Cotton's Week: May 26, 2006

Cotton's Week: May 26, 2006

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USDA Issues Proposed Rule on Cotton Loan Requirements

USDA Commodity Credit Corp. (CCC) published proposed rules in the Federal Register (FR) affecting ’06 and subsequent crop-year cotton marketing assistance loan programs. There is a 30-day public comment period for each specific proposal. The proposed rules follow a Feb. 13, ’06 advance notice of proposed rulemaking which sought comments on a wide range of quality, storage and congestion issues affecting the flow of cotton.

USDA’s proposed rules are in response to “structural changes in the cotton industry that have resulted in it becoming highly export oriented.” According to USDA, “CCC is proposing the changes to protect the quality of cotton, relieve regional storage congestion and modify storage incentives that slow cotton marketing.”

The proposed rule contains many significant changes that will affect ginners, warehouses, shippers and producers for the ’06 and subsequent crops, including the following:

1) Outside storage:  CCC will determine annually whether outside storage may be allowed in specific locations due to unavoidable circumstances.  In those instances, outside stored loan cotton must be protected through additional packaging, dunnage, security and insurance coverage.  Further, CCC will not pay any storage charges if at any time loan cotton was stored outside.

2) Storage rate:  Storage charges to be paid by CCC will not exceed the lower of $2.15 per bale per month or the rate used in ’05 at the location where the ’06 and ’07 crops are stored. 

3) Re-concentration: CCC may allow re-concentration of loan cotton if requested by the producer or the producer’s agent and if approved by the proposed receiving warehouse. Any charges, fees, costs, or expenses related to the re-concentration will be paid by the entity requesting the re-concentration.

4)  Ginner Certification: In order for a bale to be loan eligible, the ginner must make additional certifications to CCC that the cotton meets the general condition and quality requirements applicable to loan cotton. Those requirements are not explicitly stated, but include requirements that the cotton not be false-packed, water-packed, mixed-packed, re-ginned or re-packed; that the cotton be in good condition; not be compressed to universal density at a warehouse where side pressure has been applied; weigh at least 325 pounds and be packaged in materials which meet the specifications adopted by the Joint Cotton Industry Bale Packaging Committee.

5) Lien Requirements: The proposal revises existing regulations to provide that CCC may accept cotton as loan collateral even though receiving, compression, load-out or other charges may have accrued to the cotton, provided that the producer has agreed to reimburse CCC for such charges. The lien provision appears to clarify an existing practice.

While not a part of the actual proposed rule, the supplemental information accompanying the regulation discusses in detail the procedure USDA intends to implement with respect to its re-concentration proposal.

The NCC has a number of resolutions that concern storage and handling of cotton and warehouse receipts, as well as recent recommendations by its Cotton Quality Task Force and its Bale Moisture Task Force (see 3/3/06 Cotton’s Week). Due to the extensive nature of the proposed changes, the NCC will consult with appropriate groups, including its Performance and Standards Task Force, and affected industry organizations as it develops comments on the proposed rule. The full FR notice is at www.cotton.org.



House Approves Appropriations Measure

The House, on a vote of 378 to 46, approved the FY07 Agricultural Appropriations (HR 5384) after rejecting numerous amendments to eliminate earmarked funding for research, to terminate funding for the Market Access Program (MAP) and to shift funds from cotton and rice programs to create block grants for states. The bill provides funding for commodity, nutrition and conservation programs as well as for USDA, FDA and CFTC operations.

During consideration of the bill, Agriculture Committee Chairman Goodlatte (R-VA) raised a procedural objection to inclusion of provisions to extend the storage and handling fees program for peanuts set to expire at the end of ’06 and extension of a dairy program set to expire in Aug. ’07, one month before the farm bill expires.

The House rejected (79 to 342) an amendment by Rep. Chabot (R-OH) to terminate MAP. An amendment offered by Rep. Weiner (D-NY) was ruled out of order after Chairman Bonilla (R-TX) raised an objection. The amendment would have eliminated all ’06 crop payments for cotton and rice and shifted the funds to a block grant program for small farmers.

The legislation provides $40.2 million to APHIS for cost share funds to support the boll weevil and pink bollworm eradication programs. The legislation creates a single account for the programs rather than separate accounts as in the past. It also restores a significant portion of the funding for the Lubbock and Las Cruces ginning laboratories. The Administration’s budget proposed terminating all funding and closing both facilities.



Supplemental Funding Action Postponed

Appropriations Committee Chairmen Lewis (R-CA) and Cochran (R-MS) indicated good progress has been made in resolving differences between the House and Senate versions but that final action would be delayed until Congress returns from the Memorial Day break the week of June 5. The House and Senate negotiators are having difficulty paring the bill down to the $94.5 billion level requested by the President.

President Bush repeated his threat to veto the bill if it exceeds the funding level in his request.  Adding to the challenge, the Administration’s last minute request for additional funding for border security upgrades has complicated the process. The legislation includes funding for military operations in Iraq and Afghanistan and for recovery efforts associated with Hurricane Katrina.

The Senate added a provision to its version to provide $4.2 billion assistance for disaster losses for ’05 crop. The House has no similar provision so the conference committee must decide whether to retain the provision in the final bill.



Eligibility Deadline Approaching

As a reminder to producers, the deadline for placing the ’05 crop of upland and ELS cotton in the loan program is May 31.

For upland cotton, May 31 is also the deadline for claiming the loan deficiency payment on any loan-eligible bales. The current marketing loan gain in effect for May 26 through June 1 is 10.98 cents. In addition, the six-week transition period for determining the adjusted world price (AWP) continues with the value in effect for June 2-8 reflecting a 50-50 weighting of the current and forward “A” Index.

Producers also have until June 1 to sign up for the ’06 Direct and Counter-cyclical Payment Program (see 5/19/06 Cotton’s Week for details).



Senate Passes Immigration Bill

The Senate passed sweeping immigration reform legislation. The bill dealt primarily with increased border security and a comprehensive guest worker program. The House’s version of the immigration bill focuses solely on the border security aspect. 

The Senate bill would increase border security by authorizing 370 miles of new triple-layered fencing and more than 500 miles of vehicle barriers along certain sections of the border; and allowing the Dept. of Homeland Security to hire additional workers, inspectors, agents and equipment. The bill also calls for the creation of an Electronic Employment Verification System that can check whether a worker’s identifying information is consistent with Social Security data and whether an individual is eligible to work in the United States.

In addition to creating an earned adjustment for undocumented workers in the US, the Senate bill sets wages for an estimated 1.5 million illegal farm workers and grants a separate path to citizenship under the bill, along with the more than 40,000 legal guest farm workers on H-2A visas. Illegal farm workers would become “blue card” holders if they worked a specified amount of time in agriculture in ’04 and ’05. If they complete the required amount of agricultural labor in the three to five years after enactment, pay taxes and a $400 fine, they would be eligible for green cards.


Schwab Nomination on Hold

The nomination of Susan Schwab to become next US Trade Representative is on hold as a result of action by Sen. Schumer (D-NY) who said he is disappointed with answers to his written questions submitted to her after her May 16 hearing.

Schumer has been critical of the Administration for not taking a harder line on revaluing China’s currency. He and Sen. Graham (R-SC) have introduced legislation (S. 295) to impose preventive tariffs on Chinese products if China does not take action to revalue the Yuan.



Bt Cotton Issues Addressed

The NCC’s Environmental Task Force (ETF), chaired by Alabama producer Mike Tate, developed recommendations for NCC consideration on Bollgard (BG) re-registration and adoption of a natural refuge (as proposed by Monsanto) for Bollgard II for both bollworm and tobacco budworm. The recommendation strongly supports the continued registration of Bollgard cotton for not less than three additional years to allow time for development of BG II varieties that will produce yields and qualities equal to premium BG varieties. More details on the complete recommendation can be found at http://www.cotton.org/issues/members/2006/etf.cfm.

The ETF also met jointly with the Pesticide and Biotech Partnerships, a collaborative effort between certain crop protection product/seed companies and the NCC. Al Jennings of USDA’s Office of Pest Management Policy and Don Stubbs, associate director of EPA’s Office of Pesticide Programs, briefed the ETF on several important environmental issues.

In roundtable discussions between the ETF, members of the Partnerships, and Jennings/Stubbs, issues discussed included the Food Quality Protection Act, Scientific Advisory Panel membership, spray drift, Endangered Species Act, air quality and weed resistance. Andy Jordan, NCC vice president of Technical Services and Roy Cantrell, Cotton Incorporated’s vice president for Research, summarized the status of a joint initiative on cotton sustainability.


US Mill Cotton Use Slips

According to the Commerce Dept., April (4-week month) total cotton consumption in domestic mills was 214.05 million pounds for a seasonally adjusted annualized rate of 5.69 million (480-lb) bales. Last April’s annualized rate was 6.20 million bales. The ’06 March (5-week month) estimate of domestic mill use of cotton was lowered by 2.44 million pounds to 295.13 million. The revised seasonally adjusted annualized rate of consumption for March is 6.07 million bales. This is lower than last year’s March annualized rate of 6.16 million bales.

Based on Commerce estimates from Aug. 1, ’05, through April 29, ’06, projected total pounds consumed during crop year ’05-06 would be 2.9 billion pounds or 5.99 million bales. USDA’s latest estimate of ’05-06 crop year mill use is 6.0 million bales.

Preliminary May domestic mill use of cotton and revised April figures will be released by Commerce on June 22.


Sales, Shipments Keep Pace

Net export sales for the week ending May 18 were 281,100 bales (480-lb.). This brings total ’05-06 sales to about 16.8 million. Total sales at the same point in the ’04-05 marketing year were almost 14.4 million bales. Total new crop (’06-07) sales are 560,900 bales.

Shipments for the week were 439,500 bales, bringing total exports to date to 12.8 million bales, compared with the 10.1 million bales at the comparable point in the ’04-05 marketing year. With slightly more than two months remaining in the marketing year, weekly shipments must average roughly 400,000 bales to reach the USDA projection of 17.0 million.



Prices Effective: May 26-June 1, '06

Adjusted World Price, SLM 11/16

41.02 cents

*

Coarse Count Adjustment

0.00 cents

Current Step 2 Certificate Value

1.59 cents

Marketing Loan Gain Value

10.98 cents

Import Quotas Open

 1

Step 3 Quotas (480-lb. bales)

 113,839

ELS Payment Rate

0.00 cents

*No Adjustment Made Under Step I
 
Five-Day Average
 
Current 3135 c.i.f. Northern Europe

55.16 cents

Forward 3135 c.i.f. Northern Europe

59.43 cents

Coarse Count c.i.f. Northern Europe

52.49 cents

Current US c.i.f. Northern Europe

56.75 cents

Forward US c.i.f. Northern Europe

63.60 cents

 
2005-06 Weighted Marketing-Year Average Farm Price  
 
Year-to-Date (August-March)

47.78 cents

**

**August-July average price used in determination of counter-cyclical payment