Cotton's Week: March 14, 2008

Cotton's Week: March 14, 2008


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Farm Bill Extension Approved

The House and Senate approved a 30-day extension (S2745) until April 18of selected provisions of current law to allow more time to develop consensus on new legislation.

The President signed the legislation and in an accompanying statement called on Congress to extend current law “for at least one year” if a final agreement is not reached. The statement reiterated the Administration’s willingness to sign a new farm law, provided it does not include new taxes and makes significant program reforms.

Leaders from both House and Senate agriculture committees met several times but have been unable to reach agreement on how to spend up to $10 billion above the current baseline.  While there is general agreement that a bill that spends approximately $10 billion above the budget baseline could be signed, the challenge has been to determine how the additional funds will be spent and what spending offset will be used to provide the funding.

Because some or most of the offsets will be generated by programs under the jurisdiction of the Senate Finance and House Ways & Means committees, the negotiations have been further complicated by jurisdictional issues and progress has been further hampered as illness has prevented Ways & Means Committee Chairman Rangel (D-NY) from participating. Sens. Baucus (D-MT) and Grassley (R-IA) indicated a willingness to help with offsets but want a role in deciding how the money will be spent.

As a result of the impasse, House Agriculture Committee Chairman Peterson (D-MN) has signaled he may proceed to develop a so-called baseline bill which doesn’t spend more than $20 billion. However, an earlier outline of a bill which spent $6 billion over baseline and incorporated many of the Administration’s demands for reform was not well received by the agriculture community so a baseline bill likely will be a tough sell.

When the House and Senate return from their Easter recess, there will be 19 days in which to reach agreement before the extension expires on April 18.

FY09 Budget Resolutions Pass

The House and Senate approved FY09 budget resolutions. In both cases the vote was largely along party lines -- Senate (51-44) and House (212-207) with no Republican voting for the bill.

The Senate budget assumes many of the so-called Bush ’01 and ’03 tax cuts set to expire in ’10 will expire as scheduled. This allows spending to be increased in other areas.

The resolutions differ in the way an Alternative Minimum Tax patch would be handled with the Senate assuming Congress will approve a one-year patch without offsets.

The Senate defeated a proposal to place a one-year moratorium on earmarks when it was ruled non-germane. Supporters of so-called earmarks contend that they are part of Congress’ constitutional right to make spending decisions and allow them to address specific needs in their state and districts.

During Senate debate on the Budget, Sen. Grassley spoke in favor of a provision added in Committee to shift funds for commodity programs to nutrition programs by applying strict payment limitations to agriculture programs. Sen. Lincoln (D-AR) addressed the Senate and reminded Senators that the farm legislation approved by a record margin includes significant reforms to payment limitations and the farm bill – not the budget resolution -- is the appropriate place to address farm policy. The Grassley amendment is non-binding on the Agriculture Committee.

Cotton Transfer Process Allowed

The Commodity Credit Corp. (CCC) began permitting loan bales to be deliverable (after they are redeemed from the loan) under futures contracts of the InterContinental Exchange. The loan-cotton transfer process is required because electronic warehouse receipts (EWRs) must be replaced with certificated EWRs for futures contracts. Loan-cotton transfers will allow a loan bale located at a contract delivery location to qualify for a certificated receipt without being relocated.

A notice of this new transfer policy can be found by clicking on the headline of the last item of the NCC’s home page,

The policy states, “Any transfer of loan cotton for the purpose of replacing original EWRs with certificated receipts is subject to the same terms and conditions as provided by CCC-699C, Cotton Transfer Agreement … Also, any transfer for purposes of certification of the bales is considered equivalent to a physical relocation of the cotton and no subsequent relocation of the bales can be requested under CCC's transfer process….”

Producers holding loan cotton are reminded that certain loan charges are faced upon forfeiture. Links to a paper describing “Cotton Loan Charges and Transfers of Loan Cotton” and FSA’s updated "Fees and Charges Assessed by the Commodity Credit Corp. for Loans and Transfers" fact sheet are in the next to last item of the NCC’s home page.

Cotton Futures Volatility Addressed

In a letter to the InterContinental Exchange and the Commodity Futures Trading Commission, the NCC expressed concerns regarding the extraordinary volatility witnessed in the last two weeks with respect to the Number 2 cotton contract.

The letter noted that cotton producers and merchandisers have lost the ability to hedge their price risk – a situation that is critical and one that needs to be addressed immediately.

“It is important that appropriate and immediate steps be taken to restore balance to the cotton futures market in a manner that will provide farmers, cooperatives, mills and merchants with a risk management tool that will provide orderly price discovery and the ability to hedge their physical or cash positions in the cotton market,” the letter stated.

China Cotton School Successful

The Cotton School in China, a seminar series executed by Cotton Council International (CCI) with support from the American Cotton Shippers Assoc. and AMCOT, updated quota-eligible cotton buyers in China on trade and the US cotton industry.

The school’s goal was to present basic industry information for cotton buyers and staff members working with them. This is the second Cotton School held in China, and it builds upon the success of the first series in ’06.

About 320 employees and shippers’ representatives from 146 cotton importing and exporting companies attended the seminars, held in two major cotton-processing regions in China. This school attracted 30% more mills than the ’06 school, and customers reported a range of US cotton imports from 3,500 bales to 350,000 bales in ’07.

The seminars covered topics such as classing, contracting, documentation, risk management and the various growths of US cotton. Additional presentations outlined CCI and Cotton Incorporated’s services available in China.

On a post event survey, 95% of the mills indicated that they will import more US cotton.

EPA Sets Stricter Standards for Ozone

EPA announced plans to tighten both the primary and secondary national ambient air quality standards for ozone.

The new standard is 0.075 part per million (ppm), replacing the current 0.084 ppm standard. While the standards are not as stringent as the level recommended by EPA science advisors and wanted by environmental groups, they are more stringent than industry thought was necessary, because the ’97 standard is working and has not been implemented yet. The rulemaking process had been the subject of heavy lobbying by governors and other state and local officials as well as agriculture which stressed that lowering the standard would increase costs, harm economic growth and have a negative impact on agriculture.

Under the Clean Air Act (CAA), EPA is required to set the primary standard (to protect public health) and the secondary standard (to protect public welfare by preventing damage to the crops, soil, structures and machinery, as well as the environment) at a level necessary with an adequate margin of safety. It was expected that EPA would set a new secondary standard for ozone, rather than continue its practice of making the primary and secondary standards identical.

The USDA-Agricultural Air Quality Task Force had recommended to the Secretary of Agriculture and EPA that given the inadequacies of the science, it would be inappropriate for EPA to establish a new secondary ozone standard that is different from the primary standard. Both USDA and agriculture strongly supported this position.According to EPA, few if any of the counties that would attain the 0.075 ppm primary standard would exceed the suggested new form of the secondary standard (W126, 21 ppm-hour standard).

Under the CAA, states will be required to submit recommendations for nonattainment areas by June ’09. EPA will make nonattainment designations in June ’10. It is expected that there will be more than 1,000 nonattainment counties including many agricultural counties. States must have approved state implementation plans in ’13 and areas will be required to meet the new standard between ’13 and ’20.

Sales Slump, Shipments Steady

Net export sales for the week ending March 6 were 91,800 bales (480-lb). This brings total ’07-08 sales to slightly more than 10.7 million bales. Total sales at the same point in the ’06-07 marketing year were approximately 8.7 million bales. Total new crop (’08-09) sales are 452,100 bales.

Shipments for the week were 238,200 bales, bringing total exports to date to 7.5 million bales, compared with the 5.1 million bales at the comparable point in the ’06-07 marketing year.

USDA Lowers Export Projection

In its March report, USDA gauged US ’07-08 cotton production at 19.03 million bales. Mill use was unchanged at 4.60 million and exports were lowered 1.20 million bales due to a combination of lower import demand by China and Turkey and greater competition for market share from India. The estimated total offtake now stands at 19.10 million bales, generating ending stocks of 9.40 million bales.

USDA released ’08-09 projections during last month’s Agricultural Outlook Forum. US production is estimated to be 15.00 million bales; mill use is put at 4.50 million bales; and exports are seen reaching 15.00 million bales for an estimated total offtake of 19.50 million bales.Combining beginning stocks of 9.40 million bales would result in US ending stocks of 4.90 million bales on July 31, ’09, and a stocks-to-use ratio of 25.1%.

The March report has world production for the ’07-08 marketing year at an estimated 118.89 million bales, down 320,000 bales from the February report. World mill use was lowered 1.87 million bales to 124.45 million bales. Consequently, world ending stocks are projected to be 59.16 million bales for a stocks-to-use ratio of 47.5%.

USDA also released ’08-09 world projections during last month’s Agricultural Outlook Forum. World production is seen at 123.00 million bales and mill use reaching 129.50 million bales.With beginning stocks of 59.16 million bales, this would result in world ending stocks of 56.56 million bales on July 31, ’09, and a stocks-to-use ratio of 43.7%.

Prices Effective March 14-20, 2008

Adjusted World Price, SLM 11/16

65.07 cents


Coarse Count Adjustment

0.00 cents

Marketing Loan Gain Value

0.00 cents

Import Quotas Open


Step 3 Quotas (480-lb. bales)


ELS Payment Rate

8.89 cents

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

82.35 cents

Forward 3135 c.i.f. Northern Europe


Coarse Count c.i.f. Northern Europe


Current US c.i.f. Northern Europe

85.10 cents

Forward US c.i.f. Northern Europe


2007-08 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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