDA’s Commodity Credit Corp. will use 800,000 metric tons from the trust for food aid in Iraq and Africa. That includes 200,000 metric tons to Iraq, 200,000 tons to Africa and 400,000 tons marked for “as needed” use.

Included in the stockpile release is 560,000 metric tons of hard red winter wheat grown in Kansas, Nebraska and Texas.

The rest includes 200,000 metric tons of soft white wheat grown in places like Oregon and Washington and 40,000 metric tons of hard red spring wheat typically grown in North Dakota.

But while at least a fourth of the wheat stockpile being released likely comes from Kansas growers, the dire need of humanitarian relief efforts means most of the wheat actually going into Iraq is part of a wheat swap with nearby countries.

That is what happened with food aid in Afghanistan, where shipping and logistics meant the wheat used there came mostly from the former Soviet Republics, Frey said.

In addition to the wheat swaps, some of the stockpiled wheat in the Emerson reserve will also be sold for cash so the U.S. government can buy other relief foods, such as rice.

While supporting the wheat swaps to ensure timely shipments to Iraq, farm groups oppose the selling of stockpiled wheat in the U.S. domestic market to buy rice and other commodities.

The groups also want the United States to replenish its Emerson reserve trust, which is now down to 1.1 million metric tons, Frey said. The fund is authorized to hold 4 million metric tons.

Brett Myers, executive vice president of the Kansas Association of Wheat Growers, said farmers have found that whenever the Emerson trust grain is dumped on the market, it immediately hurts grain prices.

“But anytime you get rid of grain, it has to help the market in the long range to get rid of stocks,” Myers said.

The grain markets have been up and down since the USDA announcement, but it is tough to tell how much of that is attributable to the anticipated grain reserve sale and how much is due to recent rains in wheat growing areas, Myers said.