Cotton's Week: March 20, 2009

Secretary Vilsack announced that USDA and the IRS have begun efforts “to ensure that high income individuals and entities who request USDA payments meet income limits set forth in the 2008 Farm Bill.”

According to a statement released by USDA, beginning with the ’09 crop year program, participants must sign a separate form (IRS form 8821 or similar form) which grants the IRS permission to provide income information to USDA for program eligibility verification purposes.  Failure by an individual to provide a form authorizing IRS to release information will result in the individual being ineligible for program benefits. According to USDA, the Farm Service Agency will not receive actual tax data for an individual.

USDA apparently is responding to a report published by the Government Accountability Office (GAO) stating that from ’03-06 USDA made $49 million in payments to ineligible individuals whose income exceeded the AGI limit in the ’02 farm law. According to GAO, 2,500 or 0.1% of the 1.8 million recipients of program benefits had an AGI that made them ineligible for payments.

In a related development, Reps. Kind (D-WI) and Flake (R-AZ) announced they have introduced legislation to require USDA to submit names to IRS for verification of program eligibility and to increase penalties for individuals who intentionally violate USDA income limits or payment caps. However, their efforts would seem unnecessary because the ’08 farm law includes strict penalties for anyone who knowingly submits incorrect information to USDA-FSA.

To provide some perspective to the $49 million in overpayments over four years, the following government commitments may be relevant:  $700 billion in the initial financial rescue package passed in Fall ‘08; $570 billion to AIG, Fannie Mae and Freddie Mac; $1 trillion for credit card, auto and small business loans; $787 billion in the Winter ’09 stimulus package; $1.45 trillion for purchases of mortgage securities; and $300 billion to purchase US Treasury bonds.

The USDA overpayments of $49 million over four years are the equivalent to 0.001% of the $4.8 trillion in stimulus/bailout commitments made in the last six months.

Reps. Berry (D-AR) and Conaway (R-TX), joined by 50 of their House colleagues, have written House Budget Committee leaders urging them to reject proposals to cut funding for farm programs when preparing the FY10 Budget Resolution.

The letter explains that total agriculture spending, including nutrition and conservation, is less than 1% of the federal budget, that the ’08 farm law was written in strict compliance with pay-go rules to ensure it did not add to the deficit, and the new farm law reduced spending in commodity programs by $7.4 billion compared to the ’02 law even though the ’02 law was $21.8 billion under its projected budget.

The letter concludes by reminding Budget Committee leaders that commodity prices have declined significantly and farm income is projected to be down 20%, so a predictable farm policy is especially critical for the rural economy during these uncertain times. A copy of the letter is on the NCC’s website at http://www.cotton.org/issues/members/index.cfm.

Sen. Chambliss (R-GA) and colleagues are urging Agriculture Secretary Vilsack to “refrain from using rhetoric that unfairly attacks the farmers and ranchers who form the foundation of America’s rural economy.”

Sen. Chambliss, ranking member of the Senate Agriculture, Nutrition and Forestry Committee, was joined by Sens. Cochran (R-MS), Cornyn (R-TX), Crapo (R-ID), Risch (R-ID), Roberts (R-KS), Thune (R-SD) and Vitter (R-LA) in responding to Vilsack’s recent statement that the larger agenda of USDA is a choice between 30 million hungry people or 90,000 farmers. The Senators pointed out that nutrition programs can be reauthorized while maintaining the safety net for farmers provided in the recently enacted ’08 farm law. A copy of the letter is on the NCC’s website at http://www.cotton.org/issues/members/index.cfm.

Reps. McIntyre (D-NC) and Lucas (R-OK) were joined by 66 House colleagues in urging Secretary Vilsack “to get it right” when implementing the payment eligibility provisions of the ’08 farm law.

In a March 13 letter, 68 Representatives led by Rep. McIntyre, chairman of the Specialty Crops, Rural Development, and Foreign Agriculture Subcommittee, and Rep. Lucas, ranking member of the Agriculture Committee, reminded Secretary Vilsack that the ’08 farm law includes extensive, far-reaching changes to payment limitations but does not require changes to the criteria used to determine “actively engaged in farming.”

The members urged the Secretary to withdraw proposed changes to the actively engaged criteria and other regulatory provisions that are inconsistent with the statute and Congressional intent because these provisions in the interim final regulation published Dec. 29 are creating uncertainty for growers who otherwise will be forced to comply with three different sets of rules in three years. A copy of the letter is on the NCC’s website at http://www.cotton.org/issues/members/index.cfm.

Crawford Falconer, the chairman of the World Trade Organization (WTO) Doha Round negotiations on Agriculture, has announced his departure from Geneva to return to New Zealand as deputy secretary at the Ministry of Foreign Affairs and Trade.

The WTO members now begin a search to identify a new chair. New Zealand Trade Minister Tim Groser has offered to have New Zealand’s newly appointed ambassador to the WTO, David Walker, chair the agriculture negotiations if the WTO members so desire.

USDA Farm Service Agency (FSA) issued Notice CN-1037 to clarify beneficial interest requirements.

The notice for FSA state and county offices and loan servicing agents (LSA) reminded them that most cotton producers are unable to directly hold or transfer an electronic warehouse receipt (EWR). Accordingly, the Commodity Credit Corp. (CCC) does not consider producers to have lost beneficial interest if LSAs, cotton clerks, gins and brokers hold EWRs. Even though EWRs usually are held by other entities, the NCC reminds producers to make sure option-to-purchase contract provisions or other sales agreements do not put at risk their beneficial interest in the cotton.

The notice also advises county offices that cotton clerks, LSAs, gins or brokers may hold EWRs on behalf of producers without producers losing beneficial interest in the cotton, but when EWRs are currently or previously held by exporters or domestic users, beneficial interest most likely is lost.

County offices are instructed to “…use their best judgment when making beneficial interest determinations.” However, on the occasions when the “…County Office is uncertain, or has reason to question whether the producer has beneficial interest in cotton for which a loan or LDP is requested, the County Office: shall request and review a copy of the marketing agreement/contract between the producer and marketing entity/buyer and: make a beneficial interest determination based on the terms (of the marketing agreement/contract)…” if they still are unable to determine beneficial interest status, they should ask the state office for assistance. Producers also should be aware that county offices also may request additional certification from them.

For additional information, see CN-1037 at http://www.fsa.usda.gov/Internet/FSA_Notice/cn_1037.pdf.

House Agriculture Committee Chairman Peterson mailed out to NCC and other organizations a questionnaire that includes more than 20 highly specific questions regarding agriculture’s possible role in climate change legislation.

Pressure from environmentalists to regulate greenhouse gases (GHG) has been mounting for years. According to the global warming theory, GHGs, which include water, carbon dioxide (CO2), methane, nitrous oxide and ozone, absorb solar radiation re-emitted from the earth resulting in a warming of the atmosphere. Activists have focused on CO2 because of the burning of fossil fuels.

Under the current administration and Congress, it is generally believed that some type of CO2 regulatory mechanism is inevitable. At a meeting last month with Senate aides, Jason Furman, a top Obama staffer, estimated that the President's plans could cost up to three times as much as the administration's early estimate of $646 billion over eight years.

There are currently two leading legislative ideas for regulating carbon emissions – a carbon tax and a cap-and-trade system (CAT). The purpose of a carbon tax is to reduce emissions of carbon dioxide by taxing the burning of fossil fuels. The more popular approach is a cap-and-trade (CAT) program. In a CAT system, every identified source is limited on the amount of greenhouse gas that it can emit. It is generally thought that agriculture will not be regulated. The emission source must have an “emissions permit” for every ton of carbon dioxide it releases into the atmosphere. These permits set an enforceable limit, or cap, on the amount of greenhouse gas pollution that the company or source is allowed to emit. Over time, the limits become stricter, allowing less and less emissions, until the ultimate reduction goal is met.

Emission sources which cannot meet their cap may choose to purchase carbon offsets. A carbon offset is a technology or practice that reduces net carbon emissions.

NCC has been involved in discussions with several agricultural organizations about the inclusion of agricultural offsets in any CAT legislation. These groups are not necessarily endorsing a carbon CAT program but, if it seems inevitable, then, they believe that agriculture should seek to gain some benefits in order to reduce the likely outcome of higher energy and input costs.

EPA has granted the request from FMC Corp. to cancel certain uses of and products containing flowable and granular carbofuran (Furadan) effective March 18, ’09. All federally registered uses for carbofuran, including cotton, are being canceled except for field corn, sunflowers, potatoes, pumpkins, pine seedlings and spinach grown for seed.

Certain additional uses of carbofuran that had been requested by specific states under a "special local needs" provision of the Federal Insecticide, Fungicide & Rodenticide Act also are being canceled. Existing stocks of the canceled products may be used until they are depleted, or until the effective date for revocation of the associated tolerances.

EPA's re-registration eligibility decision for carbofuran, completed in ’06, concluded that no carbofuran uses met the statutory standard and that therefore no uses were eligible for re-registration. The Agency has found that there are considerable risks to children associated with carbofuran in food and drinking water. EPA also has identified risks to pesticide applicators and to birds in treated fields. EPA further determined that none of the available regulatory alternatives to cancellation of all registered uses could reduce the potential risks to acceptable levels.

FMC says that it is still seeking Section 18s for carbofuran use on cotton.

Net export sales for the week ending March 12 were 219,000 bales (480-lb). This brings total ’08-09 sales to slightly more than 11.0 million bales. Total sales at the same point in the ’07-08 marketing year were about 10.9 million bales. Total new crop (’09-10) sales are 195,000 bales.

Shipments for the week were 178,800 bales, bringing total exports to date to 7.1 million bales, compared with the 7.7 million bales at the comparable point in the ’07-08 marketing year.