Cotton's Week: August 1, 2008

Cotton's Week: August 1, 2008

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WTO Doha Talks Collapse

A meeting of senior trade ministers from more than 30 members of the World Trade Organization (WTO) failed to develop final negotiating texts or modalities for the Doha Round of trade negotiations.

WTO Director General Pascal Lamy convened the meeting on July 21 for the purpose of establishing modalities in agriculture and industrial goods (NAMA), but announced on July 29 that, “This meeting has collapsed. Members have not been able to bridge their differences.”

While Lamy has stated the Doha Round is not dead, the next steps for continuation of the negotiations remain unclear.

The US negotiating team, which included US Trade Representative Susan Schwab, USDA Deputy Undersecretary Dr. Mark Keenum and USDA Chief Economist Dr. Joseph Glauber, repeatedly stated that the gains in agricultural trade realized in the ’94 Uruguay Round would not be lost by actions taken in the Doha Round and that a successful negotiation must result in increased trade flows for US agriculture.

The US opened this round of talks by offering to lower the overall trade distorting support (OTDS) ceiling for agriculture to $15 billion. Ambassador Schwab called on developing countries to increase their market access offers, but those offers never came as many developing countries immediately called for greater US reductions.  

Lamy tabled a compromise proposal that required the US to reduce trade distorting agricultural support further to $14.5 billion, while still allowing loopholes for developing countries to avoid significant increases in market access and allowing several emerging developing countries to raise tariffs rates above the current Uruguay Agreement bound rates under the special safeguard mechanism.

Further, it was unclear whether Brazil, India or China would agree to sector-specific negotiations on industrial products – a key condition for US manufacturing interests and a key condition in the Lamy proposal. Wide differences also were evident in the proposals for treatment of special and sensitive products, and the US pushed China, unsuccessfully, for meaningful commitments on market access for agriculture.

While India and China called on the US to further reduce agricultural support, they insisted on the rollback of Uruguay bound tariff rates under the proposed special safeguard. US negotiators declared other countries had shown commitment to the Doha Round objectives, but when India and China refused to move, the talks stalemated.

NCC Chairman Larry McClendon, NCC President Mark Lange and Bill Gillon, who serves as General Counsel for the NCC, were in Geneva to monitor the negotiations.  During the second week of negotiations, Lange and Gillon  remained in Geneva through the talks’ collapse. With little progress evident on the overall agricultural modalities, there was no cotton specific proposal tabled by the United States.



No CRP Early-Out Granted

USDA announced its review of whether they should allow the early release of acres enrolled in the Conservation Reserve Program (CRP) without penalty to land owners. After considering the many facets of whether to allow an early-out option, USDA decided not to allow the penalty-free release of CRP land at this time.

Good growing weather in many parts of the country, coupled with encouraging reports on crop conditions, factored into the decision. In addition, the ’08 farm bill lowers the cap on the total number of acres allowed in the CRP program from 39.2 million to 32 million acres. Currently, there are 34.7 million acres now enrolled in the program.

In the next three years, almost 10 million acres currently enrolled in the CRP program are scheduled to expire. If a participant chooses to take land out of the program before the contract expiration, the participant must return all payments received plus interest and a penalty.



Economic Adjustment Open for Mills

The Economic Adjustment Assistance provisions for US textile mills became effective as of Aug. 1.

Although neither regulations nor guidelines implementing the program have been issued by USDA, Bill Gillon, who serves as General Counsel for the NCC, suggested that all cotton fiber users should begin keeping records of their cotton fiber use as of Aug. 1 in anticipation of rules being issued. Users also should keep records concerning any expenditure they make subsequent to Aug. 1 that might be approved expenditures under the program.

Under the statute, contained in the ’08 farm bill, approved expenditures include those made to “acquire, construct, install, modernize, develop, convert, or expand land, plant, buildings, equipment, facilities, or machinery.



Commodities Markets Bill Fails

The House considered the Commodities Markets Transparency and Accountability Act of 2008 (HR 6604) under a procedure known as “suspension of the rules.” Because less than two-thirds of members voting (276-151) did not vote to approve legislation, under the suspension procedure, the measure failed.

The legislation could be brought back under rules that would require a majority vote, but amendments could be offered on off-shore drilling and other provisions.

Provisions in the legislation as approved by the Agriculture Committee and considered by the House included:  a requirement for CFTC to establish trading limits for all agricultural and energy commodities; limit eligibility for hedge exemptions to bona-fide hedgers; disaggregate index fund and other data in markets and require detailed reporting by index traders and swap dealers; enhance CFTC staffing; require CFTC action if it determines there is disruption in markets; and, require a CFTC study to determine the impact of establishing position limits in OTC markets.

While the bill was promoted as one way to curb energy prices by limiting speculation in energy markets, it actually addresses regulation of commodity and financial markets.

The NCC joined a number of commodity and general farm organizations in urging the House to approve the legislation because it would “ensure that the nation’s commodity futures markets are utilized for their original purpose – to serve as a market place where producers and users of commodities can hedge the commercial transactions……Production Agriculture relies on smoothly functional futures markets for risk management and price discovery.”

Agriculture Committee Chairman Peterson (D-MN) noted that the legislation was developed in a bipartisan manner and approved by the Agriculture Committee by voice vote following a series of hearings. He indicated the Committee would continue efforts to “address conditions that have thrown some futures markets into disorder…”

A coalition of organizations representing swaps dealers and financial services sent a letter opposing the legislation arguing it limits ability of investors to use markets as a hedge against inflation and because of new reporting requirements.

The Senate has been considering similar legislation but is at an impasse over Republican demands that they be allowed to offer amendments on offshore drilling, oil shale development and nuclear energy.

Sens. Chambliss (R-GA) and Conrad (D-ND), along with eight of their Senate colleagues, unveiled energy legislation that takes a comprehensive approach including increased drilling and new measures to fund conservation and renewable energy.



Survey Participation Urged

Cotton Incorporated says US cotton producers’ participation in a 20-minute, anonymous online Natural Resource Survey is very important to the success of the Cotton Research and Promotion Program that the organization conducts on producers’ behalf.

Specifically, the survey will help identify the great strides producers have made in production efficiency and natural resource management – findings that can be used to develop US cotton's environmental message to global textile industry, brands, retailers and consumers.

Producers are asked to complete the questionnaire only once and only if they have production responsibility for a cotton farming operation. Following completion of the questionnaire, producers also mayrequest a “Cotton Natural” t-shirt in appreciation for their effort.

Questions about the survey, which is being extended to garner additional responses, should be directed to agsurvey@cottoninc.com.



Mid-South to Host Western Peers

Cotton producers from California, Arizona and W. Texas will be exposed to diverse and innovative Mid-South farming practices when they visit operations in Arkansas, Mississippi and Tennessee on Aug. 10-14.

The trip is the third tour of the ’08 Cotton Foundation Producer Information Exchange (P.I.E.) Program, which is sponsored by Bayer CropScience via a grant to The Cotton Foundation.

Now in its 20th year, the P.I.E. program exposes U.S. cotton producers to innovative cotton production practices and other agricultural operations in regions different than their own.

The Far West participants include:  Arizona -- Nathan Melton, Buckeye; David Stambaugh, Eloy; and Tyson Stuhr, Gila Bend; California – Jimmy Ashford, Lemoore; Chris Crivelli, Dos Palos; Pat Gallichio, Los Banos; Michael Mullion, Blythe; Jack Seiler, Palo Verde; and Mike Vandborg, Bakersfield; and Texas – Keith Deputy, El Paso.

The tour begins on Aug. 11 in W. Tennessee with visits to the U. of Tennessee Experiment Station in Milan and Jimmy Hargett’s farm in Alamo. The next day, the group will tour the farm of NCC Chairman Larry McClendon in Marianna, AR, before traveling to the Mississippi Delta.

On the 13th, in Stoneville, the group will get an overview of Delta cotton production at the Delta Council and see the Stoneville Research Complex before touring cotton farms in Washington County with hosts Dan Branton, Mark Fratesi, Rick Smythe, George Van Landingham, Mac Baker and Ben Walker. The tour ends on the 14th with visits in the Greenwood area, including the Ray Makamson Farm and the Heartland Catfish Co. processing facility in Itta Bena.

Producers from the Mid-South region visited Arizona and California on June 23-26 in the first 2008 P.I.E. program tour. Southwest producers visited the Carolinas on July 21-25 and Southeastern producers will see operations in Texas on the last tour on August 17-22.



Sales Slump, Shipments Steady

Net export sales for the week ending July 24 were 38,500 bales (480-lb). This brings total ’07-08 sales to approximately 15.6 million bales. Total sales at the same point in the ’06-07 marketing year were about 14.7 million bales. Total new crop (’08-09) sales are 1.6 million bales.

Shipments were 264,900 bales, bringing total exports to date to 13.2 million bales, compared with the 12.7 million bales at the comparable point in the ’06-07 marketing year.



Marketing Loan Changes Announced

A July 25 Federal Register notice allows for ’08 cotton loans and LDPs to be processed but indicates that some new provisions will be delayed until the final rule is published and needed software developed.

The Adjusted World Price (AWP) in effect for Aug. 1-7 incorporates the 31-3-35 premium of 370 points from the ’08 loan premium and discount schedule. In addition, the AWP as of Aug. 1 does not include the four-point location adjustment.

Other provisions will not take effect until the final regulation is published and the necessary software is operational. The new transportation adjustment will take effect when the final regulation is published since that change is not dependent on new software. However, the fine count adjustment and reduced storage credit rates may be delayed beyond the release of the final regulation if the necessary software is not operational. It is expected that final regulations implementing the ’08 farm bill provisions for cotton will be published on or before Sept. 16.

As a reminder, the previous May 23, ’08 rule basing the AWP on the five lowest CFR Far East quotes remains in effect for the ’08-12 crops. The change to Far East quotes was necessitated by the discontinuance of North Europe quotes as of July 31, ’08.



Prices Effective August 1-7, '08

Adjusted World Price, SLM 11/16

65.33 cents

*

Coarse Count Adjustment

0.00 cents

Marketing Loan Gain Value

0.00 cents

Import Quotas Open                                                       

NA

Limited Global Import Quota (480-lb bales)

NA

ELS Payment Rate

0.00 cents

*No Adjustment Made Under Step I
 
Five-Day Average
 
Current 5 Lowest 3135 CFR Far East

78.36 cents

Forward 5 Lowest 3135 CFR Far East

80.16 cents

Coarse Count CFR Far East

76.03 cents

Current US CFR Far East

77.65 cents

Forward US CFR Far East

79.15 cents

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

57.05 cents

**

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

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