Cotton's Week: March 7, 2008

Cotton's Week: March 7, 2008

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Budget Is Primary Focus of Farm Bill Negotiations

Farm bill negotiations continued with the primary focus on the budget.

The chairman and ranking member of the House and Senate Agriculture committees were scheduled to meet on March 6 to discuss the overall budget, offsets for spending above the budget baseline and possible allocation of funds by title.

Decisions on policy have been delayed until members can reach agreement on a spending cap. The discussions are reportedly in a range of $8-12 billion over baseline, with some offsets from spending reductions and others from revenue enhancement measures.

Negotiations also have been complicated by disagreement over whether Finance and Ways & Means will provide funding and determine policy or if the Agriculture Committees will determine how funds are spent.

The Administration recently issued a paper, “Parameters of a Successful Farm Bill,” in which they indicated a willingness to accept a bill that would spend up to $10 billion over baseline provided it contains specific policy reforms and does not include tax increases to "pay for" increased spending.

The Administration also identified specific offsets which would be acceptable, including a number of controversial provisions that range from changes in Medicare and Medicaid reimbursements; elimination of a research & development program for oil and gas; and Bureau of Land Management land sales, to name a few.

The Administration indicated “reforms” must include a $500,000 adjusted gross income test (up from its initial $200,000 proposal); no increase in loans and target prices above current law; no new subsidy programs (i.e. textile competitiveness provision); elimination of cotton storage credits; changes in beneficial interest rules used to determine loan deficiency payments and marketing loan gains; replacement of target price with revenue-based countercyclical program; and elimination of fruit and vegetable planting prohibition. The document also addressed sugar, dairy and crop insurance programs.

Meanwhile, the expiration of the extension of certain programs on March 15 and the impact of the new budget baseline are creating concerns because it is unlikely that work on the new farm law can be completed by March 15 and House and Senate leaders have expressed reluctance to propose another extension.

It is likely that if the funding and jurisdictional issues can be resolved before the Easter recess, scheduled for March 17-30, there could be another 30-day extension to allow certain programs to operate until Congress can complete work on the new bill.


Payment Limits Amendment Offered

In what is becoming an annual event, Sen. Grassley (R-IA), joined by Sen. Allard (R-CO), proposed an amendment, which was approved 12-9, to the Senate FY09 Budget Resolution. The amendment would establish a $250,000 limitation on program benefits and use the "savings" ($641 million over five years/$1.401 billion over 10 years) to increase funding for nutrition programs.

The provision is non-binding and could be removed during floor debate. If the provision remains in the final Resolution, the Agriculture Committee could ignore it or utilize other methods to achieve equivalent savings. There is no similar provision in the House Budget resolution reported by the Budget Committee.



Market Shows Increased Volatility

New York cotton futures on the Intercontinental Exchange (ICE) exhibited increased volatility in recent days. Dec ’08 contract’s limit-up close of 300 points on Monday was followed by another limit-up move of 400 points on Tuesday. The expanded limit occurs when any of the two futures contracts with the highest open interest settles at or above 84 cents. Wednesday’s close of 94.78 represented the highest closing for the Dec ’08 contract.

The basis between cash and futures markets has widened as spot prices have not increased to the same degree as NY futures. Across the Cotton Belt, the average spot price for base quality cotton is 10 cents under nearby futures, which is double the historical basis. Regionally, the divergence between futures and spot prices is most notable in the Texas and Oklahoma spot markets.

The sharp rally in futures also brought significant margin calls, thus placing extraordinary capital demands on cotton-trading firms.

Futures moved sharply lower on Thursday and through mid-day Friday.



Formaldehyde Study Approved

During debate of the Consumer Products Safety Commission (CPSC) reauthorization, which passed the Senate, Sen. Casey (D-PA) filed an amendment that sought to increase regulations regarding formaldehyde in textile and apparel products.

This amendment would have directed CPSC to create new regulations regarding formaldehyde and required manufacturers to comply with the new regulation through third party testing. This became a high priority issue because of import problems with consumer products, toys and lead paint.

The amendment was accepted by unanimous consent after being modified -- to only direct CPSC to conduct a study of the issue. Earlier this year, the House overwhelming passed their version of the bill. It is likely that the final Conference Report will be finished in early summer.

Prior to the Senate floor debate, the NCC had joined with other textile and retail organizations on a letter to Sen. Pryor (D-AR), who managed the bill on the Senate floor, and other textile state senators opposing the legislating of regulations. The letter suggested, instead, that the Senators direct CPSC to study the issue to determine whether new regulations are needed.

Any regulation for formaldehyde in textiles would directly affect at least 40% of cotton products because easy-care finishes and some other treatments used on cotton can release small amounts of formaldehyde. Studies in the ’80's indicated that no standards for fabric levels or product emissions were necessary for textiles and apparel.


Sales Slip, Shipments Strong

Net export sales for the week ending Feb. 28, ’08 were 126,900 bales (480-lb). This brings total ’07-08 sales to approximately 10.6 million bales. Total sales at the same point in the ’06-07 marketing year were approximately 8.4 million bales. Total new crop (’08-09) sales are 450,900 bales.

Shipments for the week were 309,600 bales, bringing total exports to date to 7.2 million bales, compared with the 4.9 million bales at the comparable point in the ‘06-07 marketing year.


Import Quota Triggered

USDA announced a special quota that will allow additional US imports of up to approximately 410,000 bales of upland cotton. To be counted under this quota, cotton must be imported between March 6 and June 3, ’08. The quota does not specify staple length or country of origin.

The quota, formally known as the Limited Global Import Quota and authorized under the ’02 farm bill, is triggered when the average spot price of base quality upland cotton for a month exceeds 130% of the average price in the preceding 36 months. In February, the average spot market price for base quality cotton was 65.9 cents per pound, which was 131% of average price from Feb. ’05-Jan. ’08.

Upland cotton that may be imported in the special quota is in addition to the approximately 43,000 bales of quota established annually pursuant to section 22 of the Agricultural Adjustment Act of ’33, as amended.


NCC Offering BMP Workshops

NCC is coordinating four advanced training workshops to increase cotton producers’ and consultants’ awareness of best management practices (BMPs).

Bill Robertson, the NCC’s manager, Agronomy, Soils & Physiology, said the workshops are an extension of the inaugural Cotton Consultants Conference held at the recent ’08 Beltwide Cotton Conferences. Mid-South and Southwest producers and consultants are being urged to attend the free workshops.

“These workshops are designed to help cotton growers, consultants and others involved in on-farm decision-making increase the efficiency and cost effectiveness of cotton production systems,” he said.

The first two workshops will be held in Mississippi at the Ameristar Casino (Magnolia Rm) in Vicksburg on March 17 and at Sam’s Town Casino (Delta Rm) in Tunica on March 18. The sessions will run from 9:30 am until 3:30 pm. Two workshops will be held in Texas at the Moore County Community Bldg. in Dumas on April 1 (9 am until 4:30 pm) and at the Reece Technology Ctr. in Lubbock on April 2 (8:30 am until 4:30 pm). Lunch will be provided at all workshops. Bayer CropScience is providing support for the events. 

The Mississippi workshops will have Extension and university researchers discussing “The First Forty Days, ™” early season BMPs -- with in-depth discussion of variety selection and arthropod/weed/nematode management. Those topics also will be covered in the Texas sessions with Texas AgriLife Extension Service specialists, Texas AgriLife Research and Texas Tech U. scientists also covering “Fruiting to Finish, ™” BMPs including fertility, irrigation management and fiber quality -- particularly as quality is affected by harvest practices, i.e. stripper versus picker harvesting.

Continuing education units will be offered to attendees.

More information and early reservations can be obtained by contacting Robertson at BMP@cotton.org. Early reservations are encouraged as seating will be limited. To reserve a seat, each attendee must RSVP by emailing their name, email address, phone number and workshop location they will be attending.



CCI Begins Lifestyle Survey

Cotton Council International (CCI) began the fifth round of its Global Lifestyle Monitor research. The worldwide study, conducted every two years in partnership with Cotton Incorporated, examines consumer attitudes and behaviors toward fiber, fashion and shopping.

This year 5,000 consumers will be surveyed across Brazil, China, Colombia, Germany, India, Italy, Japan, Thailand, Turkey and the UK.

By understanding consumer attitudes and purchasing behavior patterns that affect the world textile industry, CCI and Cotton Incorporated can better identify opportunities and strategically focus program efforts to increase US cotton exports. Research results are expected in late April.


Shipping Surcharges Protested

Some Agriculture Transportation Coalition (AgTC) members are protesting surcharge increases being imposed by some major US-Asia container shipping line members of the Westbound Transpacific Stabilization Agreement (WTSA).

NCC, American Cotton Shippers Assoc., AMCOT, along with several shippers/marketing coops, cottonseed brokers and crushers, are among AgTC members. The AgTC members believe there is a lack of a rational method of calculating the surcharges. The increases also are being questioned because several of the larger container shipping lines are reporting significant increases in income and profits for '07.

WTSA lines say they are taking the surcharge action to recover rising fuel costs by collecting a greater share of their published bunker fuel surcharges in cases where those surcharges have been partially or fully absorbed into ocean freight rates.

Specifically, WTSA announced a series of adjustments to surcharges, effective April 1, ’08, across all dry commodity cargo categories (including cotton and cottonseed). At that time, WTSA carriers say they intend to collect an additional US$300 per 40-foot container (FEU) in bunker surcharges.

WTSA stressed that the scheduled adjustments still do not achieve full recovery of fuel cost impacts reflected in the Agreement’s published surcharge.


Prices Effective March 7-13, '08

Adjusted World Price, SLM 11/16

70.06 cents

*

Coarse Count Adjustment

0.00 cents

Marketing Loan Gain Value

0.00 cents

Import Quotas Open

 1

Limited Global Import Quota (480-lb. bales)

409,987

ELS Payment Rate

7.49 cents

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

87.30 cents

Forward 3135 c.i.f. Northern Europe

NA

Coarse Count c.i.f. Northern Europe

NA

Current US c.i.f. Northern Europe

92.20 cents

Forward US c.i.f. Northern Europe

NA

 
'07-08 Weighted Marketing-Year Average Farm Price  
 
Year-to-Date (August-January)

55.14 cents

**

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

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