Cotton's Week: August 29, 2008

Brazil has notified the World Trade Organization and the US government that it will move forward on its requests for authorization for retaliation.

Brazil’s requests, first submitted in ’05, claimed retaliation authority for about $3 billion for the “prohibited” subsidies (including the export credit guarantee program, which covers all US commodities), and about $1 billion in retaliation authority for cotton “actionable” subsidies (including the marketing loan and countercyclical payments).

In a statement, the NCC said that it will work with the US Trade Representative’s office to rebut these claims of damages. The statement noted that cotton prices have risen substantially and are expected to remain high and that the US cotton program is not causing any economic damage to international cotton markets.

A letter appealing the selection process for membership on Leonardo Academy’s (Leonardo) Standards Committee for the American National Standards Institute (ANSI) development process of the Sustainable Agriculture Practice Standard for Food, Fiber and Biofuel Crop Producers and Agricultural Product Handlers and Processors (SCS-001) was submitted by NCC to Leonardo this week. In addition to the NCC letter requesting reconsideration of Dr. Bill Norman’s application to serve on the committee, three other cotton related appeal letters were submitted by Drs. Andrew Jordan and Phil Wakelyn, industry consultants, and by Norma Keyes, Director, Product Standards, Cotton Incorporated. All four individuals’ applications were rejected for membership when Leonardo announced the composition of the committee on July 28, thus leaving the cotton industry with no representation on the standards committee. Leonardo’s bylaws provide for an appeals process as required by ANSI. 

The committee as selected and announced by Leonardo consists of 58 members in four categories: producer, user, environmental, and general interest. Only three producer members on the committee are from major commodities (corn, soybean) or production agriculture interests (Farm Bureau) and there is only one fiber processor (Levi Strauss). However, there are seven floral/horticulture related members on the committee and the committee appears to be heavily populated with membership representing organic interests. The NCC believed that such a situation might develop when earlier this year it signed a letter with 32 other organizations expressing concerns with the process being undertaken to draft the proposed standard (CW story, Feb. 1, 2008).

The NCC’s letter asserts that the committee as selected lacks a balance of stakeholders to be affected by the standard, as required by the Leonardo and ANSI rules. In addition to cotton being absent from the committee, the letter notes that “…there is no representation from commodities such as wheat, grain sorghum, canola, rice, peanuts and other major row crops, or a member representing biofuel production (outside of corn)…”. The letter also states that “…by a ratio of 3:1, the selected members will be predisposed towards an organic approach to sustainability…” and that the committee contains membership representing interests in the floral and horticultural industry that are not addressed by the standard and thus, should not be considered for committee membership.

Leonardo has 30 days to consider appeals.  The first meeting of the Standards Committee is scheduled for September 25-26 in Madison, WI.

Beginning Sept. 1, Memphis-based EWR, Inc.’s “Update Shipping Order” feature will be available on the company’s provider system. This enhancement of EWR’s electronic warehouse receipt process was added recently to promote a more streamlined, accurate and cost effective process for establishing bale shipping order load dates.

Technical information about this feature is available from EWR’s web site, www.ewrinc.com. Both warehouses and shippers who intend to use the feature should notify EWR so that the option can be activated. The “Update Shipping Order” feature also is included as a standard feature in recently released versions of the company’s eCotton software.

Before updating software packages, warehouse and shipper software vendors should refer to the background information on the EWR web site. This information is available from EWR so that software vendors can incorporate the “Update Shipping Order” (also known as a Batch Type 23 File) option in their software. EWR’s web site also contains the formats and additional information about the enhancement.

The NCC also published a fact sheet explaining how the update shipping order feature works. The sheet can be found on the NCC’s web site’s Technical/Flow-Shipment page, www.cotton.org/tech/flow/index.cfm.

The Mexican government was to open bidding on the largest infrastructure project in the nation's history, a $4-billion seaport that it hopes will one day rival the ports in Los Angeles and Long Beach which are constrained by urban development and environmental concerns, according to a Los Angeles Times story.

The story said plans call for the construction of a massive port in the tiny coastal village of Punta Colonet, about 150 miles south of Tijuana, along with new rail lines to move Asian-made goods north to the United States – with Mexico hoping to snatch some Pacific cargo traffic from Southern California's ports.

Punta Colonet is expected to have a capacity of 2 million shipping containers annually when it opens in ’14, with an ultimate goal of handling five times that amount. Last year, the ports of Los Angeles and Long Beach handled 15.7 million containers combined.

The massive development is to be privately funded, with the first phase estimated to cost $4 to $5 billion. The government is expected to award the 45-year concession in ’09.

"We've spent a lot of years working on this," said Miguel Favela, head of Mexican operations for Ports America. "It's going to make Mexico . . . much more competitive."

About 30 million shipping containers crossed the Pacific Ocean last year, a flow that increased about 10% annually in the last decade. A weak US economy has slowed the trade, but experts predict it will rebound. With shippers increasingly worried about congestion at L.A.-Long Beach, Punta Colonet has emerged as an attractive alternative.

Competitors up and down the Pacific coast are in the midst of major upgrades. Panama has begun a $5.3-billion expansion of its canal. Canada's Prince Rupert port in British Columbia began moving containers to the American heartland by rail last year and is planning a major expansion.

Existing Mexican ports such as Lazaro Cardenas in the state of Michoacan are building additional infrastructure in hopes of tapping into more of the Asia-America traffic. To connect with the North American market (including containerized US cotton), railroad tracks are being modernized between Lazaro Cardenas and Laredo, TX.

According to the Commerce Dept., July (four-week month) total cotton consumption in domestic mills was 166.6 million pounds for a seasonally adjusted annualized rate of 4.65 million bales (480-lb). Last year’s July annualized rate was 4.88 million bales. The June (five-week month) estimate of domestic mill use of cotton was raised by 1.8 million pounds to 214.1 million pounds. The revised seasonally adjusted annualized rate of consumption for June is 4.49 million bales, still lower than the June ’07 annualized rate of 4.92 million bales.

Commerce’s estimate of both upland and ELS cotton consumption by US mills, when adjusted to represent the complete ‘07-08 crop year, is about 4.62 million bales.

USDA’s August estimate of ’07-08 crop year mill use was 4.60 million bales. Commerce’s estimate of ’07-08 crop year exports is about 13.63 million bales, compared to USDA’s latest export estimate of 13.90 million bales.

For the ’07-08 crop, Commerce estimates there are 543,026 bales in excess of reported supply less distribution. This number, when combined with Commerce’s estimate of 25,750 bales that are lost or destroyed, results in 568,776 bales of ‘unaccounted’ cotton, compared to USDA’s estimate of 1,000 bales of ‘unaccounted’ cotton. USDA generally estimates some cotton as ‘unaccounted,’ however; historically this estimate averages less than 200,000 bales.

Commerce’s survey-based estimate of stocks on hand as of July 31, ’08 was 9.87 million bales. USDA’s August estimate of ’07-08 crop year ending stocks was 10.20 million bales.

Preliminary August domestic mill use of cotton and revised July figures, as well as revised supply and distribution data for the ’07-08 crop year, will be released by Commerce on September 25. USDA’s next supply and demand estimates are scheduled for a Sept. 12 release.

In their latest reports, USDA estimates that 89% of the crop is setting bolls, which compares to a 5-year average of 94%. The most noticeable lag relative to the average pace is in Texas, with 79% of the crop at the boll-setting stage. This compares to a 5-year average of 88%.

As of August 24, 16% of the crop has bolls opening, which is also behind the average pace of 19%. Mississippi’s crop represents the largest discrepancy with just 12% of bolls opening. For 2003-07, Mississippi’s average was 34%. Crop development was lagging in the other Mid-south states with the exception of Louisiana, which has 45% of bolls open.

USDA also rates the cotton crop as 48% being good to excellent, which is unchanged from the previous week and just 1% below last year’s rating. Another 19% of the crop is rated poor to very poor – also similar to year-ago levels. However, conditions vary across the Cotton Belt. Crop conditions in the Southeast are generally improved from 2007, while ratings in the Southwest are below last year’s conditions.

Net export sales for the week ending August 21 were 277,200 bales (480-lb). This brings total ’08-09 sales to approximately 4.7 million bales. Total sales at the same point in the ’07-08 marketing year were slightly more than 4.6 million bales. Total new crop (’09-10) sales are 29,800 bales.

With purchases of 1.4 million bales, China accounts for 30% of total ’08-09 sales. Mexico’s purchases of 935,000 bales comprise another 20% of the total. Indonesia, Turkey, and Vietnam round out the top five and collectively account for another 22% of export sales.

Shipments for the week were 279,900 bales, bringing total exports to date to 788,900 bales, compared with the 1.1 million bales at the comparable point in the ‘07-08 marketing year.