Cotton's Week: February 16, 2007

The NCC has asked for USDA’s cooperation in conducting a thorough review of a range of provisions related to the upland cotton marketing assistance loan in preparation for implementation of a new farm law.

In a letter to Under Secretary Mark Keenum, NCC President/CEO Mark Lange cited past work by a special advisory committee appointed by the Secretary. While not seeking reappointment of a special committee, Lange requested access to USDA experts so an effective review of the “discovery of premiums and discounts, factors determining the loan repayment rate, and loan repayment and redemption practices” can be conducted.

The NCC’s Board, during its meeting in Austin, TX, approved a resolution supporting a review of the provisions as part of the development of the new farm law, “in an effort to improve the timeliness, competitiveness and flow” of U.S. cotton. Lange advised Under Secretary Keenum that “input from USDA personnel has been critical to the industry’s deliberations in the past and will be vital as we seek to improve the competitiveness and efficiency in flow of U.S. cotton.”

The NCC responded to requests by the US Trade Representative for a list of market access priorities.

As follow up to a meeting in January, the NCC advised US Chief Agricultural Trade Negotiator/Ambassador Dick Crowder that first and foremost the US should not improve its offer first tabled in ’05 until other countries agree to meet the US offer on market access. The letter basically reiterated a statement made by 11 agricultural organizations, including NCC, in correspondence last July which stated ….. “Should the U.S. agree to reduce agricultural subsidies consistent with its last offer, there must be a corresponding increase in market access worldwide,” or our organizations will not be able to recommend approval by Congress.

The NCC’s letter also re-stated earlier communications by NCC that “a successful Doha Round (for cotton) must include significant increases in market access to China.” The access should be not less than 16 million bales annually and should be administered in a way that provides uninterrupted access for all potential buyers regardless of mill ownership or the end-market for products manufactured at the facility. China has administered its current access program in a restrictive manner by apportioning quotas to mills based on ownership, end-use and time of year. At the same time, China’s textile and apparel exports to the United States continue to grow significantly.

The NCC also expressed continued support for a sectoral agreement covering textiles which would address “tariff equalization and maintain safeguard provisions.”

The House Agriculture Committee heard testimony by USDA Secretary Johanns regarding the Administration’s Farm Bill proposal. The Senate held a similar hearing last week.

Secretary Johanns summarized the proposal and responded to extensive questions by members. A number of Cotton Belt members expressed concern about the Secretary’s proposal to eliminate the 3-entity rule and drastically cut the Adjusted Gross Income test from an average of $2.5 million - with an exemption for those whose income is at least 75% from farming, ranching or forestry - to $200,000 annually, with no exemption, to determine eligibility for farm program benefits.

Citing the cotton industry’s support for the Extra Long Staple Cotton Competitiveness program, Cotton Belt members also questioned Johanns about the Administration’s proposal to eliminate that program.

The Secretary later appeared before the House Budget Committee to review the Administration’s FY08 Budget and farm bill proposals.

In the coming months, both House and Senate committees will continue to hold hearings to receive input from the many interests that have a stake in the next Farm Bill. The committees also are awaiting action on the ’08 Budget Resolution, which will be produced by the House and Senate budget committees. This resolution will dictate the level of funding available to the Agriculture Committees to write new farm law. The House Budget Committee is expected to mark up its version of the resolution mid-March.

Agriculture Committee Chairman Peterson (D-MN), accompanied by Ranking Member Goodlatte (R-VA), testified before the Budget committee to explain that the budget baseline available to the committee is substantially below the levels provided to the committees when the ’02 bill was written. They outlined the need for additional budget resources for a renewable fuel program as well as for dairy, and for enhanced conservation and specialty crop programs.

Congressional leaders advised the Administration that they intend to add a disaster assistance package to the emergency supplemental appropriations measure providing funds for the war, which will be considered in March.

At the end of ’06, Sens. Conrad (D-ND) and Dorgan (D-ND), joined by others, revised previous disaster packages and offered legislation that would cover losses in excess of 35% for ’05 and ’06 crops. Recently, Sens. Feinstein (D-CA) and Boxer (D-CA) introduced a $1.5 billion disaster assistance package to cover freeze damage.

It is not known at this time what final disaster package might be included but it is likely to provide “traditional” disaster assistance to producers for ’05 or ’06 crop losses – at their choice – that exceeded 35% of crop insurance yields. It is expected that crop losses due to freezing weather in California and livestock losses due to severe winter storms in the Midwest also will be covered.

Participants in the ’07 Beltwide Cotton Conferences will be able to access conference presentations via the Confex Podium Service beginning on Feb. 20. Oral presentations recorded with the author’s consent and uploaded images of posters the authors submitted are included in this service.

These presentations can be accessed at http://ncc.confex.com/ncc/2007/techprogram/MEETING.HTM.

The attendee will need the registration ID number from their meeting name badge to enter the system. Attendees should expect to receive early the week of Feb. 19 an email from the Confex Podium Service that will include their registration ID as well. Attendees may email Debbie Richter drichter@cotton.org if they need assistance obtaining their registration ID.

Monsanto sponsored the Confex service. Complete ’07 Beltwide Cotton Conferences proceedings are scheduled to be mailed by mid-May.

At the NCC’s recent Annual Meeting in Austin, TX, 12 participants of the NCC’s Policy Education Program (PEP) were briefed by NCC staff regarding work on federal farm policy, environmental issues, market development and other concerns vital to US cotton’s profitability.

Program participants include: Graydon Flowers, Dublin, MS; Luke Winsett, Elmer, OK; Eugene Pugh, Halls, TN; Justin Jones, Albany, GA; Charlie Meyer, Statford, CA; Matt Huie, Beeville, TX; Steve Brown, Lake Providence, LA; Jonathan Spruell, Mt. Hope, AL; Jay Barrett, Farwell, TX; Nathan  Arp, Casa Grande, AZ; Coley Bailey, Coffeeville, MS; and Jordan Denning, Burgaw, NC.

Since ’99, more than 100 NCC producer members now have learned more about the NCC’s policy development and implementation process through the PEP, which is a special project funded by a grant from Syngenta Crop Protection to The Cotton Foundation.

In mid-July, the PEP participants are scheduled to visit Syngenta’s headquarters in Greensboro, NC, for communications training and to see NCC’s operations and meet with their Congressional representatives in Washington, DC.

“The PEP is helping the Council to arm these cotton producers with knowledge of the issues the industry faces and of the Council’s policy process and mission in addressing those challenges,” said John Gibson, the NCC’s director, Member Services. “This program has served to generate enthusiastic producer participation in the Council, and we are grateful for Syngenta’s support.”

In its February report, USDA gauged US ’06-07 cotton production at 21.7 million bales. Mill use was unchanged at 5.0 million bales and exports were lowered 1.2 million bales to 14.5 million bales due to a combination of lower total estimated imports by China and a lower expected US share of China’s market. The estimated total offtake now stands at 19.5 million bales, generating ending stocks of 8.3 million bales. The estimated ending stocks-to-use ratio is 42.6%.

Looking at ’07, the projected crop based on the NCC’s early season planting intention’s report is 20.7 million bales. This forecast is derived using trend yields and average abandonment for each state. Raw cotton imports are expected to be 20,000 bales. Based on beginning stocks of 8.3 million bales, total supply would be 29.0 million bales. This represents an increase of 1.2 million bales from ’06.

With the continued increase in competition from imported cotton textiles, further declines are expected for the domestic textile industry. NCC economists expect mill use to fall to 4.5 million bales for the ’07-08 marketing year. As a result, exports will continue to be relied upon as the primary outlet for the US crop. The export projection for ’07-08 is 16.2 million bales. With the increase in exports, a very slight drop in US stocks is expected. Ending stocks on July 31, ’08 are projected at 8.2 million bales with a corresponding stocks-to-use ratio of 39.7%.

USDA’s February report put world production for the ’06-07 marketing year at 116.6 million bales, down 160,000 bales from the January report. World mill use was raised 180,000 bales to 121.4 million. Consequently, world ending stocks are estimated to be 52.9 million bales for a stocks-to-use ratio of 43.6%.

The NCC’s estimate of the world ’07 crop year indicates an expansion in mill use to 124.0 million bales. Barring exceptional yields, current prices of cotton relative to competing crops will not hold production at a level necessary to meet expected demand.

NCC forecasts world cotton production at 116.5 million bales for the ’07-08 marketing year. The current estimates for production and consumption would lead to a decline of global stocks by July 31, ’08. Ending stocks for the ’07-08 marketing year are projected at 45.8 million bales with a corresponding stocks-to-use ratio of 37.0%.

Net export sales for the week ending Feb. 8 were 326,100 bales (480-lb). This brings total ’06-07 sales to slightly more than 7.6 million. Total sales at the same point in the ’05-06 marketing year were approximately 12.7 million bales. Total new crop (’07-08) sales are 323,700 bales.

Shipments for the week were 208,300 bales, bringing total exports to date to 4.2 million bales, compared with the 6.5 million bales at the comparable point in the ’05-06 marketing year.

Competitiveness provisions triggered a Step 3 quota based on price conditions for the week ending Feb. 15. When the Friday through Thursday weekly average US northern Europe price exceeds the northern Europe price ("A" Index) by more than 1.25 cents per pound for any four consecutive weeks, a special Step 3 import quota is triggered.

The quota is for 97,616 bales (480 lb), equal to one week of upland cotton mill use based on the seasonally adjusted data for the period Aug.-Oct. ’06, the most recent three months for which data are available. The quota will be established as of Feb. 22 and applies to upland cotton purchased no later than May 22 and entered into the US no later than Aug. 20.

Currently, there are six import quotas opened in the total amount of 585,694 bales.

Adjusted World Price, SLM 11/16	42.61 cents	*
Coarse Count Adjustment	0.00 cents
Marketing Loan Gain Value	9.39 cents
Import Quotas Open	6
Step 3 Quotas (480-lb. bales)	585,694
ELS Payment Rate	0.00 cents
*No Adjustment Made Under Step I
Five-Day Average
Current 3135 c.i.f. Northern Europe	58.71 cents
Forward 3135 c.i.f. Northern Europe	NA
Coarse Count c.i.f. Northern Europe	NA
Current US c.i.f. Northern Europe	60.65 cents
Forward US c.i.f. Northern Europe	NA
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