Cotton's Week: October 5, 2007

Cotton's Week: October 5, 2007

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Finance Panel Okays Farm Bill

The Senate Finance Committee overwhelmingly approved (17-4) the “Heartland, Habitat, Harvest, and Horticulture Act of 2007.”

The legislation, estimated to cost $16 billion over five years, creates a $5 billion trust fund to provide supplemental assistance to cover losses due to disaster; converts several conservation programs from payment-based to tax-credits; and, provides additional incentives for rural development, renewable energy and beginning farmers.

The legislation is expected to be added to the ’07 farm bill, which now is scheduled to be marked up by the Senate Agriculture, Nutrition & Forestry Committee during the week of Oct. 22. The funding for the amendment to the Federal Crop Insurance Act creating the Agriculture Disaster Relief Fund (PADTF) would be provided through use of 4% of the duties on articles entered into the United States.

A significant portion of the other costs of the legislation is offset by establishing a statutory definition of the “economic substance doctrine.” The IRS interpretation of the doctrine, which is designed to stop businesses from utilizing practices which are solely designed to avoid taxes on investments which do not produce economic activity, is being challenged in the courts. Some Senators view the provision as a tax increase but Senator Grassley argued that the legislation will clarify the doctrine rather than leave the definition unclear.

Other provisions which directly affect farmers include establishing an annual limit of $200,000 on the losses that can be carried forward to offset income by those receiving farm program payments and the exclusion of developed property in a like-kind (1031) exchange for undeveloped property eligible for farm program payments.

The legislation includes several provisions related to renewable fuels including a 5 cents/gallon reduction in the blender’s tax credit when total US production reaches 7.5 billion gallons. The tax credit for bio-diesel is retained to ’10 and the tariff on imported ethanol is extended for two years to ’10.

During the mark-up, Sen. Kyl (R-AZ) offered and withdrew an amendment to eliminate estate taxes on most estates beginning in ’10 after he and Sen. Lincoln (D-AR) received assurances from the Chairman that a hearing and mark-up on the matter would be scheduled.

The Committee also approved an amendment offered by Sen. Lincoln to accelerate the depreciation period for small, energy efficient motors used on farms.

Sen. Conrad (D-ND), chairman of the Budget Committee and a member of the Finance and Agriculture Committees, said the Finance Committee’s action would help the Agriculture Committee by providing additional funds, but that the Agriculture Committee likely will need to make across-the-board cuts of 2-4% on all programs, excluding nutrition, to meet funding demands. He also indicated significant differences remain to be resolved about the reform of payment limitations.


WTO Support Notification Submitted

The United States has submitted its notification of domestic support to the World Trade Organization (WTO) for the years ’02-05. Member nations are obligated to notify the WTO about domestic support programs. The last US notification was made in ’04 for the year ’01.

In the notification made on Oct. 4, the United States reported that total expenditures under the aggregate measure of support (AMS), also known as the amber box, were well below the $19.1 billion ceiling for each of the years ’02-05. The annual AMS ceiling of $19.1 billion was set in the Uruguay Round agreement. The US submission classified Direct Payments as “Green Box.” Other Green Box payments reported by the US included most conservation programs and disaster assistance programs.

Canada and Brazil have initiated proceedings in the WTO contending that the United States has exceeded its WTO ceiling. The US classification of Direct Payments is expected to be challenged during the case.

During a briefing for farm groups in Washington, Under Secretary Mark Keenum indicated the United States has carefully reviewed the provisions of the Uruguay Round Agreement and is confident the US notification is in compliance with the agreement. At a press conference in Geneva, Dr. Joe Glauber, special US agriculture envoy to the WTO, strongly defended the designation of Direct Payments as Green Box. He explained that the designation is consistent with the WTO definitions and not at odds with the determination in the Brazil cotton case.


Brief No-Match Extension Granted

A federal judge in San Francisco ordered a temporary 10-day extension to the restraining order preventing the Department of Homeland Security (DHS) from issuing no-match letters.

As with the first ruling that stayed the no-match letters, this ruling - in practical terms - provides employers with additional time to make sure that they are ready to comply if and when the no-match rule does become effective.

As previously reported in 8/17 Cotton’s Week, DHS issued its rule on how an employer should respond to a no-match letter received from the Social Security Administration. In a lawsuit filed on Aug. 29in the federal district court in San Francisco, a number of labor organizations challenged the rule and asked the court to prevent the rule from taking effect on Sept. 14. The organizations also asked that the court temporarily block the rule so that the court would have sufficient time and information to consider all the legal issues.



CRP Rental Payments Issued

On Oct. 1, USDA began distributing approximately $1.8 billion in Conservation Reserve Program (CRP) rental payments to participants across the country for FY08 for completed performance in the prior fiscal year. Producers holding about 782,000 contracts on 441,000 farms will receive an average of $49.49 per acre.

Currently enrollment stands at 36.8 million acres, making CRP the largest US public-private partnership for conservation and wildlife habitat. CRP contract duration is from 10-15 years. USDA issues other CRP payments throughout the year. These payments include a 50% expense reimbursement for establishing cover as well as incentive payments for enrolling eligible high priority conservation practices.

A table, located at http://www.fsa.usda.gov/Internet/FSA_File/crptable07.pdf, lists, by state, acreage enrollments, number of contracts, number of farms, acres enrolled and the projected amount of upcoming CRP rental payments. For more information on CRP, producers should contact their local Farm Services Agency (FSA) office or visit FSA at http://www.fsa.usda.gov.



Chinese Cotton Leaders Tour Cotton Belt

A diverse team of leaders from the China Cotton Assoc. (CCA) visited the Cotton Belt on Sept. 16-26 to learn about the US cotton industry. The visit followed the successful NCC Leadership Exchange delegation to China led by former NCC Chairman Allen Helms in Oct. ’06 and the ’07 NCC Quality Team trip to China led by NCC Vice Chairman Larry McClendon.

The recent tour, sponsored by the NCC and Cotton Council International, included stops in Washington, DC, and at major cotton growing areas, research facilities and trading centers in Cary, NC; Memphis; Lubbock; and Fresno. In Washington, the itinerary included briefings by the NCC, CCI, the White House, the Senate Agriculture Committee and USDA. The delegation also toured farms and gins in Arkansas and California, a USDA classing office, and Cotton Incorporated’s world headquarters.

The delegation participated in special regional industry seminars in the Southeast, Mid-South, Southwest and West. Local hosts and seminar speakers were NCC leaders and representatives of numerous industry organizations.

Information provided by the CCA during this leadership exchange has helped the NCC’s understanding of the world’s largest producer and textile consumer of cotton and the largest importer of raw cotton. China bought $2.45 billion of US cotton during ’05/06, but the US market share has dropped during the past two years in the face of strong competition from India, Brazil and other suppliers. A better understanding of Chinese cotton needs and business practices should help facilitate US sales.

The delegation indicated that US cotton’s advantages in the market are its consistent quality, lack of contamination, USDA classing and timely shipment. Delegation members stressed the importance of reducing the occurrence of neps and short fiber content in US cotton and differences between landed and contracted weights. CCA executives suggested that China’s MY06/07 production was higher than reported, and prospects for the ’07/08 crop are good.

The CCA, other industry associations and some Chinese ministries believe that textile output will grow moderately in ’07/08. This reflects a slower growth rate caused by changes in government policies, the cost and availability of labor, and increasing costs of production. For ’07/08, they believe imports will remain roughly on par with ’06/07. Longer-term, delegation members maintain that production will level off at slightly higher than current levels, and imports will continue to increase due to growth in domestic and export demand. The speed of this growth largely will be determined by consumer demand locally and globally and the price competitiveness of Chinese textile and finished goods exporters.

The delegation’s trade policy discussions focused on the future of China’s tariff rate quota system (fixed and variable) and its impact on Chinese production, imports and the competitiveness of Chinese exports. CCA officials stated that internal Chinese discussions could yield a two-tiered fixed rate system that ultimately could increase the price competitiveness of imported cotton fiber and exported products while still providing steady income at farm gate in China.

The CCA was modeled after the NCC to include all Chinese cotton industry segments. A Memorandum of Understanding was signed in ’06 between the NCC and the CCA that promotes cooperation between both countries’ cotton industries.



CCI Hosts Yarn, Fabric Buyers

Cotton Council International’s COTTON USA Sourcing Program hosted 41 Western Hemisphere cotton yarn and fabric buyers on a tour through the Southeastern United States.

Representing nine different countries, the buyers met in North Carolina with US textile mills before taking individual plant tours. Cotton Incorporated representatives gave presentations during the group meetings and also assisted with mill tours.

The group began its trip with a tour of cotton harvesting in Red Springs, NC, and then visited US manufacturing facilities in Virginia, North Carolina, South Carolina and Georgia. Participating US textile mills were: Buhler Quality Yarns, Carolina Cotton Works, Clovertex, Frontier, Gentry Mills, Hamrick Mills, Parkdale, Ramtex, R.L. Stowe, Swift Spinning and Tuscarora Mills.


Sales Slip, Shipments Steady

Net export sales for the week ending on Sept. 27 were 106,500 bales (480-lb). This brings total ’07-08 sales to approximately 5.5 million bales. Total sales at the same point in the ’06-07 marketing year were slightly more than 3.3 million bales. Total new crop (’08-09) sales are 155,300 bales.

Shipments for the week were 268,000 bales, bringing total exports to date to 2.5 million bales, compared with the 1.1 million bales at the comparable point in the ’06-07 marketing year.



Prices Effective Oct. 5-11, '07

Adjusted World Price, SLM 11/16

54.63 cents

*

Coarse Count Adjustment

0.00 cents

Marketing Loan Gain Value

0.00 cents

Import Quotas Open

 NA

Step 3 Quotas (480-lb. bales)

 NA

ELS Payment Rate

3.89 cents

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

71.15 cents

Forward 3135 c.i.f. Northern Europe

NA

Coarse Count c.i.f. Northern Europe

68.80 cents

Current US c.i.f. Northern Europe

70.95 cents

Forward US c.i.f. Northern Europe

NA

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

47.25 cents

**

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

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