Cotton's Week: February 27, 2009

Sens. Chambliss (R-GA), Lincoln (D-AR), Harkin (D-IA), Roberts (R-KS), and Cochran (R-MS) have written Agriculture Secretary Vilsack, Acting US Trade Representative Allgeier and Ambassador Zhou Wenzhong to express concern about a new “registration, rating and inspection regime developed by the General Administration of Quality Supervision Inspection and Quarantine (AQSIQ) scheduled to become effective March 15, 2009.”

In the letters, available from the NCC’s home page, www.cotton.org, the Senators acknowledged the important trade in cotton between China and the US and expressed concern that the new regime will constrain trade, add cost and result in delays. They urged US and Chinese officials to continue to work to resolve the matter in a cooperative manner.

US exporters, through the American Cotton Shippers Assoc. and AMCOT, have expressed opposition to the new regime as unnecessary and burdensome. USDA, USTR and Embassy officials in Beijing have had a number of sessions with their counterparts to convey exporters’ concerns.

House Agriculture Committee Chairman Peterson (D-MN) and Ranking Member Lucas (R-OK) conveyed their concerns to Secretary Vilsack and urged USDA to continue efforts to resolve the matter in an expeditious manner. Ways and Means Committee members Tanner (D-TN) and Nunes (R-CA) also have conveyed their concerns.

The new regime, which was initially a voluntary program, would require exporters to provide detailed and confidential business information to Chinese authorities. Further, the AQSIQ personnel would inspect cotton at the point of entry and determine whether it meets the contract. The sampling and grading system are not consistent with USDA’s classing system or with the system used to class the domestic Chinese crop. Contacts between US Embassy representatives and Chinese officials are expected to continue.

In a report at the Southern Cotton Ginners Assoc. Ag Update in Memphis, NCC Chairman Jay Hardwick described the major issues confronting US cotton in ’09 as well as recent and upcoming NCC work on those issues. He said the NCC will be working hard this year to seek fair implementation of the new farm bill but reminded attendees of the June 1 deadline for signing up for the ’09 farm program. He noted the NCC has filed extensive comments regarding the payment limitation and eligibility regulations and will be submitting comments on the proposed regulations for conservation and disaster.

Subsequently, the 4-PL handbook (the implementation guide for Farm Service Agency  county offices) was published, and “I am pleased to note that several of the areas in which the Council sought clarification were addressed favorably in the handbook,” he said. Those areas included: 1) allowing the spouse enhancement provision to apply to corporations including both spouses, 2) allowing members of joint operations to guarantee production loans made by joint operation, and 3) not requiring stockholders to contribute management and labor in the same proportion as their stock percentage. He said there were other recommendations in the NCC’s comments that addressed the provisions where the NCC maintained that USDA had exceeded Congressional intent, particularly those rules pertaining to actively engaged in farming.

“We are not counting on any major relief from the previously-published regulations for 2009,” Hardwick said. “So with the June 1^st deadline in mind, we would advise our members to set up appointments with FSA as soon as possible. Certainly, you should consult competent legal counsel if necessary, and make sure your accountant understands the rules so that your adjusted gross income is properly separated into farm and non-farm income. To assist with this undertaking, we have made worksheets available to Council members on our website (www.cotton.org).”

Regarding trade, Hardwick said the NCC will work with the new Administration and other agricultural groups to convey concerns and help shape a balanced agreement in the World Trade Organization Doha negotiations which will resume later this year.

The NCC also will continue to educate Congress and the Administration on the specifics of the WTO Brazil cotton case and will be in Geneva in March at the next arbitration panel meeting.

“One thing we will be pointing out is that this case has always been broader than cotton,” Hardwick said. “It impacts other crops with the claims against export credit programs. We will be stressing the separation of the cotton and export credit programs in Brazil’s damage claims.”

The Obama Administration’s FY10 budget includes proposals to eliminate cotton storage credits, phase out direct payments over three years to farmers with annual sales revenue greater than $500,000 and establish a limit of $250,000 on all program benefits, and reduce funding for the Market Access Program (MAP) by 20% annually.

The document, released on Feb. 26, did not include full details about how the proposals would be implemented if enacted by Congress. The budget proposal would increase funding for rural development, a number of nutrition programs and food safety.

The NCC issued a statement expressing serious concern that the proposal will have the effect of undermining confidence in a stable farm policy.

The statement, available from the NCC’s home page, www.cotton.org, says the proposed program changes included in President Obama’s FY10 budget for USDA fail to recognize the work recently completed by Congress on the Food, Conservation, and Energy Act of 2008. The statement emphasized that after a lengthy and arduous debate, the current farm law, which still is being implemented, introduced significant commodity program changes while maintaining an important safety net for production agriculture, and enhanced conservation and nutrition programs.

“The commodity title of the 2008 law was crafted under pay-as-you-go rules, and took two years of intense debate to complete,” NCC Chairman Jay Hardwick said in the statement. “The law includes more restrictive means tests based on adjusted gross income, changes in program eligibility, and new payment limit provisions that are just now being implemented by USDA. The eventual full impact on U.S. producers is not yet known.”

The Act includes a new provision directing the Secretary of Agriculture to cover a portion of upland cotton Commodity Credit Corp. (CCC) loan storage costs during periods of low prices. The new provision simply legislates at a reduced rate an administrative practice that USDA has undertaken for several years. The cost of the new provision was fully offset by modifications to the upland cotton counter-cyclical target price.

“Additionally, the proposal to eliminate upland cotton storage credits ignores crucial differences between commodities,” Hardwick said. “Unlike other commodities, baled cotton lint is an identity-preserved product that requires off-farm storage in CCC approved facilities. Further, CCC loan eligibility for upland cotton is dependent upon compliance with a substantial array of regulations governing quality, bale wrapping and packaging.”

Hardwick emphasized that the Administration’s call to reduce direct payments to producers is extremely troubling. He said direct payments are compliant with efforts by the World Trade Organization to move agricultural support away from trade distorting programs.

“The President's proposed limit penalizes the farms that are responsible for the majority of food, feed, and fiber production in the United States,” Hardwick said. “According to the 2007 Census of Agriculture, farms with sales of $500,000 or more accounted for almost three-fourths of all agricultural products sold. It is important to point out that sales above $500,000 do not equate to a measure of profitability. Today's farms bear extraordinary short-term and long-term expenses. Given the current uncertainty in credit markets, the direct payments are critical to a producer’s ability to secure financing.”

The NCC also noted that the proposal to reduce spending under the Market Access Program is confounding.

“This program is an excellent example of the private-public joint effort to expand markets for U.S. producers,” Hardwick stated. “Agricultural cooperators must first raise industry seed money to support export promotion efforts and develop an aggressive program before achieving approval from USDA for funding.”

The NCC expressed its appreciation of the strong support given the current farm law by Sen. Cochran, (R-GA), ranking member of the Senate Agriculture Committee and Reps. Peterson (D-MN), chairman of the House Agriculture Committee, and Lucas (R-OK), that committee’s ranking member, in response to this budget proposal.

Net export sales for the week ending Feb. 19 were 606,900 bales (480-lb). This brings total ’08-09 sales to about 10.2 million bales. Total sales at the same point in the ’07-08 marketing year were about 10.5 million bales. Total new crop (’09-10) sales are 136,400 bales.

Shipments for the week were 158,100 bales, bringing total exports to date to 6.4 million bales, compared with the 6.9 million bales at the comparable point in the ’07-08 marketing year.

Cotton Council International (CCI) President Clyde Sharpe will lead a COTTON USA Executive Delegation visit to Latin America’s textile industry. The US delegation will host seminar sessions and meetings with textile industry leaders from Colombia, Peru, El Salvador and Mexico on March 2-10.

This is the first CCI Executive Delegation to Latin America in several years and will be the first visit by a CCI Executive Delegation to Peru.

The W. Hemisphere textile and apparel manufacturing industries represent a market of approximately 5.6 million bales of US cotton fiber, and yarn and fabric bale-equivalents.

According to the Commerce Dept., January (four-week month) total cotton consumption in domestic mills was 129.5 million pounds for a seasonally adjusted annualized rate of 3.58 million bales (480-lb). Last year’s January annualized rate was 4.70 million bales. The December (five-week month) estimate of domestic mill use of cotton was unchanged from the previous report at 116.5 million. The revised seasonally adjusted annualized rate of consumption for December is 3.11 million bales. Last year’s December annualized rate was 4.74 million bales.

Using the latest Commerce figures, calendar ’08 mill use is estimated to be 2.09 billion pounds or 4.36 million bales. This is lower than calendar year ’07’s use of 4.82 million bales.

Based on Commerce estimates from August 3, ’08, through Jan. 31, ’09, projected total pounds consumed during crop year ’08-09 would be 1.9 billion pounds or 3.88 million bales.  USDA’s latest estimate of ’08-09 crop year mill use is 3.9 million bales.

Preliminary February domestic mill use of cotton and revised January figures will be released by Commerce on March 26.