The U.S. enjoys vast natural resources well-suited for agriculture and has been a major force in international grain trade through much of the 20th century. The number of grain producers, handlers and processors continues to shrink as farms grow larger and the grain industry consolidates.
AGRICULTURAL POLICY. As home to the world's largest futures markets for price discovery and hedging of grains and soybeans, the United States has always considered itself a bastion of free-market agriculture. But it has only been in the past few years that the U.S. government has substantially removed itself from supply management and price-influencing income support programs.
The 1996 passage of the Federal Agriculture Improvement and Reform Act, more commonly known as the "Freedom to Farm" act, marked a policy milestone as it fundamentally redesigned support programs and eliminated active supply controls. The act governs U.S. policy through 2002 in areas including conservation, crop insurance, rural development and research.
The act was designed primarily to encourage farmers to make production decisions based on market signals instead of government policy, and changes to commodity programs were substantial. For decades, the government had exercised control over planting decisions through area set-asides in an attempt to manage supplies of wheat, maize and soybeans. Farmers also were required to maintain an "acreage base" dedicated specifically to annual plantings of wheat, maize or soybeans.
Farmers could ignore the govern-ment's edicts on how much area and what crops to plant, but if so, they became ineligible for income supports. The support programs included deficiency payments, which represented the difference between market prices and a predetermined "target price," and non-recourse loans for specific crops.
As the old policies evolved, the U.S. government eventually became the market of last resort because the programs — despite set-asides — not only encouraged excess production, but provided a selling outlet when market prices were depressed, effectively establishing price floors. U.S. officials and industry leaders began to rethink and adjust these policies after the government acquired millions of tonnes of grains and oilseeds in the mid-1980s, but a major overhaul did not become possible politically until 1996. Under Freedom to Farm, eligible U.S. farmers receive an annual "transition payment," a lump sum based on pre-1996 production. These payments are designed to provide a short-term financial cushion for farmers who will need to rely more on the marketplace for income in the future.
The government no longer establishes area set-asides or makes deficiency payments, and producers no longer are required to plant specific crops each year to retain program eligibility. Loan rates remain, but are based on market prices and may be adjusted based on stocks-to-use criteria.
In the two seasons since passage of the act, analysts have been paying close attention to the mix of U.S. grain and oilseeds plantings in anticipation of growers seeking the most profitable crops. In fact, Freedom to Farm already has been cited as contributing to a recent decline in wheat plantings. U.S. wheat plantings for 1998-99 were 26.48 million ha, do 6.7% from the previous season and down 12.5% from 1996-97. Indeed, 1998-99 wheat plantings were the lowest in a decade and marked only the third time since 1973 that U.S. wheat plantings fell below 27 million ha.
GRAIN STORAGE AND HANDLING. The United States has a highly developed grain storage and handling infrastructure, relying on rail and, increasingly, truck transportation to move huge volumes over vast distances efficiently. Development of this infrastructure has been most notable in the past 25 years, when the U.S. grain industry invested heavily to take advantage of the surge in global grain trade.
Commercial grain storage capacity licensed by the U.S. government in 1997 totaled more than 216 million tonnes. Of that total, 85 large grain companies accounted for about 100 million tonnes. Total U.S. on-farm storage capacity added another 298 million tonnes.
Consolidation has been on-going in the U.S. grain handling sector. The number of large grain companies, defined as those with more than one facility and a total storage capacity in excess of 150,000 tonnes, has dropped to 85 from 103 since 1990.
As of late 1998, the largest U.S. grain company in terms of storage capacity was Archer Daniels Midland Co., with 618 facilities and a total capacity of about 14.4 million tonnes. If the proposed acquisition by Cargill, Inc. of Continental Grain Co.'s U.S. grain facilities is approved, Cargill will become the largest company with total capacity of about 15.5 million tonnes in 318 facilities. Before the acquisition, Cargill ranked second and Continental ranked fifth.
FLOUR MILLING. The U.S. flour milling industry has enjoyed unprecedented growth over the past 25 years. After decades of static to declining domestic flour consumption, flour use began to shoot higher in the early 1970s, making today's U.S. domestic flour market the envy of millers around the world.
During this growth period, per capita U.S. flour consumption jumped to 67.5 kg in 1997 from a 49.5-kg low in 1972, while total domestic flour disappearance was up 72% in the same period. These increases easily exceeded the corresponding 31% growth in the U.S. population.
Industry analysts cite several reasons for the extraordinary expansion in flour use: lifestyle changes, including growing demand for fast food and other convenience foods; new awareness of the nutritional benefits of bread; and demographic changes, including increased exposure to and appreciation of grain-based ethnic foods.
Developments in this period have not been completely rosy for millers in the U.S., which at one time was the world's largest flour exporter. Since 1970, U.S. flour exports have slumped by more than 50% while at the same time, world flour trade has expanded.
Nonetheless, U.S. millers have seized the opportunity offered by expanding domestic markets to become more efficient. Since 1986, U.S. mills have operated at or above 90% of six-day capacity, compared with operational percentages in the low 80s during the 1970s.
As in other countries and economic sectors, industry restructuring and consolidation have been at the heart of the improvement in U.S. milling efficiencies. The number of U.S. flour mills has been more than halved in the past 30 years, dropping to 200 in late 1998 from 435 in 1965, according to data from the "1999 Grain and Milling Annual," published by Sosland Publishing Co. And since 1981, the number of milling companies has dropped to 88 from 166.
Of the current total of 200 mills, 61 each have a daily milling capacity of 454 tonnes or more in terms of flour while another 55 each have a capacity between 226 and 454 tonnes. Only 34 mills have a daily capacity of fewer than 45 tonnes.
The largest U.S. milling company is ADM Milling Co., which operates 29 wheat flour and two durum mills and has a total daily wheat-durum-rye capacity of 14,483 tonnes in terms of flour. Two other U.S. companies, ConAgra Grain Processing and Cargill Foods Flour Milling, also have total daily capacities in excess of 10,000 tonnes.
U.S. domestic markets for flour are primarily industrial and are highly varied, with end-products running the gamut from niche items such as bagels and tortillas to in-store baking and wholesale branded bread, snacks and cakes.