Cotton's Week: May 25, 2007

Cotton's Week: May 25, 2007

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Agreement Addresses Necessary Marketing Loan Adjustments

The NCC has achieved a comprehensive set of recommendations which addresses virtually every criticism leveled at the cotton program. The agreement paves the way for substantial changes in loan provisions to: 1) improve competitiveness, 2) speed movement of cotton to market and 3) strengthen the industry’s ability to defend the central component of the producers’ safety net.

Over the past four months, a number of challenges have arisen for US agriculture in general and cotton in particular. The sources of these challenges are widespread and have multiple focus points.

NCC Chairman John Pucheu, a Tranquillity, CA, producer, said, “Council leadership is to be commended for recognizing the importance of a comprehensive position on key components of our program. We have the advantage of supporting a program structure that is sound and has a proven track record while at the same time providing needed adjustments to improve its functionality in today’s market. Our success will continue to depend upon a unified effort by our membership.

“U.S. agriculture faces a tight budget baseline to write the next farm legislation. The high prices for grains and oilseeds mean projected spending on commodity programs is primarily the direct payment for many crops. Cotton stands out in the budget discussion because cotton is expected to have outlays in all three program areas of direct payments, counter-cyclical payments, and marketing loan gains for much of the next six years.”

Senate Agriculture Committee Chairman Harkin (D-IA) has stated that he would largely eliminate direct payments to use the funds in the other areas such as energy and conservation.  He supports substantially tighter payment limits and the elimination of certificates for loan redemption. In addition, proposals to further limit producer eligibility for payments come from USDA Secretary Mike Johanns.

In early February, the Administration released proposed farm legislation that would lower the cotton loan rate by 20%, apply a new adjusted gross income test of $200,000 annually for program eligibility, eliminate the 3-entity rule and move to direct attribution. If an operator filed a return with an adjusted gross income higher than $200,000, the farm operation loses all program eligibility. This means no direct or counter-cyclical payments and no access to the Commodity Credit Corp. (CCC) non-recourse marketing loan. The Administration also has expressed concern that the projected ending stocks of 9.5 million bales and possible large forfeitures of ’06 CCC loan cotton are symptomatic of serious deficiencies in the upland cotton marketing loan. The Secretary of Agriculture has significant regulatory authority including giving credits for storage payments when the AWP is below the loan rate, the use of certificates in loan redemptions, and the establishment of the premium and discount schedule for the CCC upland cotton loan. 

For several months there have been wide-ranging industry discussions on adjustments to the upland cotton marketing loan with the guiding principle that the loan’s role as a producer safety net should not hinder competitive offers for US cotton in both domestic and international markets. It became clear in April that industry consensus had to be achieved in short order to reduce the likelihood of disastrous legislation or regulatory action against cotton. It also was recognized that attempting to maintain the status quo for the marketing loan likely would empower cotton program critics and enable detrimental action for new farm legislation and regulatory changes that would possibly be associated with the ’07 crop.

The Marketing Loan Working Group, chaired by NCC Vice Chairman Larry McClendon, a Marianna, AR, producer, met several times to find agreement on changes to provisions of the marketing loan. The working group crafted a comprehensive and linked set of recommendations on the calculation and application of loan premiums and discounts, discovery of the world price, adjustments to the AWP to fully recognize transportation cost, efficient movement of cotton and increased flexibility in loan redemptions. The NCC’s Executive Committee met by conference call on May 18 and approved a comprehensive package of adjustments to the marketing loan. That package can be found at www.cotton.org/issues/members/2007/loanagree.cfm.



USDA Approves Packaging Specifications

The ’07 Specifications for Cotton Bale Packaging Materials, as recommended  by the Joint Cotton Industry Bale Packaging Committee and accepted by its Specifications Review Committee, were approved by USDA’s Commodity Credit Corp. (CCC). The specifications will be used by the CCC for loan program eligibility purposes, and the specifications are intended for use as manufacturing guidelines for bagging and bale ties.

The ‘07 specifications can be found on the NCC’s web site at  http://www.cotton.org/tech/bale/specs/index.cfm. The Technical area’s Bale Packaging site also contains an archive of Cotton Bale Packaging Materials specifications for the years ’00-06.


Bill Includes Disaster Assistance

The House (280-142) and Senate (80-14) approved an Iraq funding bill that includes $3 billion for disaster assistance, extends a dairy program and provides funding sufficient to cover existing CSP contracts for ’07.

The disaster assistance provisions cover crop and livestock losses. The assistance will be available to eligible producers who lost 35% or more of their crop in ’05, ’06 or ’07.

To be eligible for ’07, crops must have been planted by Feb. 28. The payment rate will be 42% of the established crop insurance price. Coverage also is available for quality losses. Producers may apply for benefits for one of the three years and must have purchased crop insurance to be eligible. The benefits are subject to the normal $80,000 per person limit and the $2.5 million adjusted gross income test will be used to determine eligibility.

The President has indicated his intention to sign the legislation.


Panel Begins Farm Law Reauthorization

The House Agriculture Subcommittee on Conservation, Credit, Energy and Research, chaired by Rep. Holden (D-PA) began work on the ’07 farm bill by passing several titles of the new farm law. The Subcommittee approved the Conservation, Research, Energy and Credit Titles. All amendments that were controversial or would cause an increase in the baseline of the title were withdrawn and likely will be offered during the full committee mark-up of the titles.

The Conservation Title reauthorized all of the current programs that were included in the ’02 bill.  Many of the programs, including the Environmental Quality Incentives Program (EQIP), Wetlands Reserve Program (WRP) and the Grasslands Reserve Program (GRP), received increases in funding contingent upon the committee’s use of the reserve fund that was created in the Joint Budget Resolution.  It is still unclear what offsets may be used in order to tap into the reserve fund. 

Notable changes in the law include the ability to use Financial Assistance funds from EQIP; to use approved Third Party Providers; changing the fair market valuation in WRP to reflect the practice used prior to ’03; and declaring that at least 12 producers be members of State Technical Committees. Changes also were made to the Conservation Security Program (CSP) to ease access and streamline the program. While existing CSP contracts would be honored under this legislation, no new signups would occur until ’12. 

While most amendments that were offered during the markup were withdrawn, six were accepted. One was an amendment by Rep. Cardoza (D-CA) that would allow for packing and handling to be considered on-farm income for the purposes of calculating a producer’s Adjusted Gross Income for conservation programs.  

Included in the markup of the Research Title is a proposal to form a new Agriculture Research Institute (ARI), which would report to the Under Secretary for Research, Education and Economics (REE), to coordinate the research programs of the existing Department agencies. The ARI would encompass six institutes representing renewable energy, food and nutrition, plant and animal health, agriculture technology, and agriculture economics. The Under Secretary for REE and directors of the six institutes would consult with the current USDA advisory board on research, extension and economics in directing research activities. Chuck Coley, a Vienna, GA, cotton producer, is a member of that advisory board.

Additionally, Subcommittee members proposed the establishment of a “National Institute for Food and Agriculture” within the Cooperative State Research, Education and Extension Service to administer all competitive grant programs within the Department. Other provisions include specific funding authorization for bio-energy and bio-based products research, specialty crops research, and research laboratories for animal diseases.

Other subcommittees will begin their mark-ups of the remaining titles after Congress returns from the Memorial Day recess. The full Committee intends to complete its consideration of all farm bill titles by the July 4 recess.


Leadership Class Deadline Nearing

The deadline for submitting applications for the ’07-08 Cotton Leadership Class is July 2.

“I can assure you that the participants selected for the program will be rewarded with a once-in-a-lifetime opportunity to gain experiences and skills that will serve them throughout their career,” said NCC Chairman John Pucheu.

He said those considering applying or nominating an individual are encouraged to visit http://leadership.cotton.org. That site contains program curriculum, eligibility requirements and a downloadable application. Applicants or nominators also may contact NCC’s Member Services at 901-274-9030 or their local Member Services representative for additional information.

The Cotton Leadership Program is supported by a grant to The Cotton Foundation from DuPont Crop Protection. Since ’83, more than 200 alumni have used the skills and knowledge gained to represent the US cotton industry on state, regional, national and international levels.



Mill Cotton Use Declines

According to the Commerce Dept., April (four-week month) total cotton consumption in domestic mills was 184.02 million pounds for a seasonally adjusted annualized rate of 4.86 million bales (480-lb). Last year’s April annualized rate was 5.67 million bales.

The March (five-week month) estimate of domestic mill use of cotton was lowered by 3.94 million pounds to 230.24 million. The revised seasonally adjusted annualized rate of consumption for March is 4.76 million bales. This is lower than last year’s March annualized rate of 6.02 million bales.

Based on Commerce estimates from Aug. 1, ’06, through April 28, ’07, projected total pounds consumed during crop year ’06-07 would be 2.4 billion pounds or 4.92 million bales.  USDA’s latest estimate of ’06-07 crop year mill use is 4.9 million bales.

Preliminary May domestic mill use of cotton and revised April figures will be released by the Commerce Dept. on June 28.



Sales, Shipments Strong

Net export sales for the week ending May 17 were 381,000 bales (480-lb). This brings total ’06-07 sales to slightly more than 13.3 million. Total sales at the same point in the ’05-06 marketing year were approximately 16.8 million bales. Total new crop (’07-08) sales are 785,200 bales.

Shipments for the week were 407,400 bales – a marketing year high – bringing total exports to date to 8.3 million bales, compared with the 12.8 million at the comparable point in the ‘05-06 marketing year.

With a little less than three months remaining in the marketing year, weekly shipments must average roughly 468,000 bales to reach the USDA projection of 13.25 million bales.


Prices Effective: May 25-31, '07

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

7

Step 3 Quotas (480-lb. bales)

683,310

ELS Payment Rate

0.00 cents

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

57.82 cents

Forward 3135 c.i.f. Northern Europe

61.43 cents

Coarse Count c.i.f. Northern Europe

NA

Current US c.i.f. Northern Europe

56.65 cents

Forward US c.i.f. Northern Europe

61.70 cents

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

 47.77 cents

**

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

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