Cotton's Week: April 13, 2007

Cotton's Week: April 13, 2007

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Loan Charges/Transfer Clarified

USDA’s Farm Service Agency (FSA) recently issued new notices to county offices detailing cotton transfer procedures and more fully describing anticipated charges upon forfeiture. The agency also is considering minor changes to Form CCC-605 in order to conform that agreement to regulations and FSA policy.

These new procedures help clarify the potential for transfers of cotton under loan to result in additional charges upon forfeiture of the cotton. Under the transfer procedure, the requestor of the transfer (usually the merchant acting under a CCC-605) is responsible for charges associated with the transfer. Therefore, it is unlikely that transferred cotton will be forfeited. If, however, transferred cotton is forfeited, it may be subject to different storage rates and, therefore, different charges upon forfeiture. 

The NCC has developed a paper outlining/summarizing the impact of these changes and it contains language that producers and merchants may wish to consider including in their option-to-purchase contracts that should help protect the parties from unforeseen charges. That paper is available online at www.cotton.org/tech/flow/upload/storage_transfer2.pdf. In addition, FSA is developing a set of tables and questions and answers that should further clarify the impact of the regulatory change. Once those documents are finalized, NCC will help make them available to the industry.

The new procedures follow the significant revisions made to loan and cotton storage regulations last summer with input from the NCC’s Performance and Standards Task Force. The Administration, as a part of its budget proposal to Congress, has further recommended that all storage payments be discontinued for cotton under loan. The NCC recently issued an Action Alert to its members requesting they contact Congress to oppose this action.



Majority Leader Provides Agenda

Senate Majority Leader Reid (D-NV) predicts the FY07 supplemental appropriations will soon go to the White House with language to raise minimum wage. He acknowledged Democrats take very seriously the President’s threat to veto the measure if it includes a timetable for withdrawal from Iraq.

Sen. Reid said the Senate soon would consider legislation to allow the government to negotiate Medicare prescription drug prices and also will consider comprehensive energy legislation which will include additional incentives for production and use of renewable fuels.

Sen. Reid indicated the last two weeks before the Memorial Day recess are being reserved for debate on comprehensive immigration legislation. He said he will be meeting leaders of the Environmental and Public Works Committee to discuss “what type of legislation is possible to address global warming.”



Asians Benefit from Quota Removal

A WTO report indicates Asian countries are the primary beneficiaries of textiles and apparel quota removal.

Imports of textiles and apparel into the United States, European Union, Japan and Canada rose 5.5% to $350 billion in ’06. China’s exports to those markets increased 15% compared to a 45% increase in ’05.

“China’s exports continued to gain market share in all major developed import markets despite restrictions introduced in 2005,” the WTO said. “The new restrictions also had no apparent effect on China’s overall exports of textiles and clothing to the world, which increased in 2006 by 25%.”

Other Asian exporters, including Bangladesh, Cambodia, Indonesia and Vietnam, registered stronger growth rates than China – between 18% and 25% - while India’s exports increased 12%. The Asian increases affect producers in developed countries as well as developing countries.

US imports from CAFTA countries and the Dominican Republic declined 7% and Sub-Saharan Africa’s exports to the United States declined 10% in ’06 according to the WTO report.


Credits Provision Sought

A USDA official says the Administration will ask Congress to include a provision in new farm law that would establish a board to set standards for markets trading carbon, water quality, air emissions, or wetlands credits.

Under Secretary Mark Rey told a group in New York that Congress should establish a standard-setting board, including federal agencies with expertise in developing standards.

In its farm bill proposal, the Administration proposed funding of $50 million to be used to develop standards for quantifying environmental practices which reduce runoff or reduce carbon emissions, establish credit registries, and offer credit audits and certification services.

Rey expressed concern that many benefits produced on US farms do not have an assigned value in the market place, which means farmers and ranchers have little incentive to employ practices. He said USDA’s interest in market-based approaches is driven by “recognition that varying levels of environmental markets have emerged as a cost-effective alternative to meeting regulatory standards. We also know there is significant private capital out there and also significant interest.”


Mandatory Reporting Urged

In order to remain on the Commodity Credit Corp. (CCC) “list of approved warehouses,” warehousers are encouraged to report their Bales Made Available for Shipment (BMAS) for the previous week by the close of business on the following Monday.

USDA has informed the NCC that to date only one warehouse has failed to report on three occasions and fell victim to the three strike rule. As a result of the failures to report, that warehouse has been removed from the CCC List of Approved Warehouses.

According to a letter sent from Steve Searcy, chief, Storage Contract Branch, Kansas City Commodity Office (KCCO), to warehousers in early January, “In order to be reinstated a warehouse operator must submit all missing cotton flow reports and pay a reinstatement fee.”

KCCO and the approved providers have been contacting warehouses whose names appear on the “delinquent reports” list to remind them of the importance of submitting the weekly reports. For the first quarter of ’07, more than 98% of all warehousers have not missed a reporting deadline and have filed their BMAS reports as required.


Sales, Shipments Stay Strong

Net export sales for the week ending April 5 were 362,700 bales (480-lb). This brings total ’06-07 sales to approximately 10.3 million. Total sales at the same point in the ’05-06 marketing year were approximately 15.4 million bales. Total new crop (’07-08) sales are 500,900 bales.

Shipments for the week were 295,500 bales, bringing total exports to date to 6.2 million bales, compared with the 10.2 million at the comparable point in the ’05-06 marketing year.



Dimethoate Usage Supported

The NCC, in a letter to EPA’s Office of Pesticide Programs, conveyed its support of EPA’s decision regarding re-registration eligibility risk mitigation measures for dimethoate – which is used on a relatively small percentage of US cotton acreage (less than 0.5%), but is an important component of integrated pest management strategies.

The letter stated that NCC has reviewed aspects of the EPA decision that relate to cotton use and find the decision to be sufficient to continue judicious use of dimethoate in cotton.

“The NCC applauds the agency’s decision to specify a maximum seasonal rate rather than determining the number of applications per season, thereby allowing producers flexibility in their pest management practices,” the letter stated. “We recognize the significance of this product to our industry and the difficulties in determining appropriate and careful use requirements for dimethoate and other pesticides. The NCC believes the re-entry interval, personal protective equipment, and buffer requirements set for this product sufficiently address appropriate and careful use practices.”


EPA Can Regulate GHGs

The US Supreme Court, in a 5-4 decision, held that the EPA has authority under the Clean Air Act (CAA) to regulate carbon dioxide and other greenhouse gases (GHGs) from new motor vehicles.

The court said that the CAA’s sweeping definition of “air pollutant” includes GHGs and concluded that EPA "has offered no reasoned explanation" and acted arbitrarily and capriciously in its refusal to decide whether GHSs cause climate change. On remand, EPA must explain its reasons for action--or inaction--on the question of regulating GHGs. The opinion does not decide whether EPA must make a finding of "endangerment" for carbon dioxide and other GHGs -- the test for establishing standards under Section 202(a)(1) of the Clean Air Act -- or what policies or part of the CAA the agency should follow if it makes an endangerment finding.

There are other court cases on GHGs that affect utilities that will be decided now. The decision should embolden lawmakers planning comprehensive climate change legislation to cap US GHG emissions. There are at least five bills introduced and legislation is expected to be passed by the end of the summer.

With or without congressional action on climate change legislation, this decision essentially ensures that industrial emissions of GHG emissions will be regulated. The court's decision also means that even if EPA does not move to regulate such emissions by the end of President Bush's second term, the next president will have the explicit authorization of the Supreme Court to do so.

California and some other states already are regulating GHG emissions - and in California it already is affecting agriculture.



USDA Lowers ’06-07 Production

In its April report, USDA gauged US ’06-07 cotton production at 21.57 million bales. A reduction of 160,000 bales is based on the March 22 Cotton Ginnings report. Mill use dropped 50,000 bales to 4.95 million bales and exports were lowered 500,000 bales to 13.50 million bales, reflecting continued sluggish US export sales and shipments and lower imports by China. The estimated total offtake now stands at 18.45 million bales, generating ending stocks of 9.20 million bales, the largest since ’85-86. The estimated ending stocks-to-use ratio is 49.9%.

For the ’07-08 crop year, USDA projects a US crop of 20.00 million bales. Mill use is set at 4.50 million bales while exports are reported to reach 18.00 million bales. The estimated total offtake stands at 22.50 million bales, resulting in ending stocks of 6.70 million bales.

USDA sees world production for the ’06-07 marketing year to be 116.79 million bales, up 40,000 bales from the March report. World mill use was raised 340,000 bales to 121.88 million. Consequently, world ending stocks are estimated to be 52.59 million bales for a stocks-to-use ratio of 43.1%.

For the ’07-08 crop year, USDA sees world production to reaching 117.00 million bales. Mill use is set at 125.00 million bales. World ending stocks are estimated to be 49.09 million bales for a stocks-to-use ratio of 39.3%.


AWP Transition Likely Delayed

The six-week blending of the current and forward “A” Index quotes for calculation of the adjusted world price (AWP) likely will be delayed due to a lack of new-crop quotes.

The six-week blending process is used to transition the AWP from old crop to new crop. Under current regulations, the transition period is scheduled to start with the AWP announcement made on the Thursday of the week that includes April 15. However, the start of the transition period is delayed if insufficient quotes are available.

Currently, Cotton Outlook reports only two new-crop quotes for delivery in the fall of ’07, which is insufficient for the determination of a forward “A” Index.

A delay in the transition period also occurred in ’06.

Once the six-week process commences, then the formula during the first two weeks is two times the current quote plus the forward quote divided by three. For weeks three and four, the formula is the current quote plus the forward quote divided by two. For weeks five and six, the formula is the current quote plus two times the forward quote divided by three.



Prices Effective April 13-19, '07

Adjusted World Price, SLM 11/16

42.37 cents

*

Coarse Count Adjustment

0.00 cents

Marketing Loan Gain Value

9.63 cents

Import Quotas Open

 13

Step 3 Quotas (480-lb. bales)

1,269,004

ELS Payment Rate

0.00 cents

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

58.78 cents

Forward 3135 c.i.f. Northern Europe

NA

Coarse Count c.i.f. Northern Europe

NA

Current US c.i.f. Northern Europe

59.50 cents

Forward US c.i.f. Northern Europe

 NA

 
2006-07 Weighted Marketing-Year Average Farm Price  
 
Year-to-date (August-February)

 47.84 cents

**

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

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