Cotton's Week: February 20, 2009

Cotton's Week: February 20, 2009

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Timely, Proper Farm Law Implementation a Must

Retiring NCC Chairman Larry McClendon told delegates at the NCC’s 71st Annual Meeting in Washington, DC, that a top NCC priority in ’09 will be to ensure the ’08 farm law is implemented properly -- especially regarding farm program payment limitation and eligibility provisions – to clarify program rules and minimize adverse impact.

McClendon said industry concerns and recommendations also are being relayed to Congress to expedite bringing transparency to the cotton market and limit disruptive speculation unrelated to market fundamentals – and that the NCC will be supporting passage of the new legislation on derivative markets.

“The Council will work to ensure cotton is competitive in the world marketplace,” McClendon said. “We will work with the administration to ensure that cotton is not unfairly singled out and that increased market access remains a priority during agriculture negotiations in the World Trade Organization Doha Round negotiations. The Council will continue its aggressive communication with the US Trade Representative’s office in pressing for balance between reductions in domestic support and increased market access.”

The Marianna, AR, producer/ginner said he personally believes there is reason to be optimistic about the future of the US cotton industry when reflecting on some of the events leading up to the final passage of the farm bill which have “helped me more fully understand the importance of what the Council has already accomplished and given me confidence of what it still can and must do.”

McClendon recapped that farm bill work and other ’08 NCC action on key industry priorities and issues. Details of those efforts can be found in the NCC’s ’09 Report to Members at http://www.cotton.org/about/report/2009/index.cfm. In addition, a complete listing of ’09 US cotton’s leaders along with industry award recipients is on the NCC’s website at http://www.cotton.org/news/meetings/2009annual/index.cfm.

Rep. Leonard Boswell (D-IA), chairman of the House Agriculture Committee’s Subcommittee on General Farm Commodities and Risk Management, told NCC delegates he believed there must be a safety net and his committee will closely watch USDA to make sure they are correctly implementing the law. He said he has been a long-time supporter of payment limits but realizes “there are different needs and circumstances for each crop. It will be my intent to have an open and honest discussion of payment limits, and my door will be open.”

Regarding trade, Rep. Boswell noted he has been a long-time advocate of free and fair trade.

“We must have trade agreements where countries will buy U.S. products,” he said. “We must be careful not to sell out one aspect of agriculture to benefit another.”

In his address, Agriculture Secretary Tom Vilsack acknowledged that USDA needs to do a better job promoting trade, including making USDA more actively engaged in trade discussions to make sure farmers’ interests are represented.

“The concern I have is that as we focus on some aspects of trade that have not been focused on in the last several years recent years – labor and environmental standards – the chances are agricultural interests will be forgotten or not taken into full consideration,” he said.

“I’m determined to make sure USDA is at the table on trade discussions and negotiations and that our interests are protected. There are areas around the world where we need to do a better job of breaking barriers down and work for free and fair trade. We are going to continue to focus on this and, as soon as have a new trade representative, sit down and discuss our role.”

Secretary Vilsack also told delegates the government must begin to look at new ways to support farmers – including the use of “green payments” – because of the impact of the recently passed economic stimulus package on the federal deficit.

In presenting the NCC’s ’09 Economic Outlook, Dr. Gary Adams, the NCC’s vice president, Economics & Policy Analysis, said the industry continues to face “a very competitive and difficult economic climate” but there are some reasons for optimism in the coming year.

“For the 2009 marketing year, reductions in cotton production will be evident in more countries than observed in previous years,” Adams said. Also, mill use is expected to recover based on independent economic projections calling for recovery by calendar 2010.” He reiterated, though, that these projections are dependent on the wildcards of overall global economic performance and impacts of policy changes.

In describing the world outlook for ’09, Adams said world cotton production is projected to fall 4.3 million bales to 105.5 million bales – the smallest crop since ’03. World mill use will recover to 113.8 million bales. The smaller crop and increased mill use would allow stocks to decline to 56.3 million bales from 62.2 million in ’08.

Looking at the ’09 world cotton market, Adams said China and India will continue to be important players. He said both countries’ governments have made policy decisions that have moved significant amounts of the ’08 crop into government stocks – and how they handle those stocks’ release will affect US exports. For example, China is estimated to end the ’08 marketing year with 19.4 million bales of stocks, with a significant amount in government reserves.

“If the Chinese government decides to aggressively liquidate those reserves in the coming months, it could dramatically alter their import requirements,” he said. He noted that for the ’09 marketing year, a slight recovery in China’s mill cotton use to 47.2 million bales is expected along with a cotton crop decline to 32.6 million bales from 36.5 million in ’08 – which would result in China importing 9.6 million bales in the ’09 marketing year.

On the other hand, he said India may return as a more significant exporter in ’09 as that country’s production is expected to be near current levels with only a slight recovery in mill use.

The economist told delegates the NCC sees a slight contraction in US cotton offtake for ’09 with US cotton exports projected at 11.2 million bales and US mill cotton use at 3.9 million bales.

“Heading into 2009, the U.S. textile industry remains under pressure from a combination of factors,” Adams said. “Retail purchases declined in calendar 2008 and likely will fall further in 2009. In addition, the limits on imports from China in 34 textile categories expired at the end of 2008.”

On a positive note, Adams said the much-needed economic assistance included in the ’08 farm law has been implemented and textile mills are submitting the necessary documentation to receive 4 cents per pound on their cotton consumption. Also, the United States government has begun monitoring certain US textile and apparel imports from China in a move aimed at preventing a repeat of the disruptive surge of Chinese textile/apparel exports to this country following the discontinuation of quotas in ’05.

Regarding US cotton supply estimates, Adams said the NCC’s planting intentions of 8.1 million US cotton acres portends a 12.8 million bale crop – 12.4 million bales upland and 372,000 of extra long staple. Even with smaller disappearance in ’09, combined mill use and exports will exceed the anticipated crop, further reducing US stocks to 5.2 million bales.

“US cotton’s economic situation will continue to be heavily influenced by developments in the world market,” Adams said. “A reduction in US stocks may have little bearing on prices if world stocks remain high.”

One significant cause for optimism, Adams says, is that due largely to lower oil prices, costs of purchased crop inputs could range from $50 to $100 per acre lower than in ’08, depending on specific production practices.

More Outlook details are at http://www.cotton.org/econ/reports/annual-outlook.cfm.



Sales Surge, Shipments Steady

Net export sales for the week ending Feb. 12 were 451,300 bales (480-lb). This brings total ’08-09 sales to about 9.6 million bales. Total sales at the same point in the ’07-08 marketing year were about 10.3 million bales. Total new crop (’09-10) sales are 133,200 bales.

Shipments for the week were 185,600 bales, bringing total exports to date to 6.2 million bales, compared with the 6.7 million bales at the comparable point in the ’07-08 marketing year.



Ag Reiterates Support for Safety Net

The NCC joined 10 other agriculture organizations on a letter to Secretary Vilsack expressing strong support for the safety net provided by the ’08 farm law. The groups stressed the important role the program plays in providing a stable supply of food, feed, fiber and fuel. The letter also reiterated the beneficial conservation practices that farmers are required to undertake in exchange for inclusion in the farm safety net.

The groups cautioned that farm bills must be written for the long-term, and a weakening of the farm safety net during times of high commodity prices could prove disastrous on the countryside when prices fall.

“Since passage of the farm bill only seven months ago, commodity prices have dropped significantly,” the letter stated. “For example, corn prices have dropped from a peak of more than $7/bushel in the summer of 2008 to $3.63/bushel today. Cotton was $0.79/pound a year ago and is now priced at only $0.47/pound. At the same time, many input costs are still on the rise, and net farm income is expected to decrease 20 percent in 2009.” 

The letter reminded the Secretary that direct payments were created in the ’96 farm law to give farmers some flexibility in their planting decisions. This flexibility enables farmers to make planting decisions based on expected market prices and variable productions costs, which makes this portion of the farm safety net the most trade compliant and least problematic in World Trade Organization negotiations.



Rail Issues Webinar Set

In an effort to address the concern about railroad market power over NCC members, the NCC has arranged for its members to participate in a Webinar on Feb. 25 at 2 pm EST. Other agricultural commodity groups also will be participating.

A link to the Webinar registration website is available on the NCC website’s home page, http://www.cotton.org.



Prices Effective Feb. 20-26, '09

Adjusted World Price, SLM 11/16

35.11 cents

*

Fine Count Adjustment ('07 Crop)

  0.93 cents


Fine Count Adjustment ('08 Crop)

  0.53 cents


Coarse Count Adjustment

  0.00 cents


Marketing Loan Gain Value

 16.89 cents


Import Quotas Open

6


Limited Global Import Quota (480-lb bales)

453,165


ELS Payment Rate

  16.23 cents


*No Adjustment Made Under Step I

 

Five-Day Average

 

Current 5 Lowest 3135 CFR Far East

 53.70 cents


Forward 5 Lowest 3135 CFR Far East

NA


Coarse Count CFR Far East

51.70 cents


Current US CFR Far East

53.50 cents


Forward US CFR Far East

NA


 

'08-09 Weighted Marketing-Year Average Farm Price  
 

Year-to-date (Aug.-Dec.)

55.17 cents

**

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

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