Cotton's Week: July 11, 2008

In advance of the ministerial scheduled for the week of July 21, Crawford Falconer, chairman of the Doha agricultural trade negotiations in the World Trade Organization, issued an updated draft negotiating text. A new text also was released concerning Non-Agricultural Market Access (NAMA). The texts are designed to reflect the state of current negotiations as well as to highlight areas of serious disagreement.

An initial review of the agriculture text indicates no major changes from the previous version released in May. In particular, language on domestic support and cotton-specific provisions remain essentially unchanged from the earlier text. The majority of revisions reflect fine-tuning in the Market Access section. However, as in the earlier text, there continue to be significant loopholes that would allow developing countries to avoid meaningful concessions.

NCC Chairman Larry McClendon will be in Geneva for the ministerial, and will be joined by Mark Lange, NCC President, and Bill Gillon, who serves as NCC’s General Counsel.

In a letter to President Bush, members of the Congressional Textile Caucus urged more effective enforcement of US trade laws with respect to China and to prevent further losses of US manufacturing jobs.

The letter urges the President to extend the Textile Monitoring Program (TMP) to China when the remaining quotas on imports of certain textile and apparel products expire Jan. 1, ’09. The TMP is currently in place to monitor imports from Vietnam.

Caucus members and the textile industry are concerned that when the remaining quotas expire, China’s exports of products currently covered by the quotas will surge and further displace US production and jobs.

In November ’05, the US and China agreed to place import quotas on 34 products through ’08. The quotas increase by 5.5-17% depending on the category. At that time, the 34 product categories accounted for about 33% of China’s exports of textile and apparel products to the United States. The US also retained the right to use a safeguard on products not covered by the quotas.

The NCC will join the National Council of Textile Organizations and other fiber and textile groups in urging Cotton Belt House members to co-sign the letter being circulated by the Textile Caucus, which is co-chaired by Reps. Coble (R-NC) and Spratt (D-SC).

For the ’08-09 crop year, USDA’s July report projects a US crop of 14.00 million bales, down 500,000 bales from the June report. Mill use increased 100,000 bales to 4.40 million bales while exports were lowered 500,000 bales to 14.50 million bales. The estimated total offtake stands at 18.90 million bales, resulting in ending stocks of 5.30 million bales. The projected ending stocks-to-use ratio is 28.0%.

USDA left US ’07-08 cotton production at 19.21 million bales, unchanged from last month’s estimate. Both exports and mill use also were unchanged from last month at 13.90 million bales and 4.60 million bales, respectively. That estimated total offtake stands at 18.50 million bales generating ending stocks of 10.20 million bales. The estimated ending stocks-to-use ratio is 55.1%.

USDA’s report put world production for ’08-09 at 114.94 million bales, down 1.49 million bales from last month’s estimate. Mill use is estimated at 125.91 million bales, down 1.25 million bales from last month. World ending stocks are estimated to be 53.24 million bales for a stocks-to-use ratio of 42.3%.    

For the ’07-08 marketing year, production was lowered 130,000 bales to 119.91 million bales. World mill use was lowered 150,000 bales to 124.25 million bales. Consequently, that world ending stocks level is estimated to be 61.26 million bales for a stocks-to-use ratio of 49.3%.

USDA’s Farm Service Agency issued notice (DCP-191) regarding a farm bill provision which provides that “a producer on a farm may not receive direct payments, counter-cyclical payments or average crop revenue election payments if the sum of the base acres of covered commodities and peanuts on the farm is 10 acres or less.”

The prohibition does not apply to a farm that is wholly owned by socially disadvantaged (SDA) or limited resource (LR) farmers and ranchers. If the farm is owned by a legal entity, each shareholder, partner, or member must be a socially disadvantaged or limited resource farmer or rancher.

The notice clarifies that farms which do not meet the exception may be enrolled in the DCP but payments may not be made to producers. If an owner wants to verify that he or she is in a SDA/LR group, they must make that certification using Form CCC-509.

If an applicant is denied a payment, they can appeal to the county committee or request alternative dispute resolution by filing a written request within 30 days of receiving a notice of disapproval.

The House Agriculture Committee conducted a series of hearings to review legislative proposals to amend the Commodity Exchange Act.

The first hearing featured testimony from Congressional members who have introduced legislation to amend the Commodity Exchange Act.

Subsequent hearings featured statements by a range of witnesses from the private sector.

While the hearings’ focus was primarily on the impact of “speculation” on the energy markets, there were several witnesses from the agricultural sector, including American Cotton Shippers Assoc. President Joe Nicosia who stated that in his opinion the influx of cash by index funds and over-the-counter traders has rendered the cotton market in particular “ineffective for hedging against price risks and discovering prices.” The consequence has been that merchants and cooperatives cannot offer price quotations to growers or end users because they don’t have a mechanism to hedge risk.

The NCC submitted written testimony expressing concern that the cotton futures markets are “largely dysfunctional at the current time” and urging Congress to provide the Commodity Futures Trading Commission (CFTC) with “the necessary authority and resources” so the markets can return to their historical functions of price discovery and risk management.”

In his opening statement, Agriculture Committee Chairman Peterson (D-MN) said, “(a)s the Committee with jurisdiction over regulation of these markets, we will be thoughtful and deliberate in examining all of these legislative proposals so we may develop a bipartisan consensus bill that can move to the House floor before the August recess.”

In a related development, the CFTC has announced a meeting of the Agricultural Advisory Committee will be held July 29 to continue to review the operations of futures markets and ongoing CFTC activities.

USDA-FSA will allow producers who otherwise would be ineligible for the new disaster assistance programs to become eligible by paying a fee as required by the Food, Conservation and Energy Act of 2008 (the ’08 Act).

The ’08 Act requires producers who wish to participate in the new disaster programs to have crop insurance or non-insured crop disaster assistance (NAP) coverage for the land for which assistance is being requested, and for all farms in all counties in which they have an interest.

Because the ’08 Act was enacted after the application periods had closed for those programs, producers who did not have such coverage could not comply with this requirement in order to be eligible for the new disaster programs. However, the ’08 Act authorizes a waiver that allows producers to pay a fee, called a "buy-in" fee, to be eligible for this new disaster assistance.

Those who miss this opportunity will not be eligible for disaster assistance. Producers also are reminded that the payment of the applicable buy-in fee does not afford the producer crop insurance or NAP coverage; it only affords eligibility for the ’08 disaster programs.

Producers who meet the definition of “Socially Disadvantaged, Limited Resource," or "Beginning Farmer or Rancher," do not have to meet the Risk Management Purchase Requirement, and, therefore, are not required to pay the buy-in fee.

The buy-in fee for ’08 eligibility is $100 per crop, but not more than $300 per producer per administrative county, or $900 total per producer for all counties less any previously paid fees for CAT and/or NAP. Producers can contact their local administrative FSA County Office to file the application for waiver and pay the applicable fees. The applicable buy-in form must be completed and applicable fees paid by Sept. 16, ’08.

A Senate Agriculture, Nutrition and Forestry Committee approved the nominations of Walter Lukken, Bartholomew H. Chilton and Scott O’Malia in a single, en bloc voice vote to the Commodity Futures Trading Commission (CFTC).

Lukken, already a member of the commission, has been nominated by President Bush to serve as CFTC chairman. A former Senate staffer, Lukken has been acting chairman since June ’07 and will serve through April 13, ’10. Chilton, who also serves on the commission, would serve a term expiring April 13, ’13. O’Malia’s term would run until April 13, ’12. A confirmation hearing on the three was held on June 4.

The five-member CFTC is an independent federal agency, created in ’74, to oversee and regulate the trading of commodity futures and option markets in the United States.

With many lawmakers blaming speculation on energy and agricultural commodity futures for rising fuel and food prices, the CFTC has been the focus of recent hearings. Lawmakers in both chambers are considering a variety of proposals aimed at cracking down on speculation.

The NCC has posted a document on its web site that contains information dispelling several myths about US farm law support to America’s cotton producers. The NCC also made the document available to national news media in conjunction with a release distributed to major US news outlets.

The release’s main premise was that criticisms of US cotton farm programs, including those from the general press, are unwarranted because the programs have operated as designed, supporting farmers’ incomes in times of low prices while allowing them to react to market signals.

Among myths dispelled in the document was the misconception that the ’02 US cotton program drove world cotton prices down – hurting some cotton-producing developing countries -- while US cotton production and exports increased. On the contrary, independent studies by Texas Tech U., the Food and Agricultural Organization of the United Nations, and the International Monetary Fund found very low price impacts from the presence of the US cotton program -- 1 to 3%. In fact, world cotton prices generally have increased over the life of the ’02 farm law while the US share of world cotton production has remained stable and even declined in recent years.

Other myths/realities can be found in the NCC document, “Dispelling Myths about U.S. Support to Cotton Farmers: US Programs Have Not Caused Low Cotton Prices and Hurt Foreign Growers” at http://www.cotton.org/issues/2008/myths.cfm.

Net export sales for the week ending July 3 were 51,400 bales (480-lb). This brings total ’07-08 sales to approximately 15.4 million bales. Total sales at the same point in the ’06-07 marketing year were roughly 14.5 million bales. Total new crop (’08-09) sales are 1.04 million bales.

Shipments for the week were 302,600 bales, bringing total exports to date to 12.4 million bales, compared with the 11.3 million bales at the comparable point in the ’06-07 marketing year.