Cotton's Week: February 2, 2007

Cotton's Week: February 2, 2007

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USDA Unveils ’07 Farm Bill Proposal

Following the release of USDA’s comprehensive farm bill proposal, Administration officials began fanning out across the country to present the plan. A detailed explanation is available on the USDA web site at and can be accessed from the NCC’s home page at

For commodity programs, the loan rate would be established at 85% of the most recent five-year Olympic average prices with a maximum as established in the ’02 farm bill. Direct Payments (DPs) would be increased for most crops and would be increased by 65% for cotton to partially compensate for the significantly lower loan rate resulting from the use of the 85% formula to establish future loan rates. DPs would continue to be made on 85% of the farm’s base and yield as established by the ’02 farm law. A counter-cyclical payment (CCP) program would be continued but would be modified from a price-based to a revenue-based program.

A national target revenue would be established and compared to a national actual revenue for the commodity. If the actual revenue falls below the target, then a payment per acre would be made based on 85% of the individual producer’s base acres and the CCP payment yield established under the ’02 farm law.

In another cotton specific provision, the Administration proposed terminating Steps I and III and the ELS-competitiveness provision.

The Administration also proposed lifting the prohibition on planting fruits and vegetables on payment acres to ensure Direct Payments comply with the ruling in the WTO Brazil cotton dispute. The Administration has proposed the elimination of the three-entity rule and replacing it with direct attribution of payments directly to “natural” persons who are “actively engaged in farming.”

The Administration would establish payment limitations of $110,000 for direct payments; $110,000 for counter-cyclical payments and $140,000 for marketing loan gains and loan deficiency payments. Because they are not specifically referenced, redemption of loans with “certificates” are assumed to be continued. The separate limitations for peanut, wool and honey would be eliminated.

In a further modification, the Administration is proposing lowering the existing $2.5 million adjusted income test from $2.5 million to $200,000. The proposal eliminates the three-year averaging provision and the provision that allows an individual to receive program benefits regardless of their Adjusted Gross Income (AGI) provided 75% or more of the AGI is derived from farming, ranching and forestry operations. The new means test level would apply to commodity programs but the existing $2.5 million AGI would continue to be used to determine eligibility for conservation programs.

There are provisions that would deny program benefits for all newly purchased land benefiting from a 1030 tax exchange. There would be additional benefits available to beginning and socially disadvantaged farmers.

The Administration also has proposed significant increases in funding for voluntary, cost-share conservation programs and simplifying the provisions of the Conservation Security Program. The Administration’s proposal, if adopted in its entirety, would reduce spending on commodity programs by $4.5 million over 10 years as compared to current spending.

NCC Chairman Allen Helms reiterated the cotton industry’s support for maintaining a farm program that provides a viable safety net and meets the needs of all segments of the industry.

“The Council has testified at numerous hearings about the success of the 2002 farm bill,” Helms said. “The combination of an effective marketing loan, direct payment and counter-cyclical program is the foundation of the 2002 farm bill.”

Chairman Helms noted that the Administration’s farm bill proposal continues a basic structure for commodity programs similar to the 2002 farm bill.

“However, our members will be concerned with several provisions, among which are the additional constraints imposed on benefit eligibility,” Helms added. “We are entering our annual meeting where our delegates will further develop the Council’s policies that will shape our views on the upcoming farm bill. The Administration’s proposal brings additional ideas to what will be an intense debate. Our industry looks forward to working with Congress to craft a farm bill that will serve both U.S. cotton and U.S. agriculture in the future.”

CCP Advance Requested

NCC Chairman Allen Helms sent a letter to Agriculture Secretary Mike Johanns requesting that USDA announce the second advance ’06-crop counter-cyclical payment (CCP) for upland cotton at the maximum level of 9.61 cents per pound.

The letter stated that NCC economists found that averaging expected prices for the remainder of the ’06/07 marketing year with observed price data through December provides a likely marketing year price range of 47 to 51 cents. As a result, the NCC expects the CCP for the current marketing year will be at the maximum level.

For producers who did not elect to receive the first advance CCP of 4.81 cents announced in October, they would be eligible for the full amount of the second advance of 9.61 cents. Those who took the first advance would be eligible for 4.80 cents, the remaining portion of the second advance payment.

Survey Suggests 13.21 Million Acres in ’07

US cotton producers intend to plant 13.21 million acres of cotton this spring, down 13.6% from ’06, according to the NCC’s 24th Annual Early Season Planting Intentions Survey.

Upland cotton intentions are 12.85 million acres, a decrease of 14.1% from ’06. Extra long staple (ELS) intentions of 361,000 acres represent a 10.9% increase from ’06. The results were announced at the NCC’s ’07 Annual Meeting, which began today in Austin, TX.

Assuming an average abandonment rate, total upland and ELS harvested area would be about 11.99 million acres. Applying state-level yield assumptions to projected harvested acres generates a cotton crop of 20.66 million bales. This compares to ’06’s total production of 21.73 million bales. Assuming average seed-to-lint ratios, ’07 cottonseed production is projected at 7.21 million tons, down from 7.66 million last year.

The NCC survey was mailed in mid-December to about one-third of the producers across the 17-state Cotton Belt. Surveys had to be returned by mid-January.

Dr. Stephen Slinsky, the NCC’s senior economist, said, “assuming normal weather conditions, a U.S. crop between 20-21 million bales is very possible.” He said the NCC realizes there are still a number of questions about the reasons behind the higher yields observed in recent years. For most of the Cotton Belt, very respectable yields were obtained last year in spite of significant adverse weather, leading us to use simple three-year average yields. However, yield deviations observed over the past decade suggest that under ideal conditions, 22 million bales would not be out of the question, while severe weather problems could also push the crop to the 18-million bale range.”

Based on survey results, the Southeast, Mid-South, Southwest and Far West show intended upland cotton planting decreases of 22.1%, 19.6%, 6.6% and 15.4%, respectively.

Survey results for the Southeastern states show a significant shift into corn and, to a lesser extent, wheat. There is also a modest shift into soybeans. While Virginia decreases the most, 31%, Florida’s intentions are only 2.4% less than last year. Georgia and Alabama growers indicate 23.5% and 18% decreases, respectively.

“Except for Tennessee, the sharp increase in corn prices will draw Mid-South cotton acreage into corn while wheat acres will grow at the expense of soybeans,” Slinsky said. “Not all of the reduction in Tennessee cotton acres will shift into corn; almost half of these cotton acres will shift into wheat.”

Oklahoma showed the greatest intended decrease in the Southwest – a 13.9% drop to 271,000 acres. Texas growers indicated intentions of six million acres, a 6.3% drop from last year.

The Western region showed a projected 15.4% decline. For the second consecutive year, California growers intend to plant less area to upland cotton. Unlike last year, when specialty crops pulled Upland cotton out of production, the shift will be to ELS cotton and to wheat. If that state’s growers plant the indicated 208,000 acres to cotton, it would represent a 27.1% decrease from the previous year. The survey revealed Arizona growers intend to increase upland area by 0.3% to 211,000 acres.

Prospective 2007 U.S.Cotton Crop


2006 Actual (Thou.)  1/

2007 Intended (Thou.)  2/

Percent Change

















  North Carolina




  South Carolina




























































  New Mexico




















  New Mexico













2/ National Cotton Council.

Cotton Flow Committee Meets

At the NCC’s annual meeting, the NCC Cotton Flow Committee heard reports from USDA and the NCC’s Performance and Standards Task Force.

Roger Hinkle, with USDA’s warehouse division, discussed enforcement of the cotton flow standard and the new requirement for warehouses to provide weekly flow reports . Gene Rosera, with USDA’s Farm Service Agency, reported on USDA’s implementation of an interim transfer process for inter-warehouse movement of cotton in the Commodity Credit Corp. loan and Laney Campbell, USDA-APHIS, discussed policy changes that clarify time limits for issuing phytosanitary certificates based on inspections of baled cotton and subsequent export.

Following a report by Flow Committee Bobby Greene on the activities of the Performance and Standards Task Force, the committee recommended that the task force assist in the development of a standardized warehouse scheduling tool and study the field-to-fabric flow of cotton.

Sales Steady, Shipments Lag

Net export sales for the week ending Jan. 25 were 201,500 bales (480-lb). This brings total ’06-07 sales to approximately 7.0 million. Total sales at the same point in the ’05-06 marketing year were approximately 11.7 million bales. Total new crop (’07-08) sales are 288,100 bales.

Shipments for the week were 154,500 bales, bringing total exports to date to 3.8 million bales, compared with the 5.8 million bales at the comparable point in the ‘05-06 marketing year.

Prices Effective Feb. 2-8, '07

Adjusted World Price, SLM 11/16

43.80 cents


Coarse Count Adjustment

0.00 cents

Marketing Loan Gain Value

 8.20 cents

Import Quotas Open


Step 3 Quotas (480-lb. bales)


ELS Payment Rate

 0.00 cents

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

59.90 cents

Forward 3135 c.i.f. Northern Europe


Coarse Count c.i.f. Northern Europe


Current US c.i.f. Northern Europe

62.25 cents

Forward US c.i.f. Northern Europe


2006-07 Weighted Marketing-Year Average Farm Price  
Year-to-Date (August-December)

47.35 cents


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