Understand the following:

• The current trend in U.S. farm policy is producing consolidation and rapid structural change for U.S. rice and cotton producers. This trend will not change, but future policy mechanisms will determine how orderly or disruptive the change takes place. Today’s U.S. rice and cotton producers have never experienced this level of accelerated change; they have never experienced this level of price risk and uncertainty about their future.
   
• Global growth, though strong, remains inconsistent yielding rice and cotton price volatility. In 2001 the weakness of global growth produced deflated rice and cotton commodity prices reflective of the 1950's. Given the global protectionism that exists for these two commodities a global recession becomes extremely damaging and at best the next significant global recession will probably emerge in 2010 to 2011.
   
• Growing a reasonably stable global economic platform, that supports the movement toward increasingly open markets and free trade, will take at least one or more decades or longer. A strong farm bill safety net should exist until a reasonably stable global economic pricing platform exists.
   
• Rice and cotton producers survival over the past decade has depended on their ability to enhance productivity, to acquire or produce alternative income, to reduce their per unit costs by an array of alternatives, and/or a strong farm safety net to weather the dangers of a turbulent global economy.
   
• The lack of a global trade agreement favors competitors of U.S. rice and cotton producers. Trade agreements that are not fair, reasonable, and provide market access and orderly transition to our producers are damaging. Countries, for reasons of food security, nationalism, or other reasons, protect their agricultural sectors. This will always be true, but hopefully to a lesser extent.
   
• Priority in the new farm bill should be given to making the traditional yield crop insurance product as viable for rice and cotton producers as it is for Midwest corn and soybeans producers. The development of a viable traditional yield crop insurance program, sets the stage for developing a viable county, area, or like-group revenue insurance product.

What is the future of strong commodity prices?

Wheat prices may have already topped and be in the process of starting a multi-year decline. Corn, soybeans, rice and cotton will probably top in the next 3 to 15 months and start their decline. By 2010 or 2011 the global economy may be showing equity and commodity price weakness similar to the 2000 and 2001 period. If this is a five year farm bill, commodity prices could easily be going through a painful correction during part of the life of the legislation, before the commodity price cycle turns back up, which speaks volumes for the current legislation with logical adjustments. This type of global slowdown has the potential to dramatically lower oil prices and stress, and possibly severely damage, the ethanol industry and the alternative fuels movement.

Inflation is very much alive. Inflation is part of the price of maintaining global economic momentum and stability into 2010 or beyond. Since rice and cotton are high cost crops, producers will continue to struggle with cash flowing their operations as energy costs, machinery costs, fertilizer costs and other inputs weigh on their ability to have a positive cash flow. Deflated commodity prices and anemic and uncertain global growth caused a return to traditional farm policy in the 2002 farm bill. Inflation’s impact on U.S. producers input costs coupled with the very real threat of a future return to deflated commodity prices and anemic and uncertain global growth is why the basic mechanics of traditional farm policy and a strong safety net should stay in place.

On the dollar, at what point does the dollars weakness become a liability and causes interest rates to advance upward? That point may have arrived. Rising interest rates could become an additional danger to our producers’ ability to cash flow.