Cotton's Week: August 22, 2008

Cotton's Week: August 22, 2008

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Focus Remains on Farm Bill Implementation

In an address to the NCC’s mid-year Board of Directors’ meeting in Memphis, NCC Chairman Larry McClendon said, “there is still significant work to be done in implementing the provisions of the new farm law.”

The Arkansas producer/ginner said that now that the new farm bill has become law, implementation of the commodity, cotton and payment limitation provisions are a top NCC priority, including 1) working to encourage USDA to implement certain provisions designed to make cotton more competitive; 2) encouraging USDA to make the required 10% reduction in storage credits applicable to the maximum credits announced in August instead of each warehouse’s rate; 3) working closely with manufacturers and the National Council of Textile Organizations to develop recommendations for the operation of the economic adjustment assistance program; 4) participating in a number of meetings with commodity groups and USDA to discuss implementation of the new permanent disaster assistance program and the revenue-based ACRE program option; and 5) remaining deeply involved in preparations for the implementation of the new payment eligibility and gross income means test provisions.

“Our interaction with USDA, thus far, has been fruitful and they are to be commended for their efforts, especially when one considers that the new farm bill is only two months old,” McClendon said. “Obviously, we anticipate a lively dialogue when the new payment eligibility and income test regulation is published for comment—but I believe the Council is well-prepared for these important discussions.”

McClendon said the NCC also has been working to address the industry’s concerns with the failure of commodities futures markets to serve their primary function of price discovery and risk management.

“We have presented the industry’s concerns and recommendations to Congress and the CFTC,” he said. “We have also joined other agriculture organizations in urging Congress to pass HR 6604, the Commodity Markets Transparency and Accountability Act of 2008. We anticipate that the Council’s Board will be asked to consider a resolution on this issue prepared by the shippers and cooperatives.”

McClendon also announced initiation of the “Vision 21” Cotton Foundation special project.  The three major components of this project will provide for a critical assessment of the fastest growing consumer markets for cotton textiles, important life-cycle studies to strengthen US cotton’s sustainability message and a thorough analysis of cotton handling and transportation logistics with a focus on improving flow and shipping. The Council, CCI and Cotton Incorporated will jointly administer this project, which is being supported by a grant from Monsanto.

Bill Gillon, NCC counsel, told the Board that WTO Director General Lamy is currently visiting countries around the world, including the United States, suggesting that the negotiators should reconvene Doha negotiations in September.

“But it is hard to see how further negotiations under the Falconer text could lead to a positive outcome,” Gillon noted. “The major parties to this negotiation have fundamentally different beliefs about what the Doha Round should accomplish.”

Regarding the Brazil-US cotton/export credit program case, Gillon said the NCC will work closely with the US Trade Representative’s Office in developing reasonable economic estimates of damage based on previous panel decisions. If a WTO panel awards Brazil $1 billion or more in retaliation authority, Brazil undoubtedly will try to undermine intellectual property rights of US companies, placing cotton and the export credit guarantee program in a position contrary to the US pharmaceutical industry, for example. 

“The time between this meeting and the Council’s 2009 Annual Meeting will be definitive on both of these major issues …,” Gillon said. “We will know by then the level of retaliation that will be granted to Brazil and we will know by then whether the U.S. has taken advantage of the lesson learned in Geneva and sought a different approach to the Doha Round, one that could potentially benefit U.S. agriculture.”

John Maguire, NCC senior vice president, Washington Operations, said among other challenges facing the industry besides farm bill implementation and the WTO are renewable fuels, rising input costs, restoring traditional functions of futures markets, elections that will bring in a new Administration/Congress and changes in personnel and priorities, and budget reconciliation in ’09 that may mean changes in farm policy.

Gary Adams, NCC vice president, Economics & Policy Analysis, updated the Board on a very difficult economic environment for US cotton.

“As if the challenges of declining acreage, rising input costs, and slowing demand were not enough, the industry continues to deal with an uncertain futures market,” Adams said. As an example, he noted that since January ’04, the prices of fuels and nitrogen fertilizer have risen by 200%, while the price index for potash and phosphate is up by 450% -- and Energy Dept. projections do not indicate much near term relief.

One bright note Adams noted was USDA sees ’08 as the first year since ’02 where world cotton consumption will have significantly exceeded production – leading to a reduction in stocks.

“At current prices, a similar situation could prevail in ‘09,” Adams said. “This could lead to a substantial reduction in stocks over a two year period.”

NCC Vice Chairman Jay Hardwick updated the Board on the industry delegation he led recently to China. He emphasized that China remains the largest importer of US cotton and that the current challenge to remain in that role is for the US cotton industry to better understand China’s concerns with US quality and how to educate the industry and address their concerns.

“In a competitive environment, we must make U.S. cotton their first choice for imported cotton,” Hardwick said.

Cotton Council International (CCI) President Bobby Weil reported to the Board that CCI had received an excellent allocation of MAP and FMD funds this year to carry out its export market development programs. He thanked USDA for its support and expressed appreciation for the matching funding provided by CCI’s private partners, including the NCC.

Bruce Heiden, chairman of the Committee for Advancement of Cotton (CAC), said, “If you have noticed, this election is shaping up to overall be the costliest in the history of our nation. The demand on CAC has been extremely high this year and will only increase during September and October.” Heiden pointed to the current situation of “an unprecedented 14 Cotton Belt Senate seats up for election in 2008” as one of the primary reasons that CAC must meet its ’08 funding goals.



Lint Contamination Survey Completed

Results are being analyzed from an Internet-based lint contamination survey in which domestic and foreign mills were invited to participate.

Survey responses came from virtually all domestic mills and nearly 170 foreign mills. While in-depth analysis of the survey is yet to come, a cursory review of the responses indicates that mills rely on US cotton when sourcing cotton that is relatively free of contamination.

The survey used a multiple choice design, limiting the need for precise answers. For each question, mills chose the answer or category most appropriate for their business.

The participating mills’ responses will be a vital component of the US cotton industry's continued efforts to produce lint, yarn and fabric that is contamination free – and the mills who participated in this survey are to be commended. More information about US cotton industry quality preservation efforts is at http://www.cotton.org/tech/quality/index.cfm.

The NCC, in cooperation with the National Council of Textile Organizations and Cotton Council International, are pursuing the elimination of lint contamination from all sources and the preservation of bale cleanliness so that optimum bale conditions are preserved for US cotton’s textile customers. All groups agree that a better understanding of lint contamination issues and bale packaging material performance is needed.



Voting Web Site Now Live

NCC members may now visit the “Cotton Helping Americans Vote™” web site at http://cotton.helpingamericansvote.org/ for help in registering, voting early or voting by mail.

“U.S. cotton stands to benefit from increased participation in the 2008 elections,” NCC Chairman Larry McClendon says. “I encourage National Cotton Council members and their employees to take advantage of this valuable service and learn how to vote early or absentee in your state."



Sourcing USA Summit Set

The 2008 Sourcing USA Summit, organized by Cotton Council International and Cotton Incorporated, will be held on Nov. 13-16 in Lost Pines, TX (near Austin). Organizers estimate that some 400 of the world’s leading cotton mill executives and top executives of leading US cotton export companies will attend the event.

The 23 US export organizations sponsoring this year’s Sourcing USA Summit include Jess Smith & Sons Cotton, LLC; Weil Brothers Cotton Inc.; Beltwide Cotton Cooperative; Dunavant Enterprises, Inc.; Texas Cotton Marketing Corp.; Plains Cotton Cooperative Assoc.; Toyo Cotton Co.; Staplcotn Cooperative Assoc.; Carolinas Cotton Growers Cooperative; Cargill Cotton; Toyoshima USA Inc.; Allenberg Cotton Co.; Calcot, Ltd.; White Gold Assoc., Inc.; Multicotton USA, Inc.; San Joaquin Valley Quality Cotton Growers Assoc.; ECOM USA; Queensland Cotton; Paul Reinhart, Inc.; Noble Cotton; J.G. Boswell Co.; Underwood Cotton Company; and Supima.



Thailand Consumers’ Awareness Raised

Three hundred up-and-coming Thai designers presented their knowledge of 100% cotton fabric and versatile design skills during the COTTON USA Design Challenge 2008.

This third annual design competition for fashion students advocated young designers to support the Thai textile and garment industries and US cotton. As part of a major PR campaign, the competition also heightened consumer awareness of the fashionable side of cotton and COTTON USA.

COTTON USA offered design courses at 13 Thai universities during a university road show. Out of a total of 300 participants from these university road shows, only 20 students made the cut to the final competition.

The COTTON USA Design Challenge was awarded “Campaign Publicity” finalist for the Thailand’s Adman Award in ’06 and has accumulated more than $1.7 million in earned advertising value (EAV) for the competitions in ’06 and ’07. The ’08 competition already has garnered $380,000 in EAV from 71 publications and 17 TV programs. The winner’s trip to New York City and post-PR is expected to bring in additional EAV of about $1.4 million.



Sales Slip, Shipments Steady

Net export sales for the week ending Aug. 14 were 189,700 bales (480-lb). This brings total ’08-09 sales to approximately 4.4 million bales. Total sales at the same point in the ’07-08 marketing year were slightly more than 4.1 million bales. Total new crop (’09-10) sales are 29,800 bales.

China accounts for 30% of ’08-09 sales with purchases of 1.3 million bales. Mexican mills have purchased 927,000 bales, or 21% of the total. Indonesia ranks third with purchases of 396,000 bales, or 9% of total sales. Turkey and Vietnam round out the top five export customers.

Shipments for the week were 278,000 bales, bringing total exports to date to 508,900 bales, compared with the 817,300 bales at the comparable point in the ’07-08 marketing year.



Prices Effective Aug. 22-29, '08

Adjusted World Price, SLM 11/16

61.99 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

0.00 cents

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

76.89 cents

Forward 5 Lowest 3135 CFR Far East

NA

Coarse Count CFR Far East

NA

Current US CFR Far East

76.15 cents

Forward US CFR Far East

NA

 
'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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