Cotton's Week: March 27, 2009

In preparation for the upcoming budget debate, Sens. Lincoln (D-AR) and Roberts (R-KS) led a bipartisan group of Senators in sending a letter to Senate Budget Committee Chairman Conrad (D-ND) and that panel’s Ranking Member Gregg (R-NH) strongly opposing the agriculture program cuts included in President Obama's budget proposal and any additional efforts to reopen the ’08 farm bill.

The letter and a press statement from Lincoln’s office can be accessed from the NCC’s home page, www.cotton.org.

In the press statement, Sen. Lincoln said, "The Farm Bill is a completely paid for, bipartisan product representing two years of negotiations and tremendous sacrifice on the part of production agriculture. That agreement is not even one year old as the Administration proposes reopening those portions that affect producers. I look forward to working with the Administration and my colleagues in Congress on a responsible budget that cuts the deficit without jeopardizing the safe and abundant supply of food that is taken for granted all too often."

In the release, Roberts noted, "we have seen tremendous participation gains in the crop insurance program over the last 30 years. More producers are properly managing their risks to the benefit of producers, consumers and taxpayers. In a time of economic uncertainty, it doesn't make sense to put 30 years of risk protection progress in further jeopardy."

Sens. Lincoln and Roberts, who are members of the Senate Agriculture and Finance committees, were joined on the letter by Sens. Baucus (D-MT), Bond (R-MO), Brownback (R-KS), Burr (R-NC), Chambliss (R-GA), Cochran (R-MS), Corker (R-TN), Hagan (D-NC), Hutchison (R-TX), Inhofe (R-OK), Isakson (R-GA), Landrieu (D-LA), Pryor (D-AR), Vitter (R-LA) and Wicker (R-MS).

USDA officials provided additional details about collaboration with the IRS for complying with farm law requirements to “establish statistically valid procedures” to conduct targeted audits of individuals most likely to exceed adjusted gross farm and non-farm income limitations.

As previously reported (see March 20 Cotton’s Week), Secretary Vilsack on March 1 announced that USDA and IRS would begin cooperating and that program participants will be required to authorize IRS to release information to USDA.

Farm Service Agency (FSA) officials and senior members of the Secretary’s staff briefed   House and Senate staff and later invited commodity and general farm organization representatives to attend a briefing.

They reviewed new farm law provisions that establish new gross income tests and the requirement for participants to certify that their income does not exceed the new limits. They also reviewed the provisions that establish new compliance   requirements.

In order to comply with the statutory requirements to establish targeted audits, FSA will develop a form, similar to the IRS form 8821, which will authorize the IRS to provide information to USDA.  The form and method of submission are yet to be determined.

USDA is working with the IRS to develop criteria which the IRS would use to identify program participants that may have exceeded the gross income limits. USDA will provide taxpayer ID numbers for all program participants (approximately 1.8 million) and the IRS will use the established criteria to provide USDA with a list of taxpayer IDs that may have exceeded the gross income limits used to determine eligibility. USDA will contact those individuals to meet to determine whether they are in compliance.

According to the FSA, the IRS will not provide tax returns or other specific income information to USDA and the communication will be conducted at the national level and not with local offices. USDA officials also stressed that they are acutely aware of the sensitivity and the critical importance of privacy.

The procedures and the memorandum of understanding between USDA and the IRS likely are several months away. USDA officials will either publish the proposed procedures for formal comment or consult with interested parties.

Program participants will continue to be required to file form 926 which establishes that the individual is in compliance with gross income tests.

USDA officials also advised the agricultural organization representatives that they will issue a new 902 short form for landowners and small operations. They also will issue a revised form 902I, which eliminates a number of questions that were unnecessary and were the subject of numerous complaints. A revised form 902E also will be issued in the near future.

A copy of the USDA background information is accessible from the ’08 Farm Bill icon at www.cotton.org.

The House and Senate Budget Committees have completed work on their respective versions of FY10 budget resolutions. The full House and Senate are expected to debate resolutions during the week of March 30.

The House Committee completed its work after spending a full day debating amendments. One of the amendments, offered by ranking member Ryan (R-WI), would have instructed the Agriculture Committee to open the ’08 farm law and amend the payment limitations provisions by establishing a $250,000 cap on all program benefits and denying benefits to any individual or entity with an annual adjusted gross income exceeding $250,000.  The amendment was rejected by a wide majority.

During the Senate committee’s mark-up, Sen. Grassley (R-IA) offered an amendment that would have required the Agriculture Committee to amend the ’08 farm law to establish a $250,000 cap on all benefits including marketing loan gains, counter-cyclical payments and direct payments.

Budget Committee Chairman Conrad (D-ND) voiced opposition to the amendment by pointing out it would require reopening the farm bill, would have a severe effect on Sunbelt farmers and would jeopardize his ability to get a budget resolution through the Senate. He explained that while the amendment might not have a significant impact on North Dakota, it would be strongly opposed by Senators from cotton and rice states and that the issue had been fully debated during development of the new farm law. He also reminded Senators that the ’08 farm law includes significant and far-reaching changes to payment limitation provisions, some of which still are being implemented.

The significance of the changes was made obvious by the Congressional Budget Office (CBO) score for the Grassley amendment. When the amendment was offered during the farm bill debate, the CBO estimated the savings in excess of $1.1 billion. CBO estimated the savings generated by the amendment offered to the budget resolution as $235 million, which confirms the depth of the changes made in the new farm law.

Chairman Conrad offered an alternative amendment which CBO estimated would save an equivalent amount by modifying the crop insurance program. The Committee approved the Chairman’s substitute (14-9) and rejected Sen. Grassley’s amendment (10-13).

All of the Committee’s Cotton Belt members -- Sessions (R-AL), Cornyn (R-TX), Graham (R-SC), Alexander (R-TN) and Warner (D-VA) -- voted against the Grassley amendment. Sen. Sessions spoke against the amendment during the debate.

The Senate budget resolution, as approved by the Committee, does assume reductions in funding for the Market Access Program and Environmental Quality Incentives Program.

Additional payment limitation amendments could be offered when the House and Senate take up their budget resolutions on the week of March 30.

The OMB Director said the Administration will continue to seek reforms to agriculture programs. The Administration’s budget includes proposals to cap program benefits at $250,000 and to deny benefits to operations with annual revenues that exceed $500,000.

USDA’s Agricultural Marketing Service (AMS) is proposing to raise the user fee for ’09 crop cotton classification services -- from $2.00/bale to $2.20/bale. The current 5 cents per bale discount would continue to be applied to voluntary centralized billing and collecting agents.

The proposed fee is derived from a new formula authorized in the ’08 farm bill and developed by AMS to account for the operation of the cotton classing operation and provide for sufficient reserves.

As directed in the farm bill provisions, AMS officials had extensive consultations on the establishment of the fee with US cotton industry representatives, including the NCC. That included AMS Deputy Administrator Darryl Earnest’s review of the formula development with the American Cotton Producers (ACP) during the NCC’s Annual Meeting in February.

The comment period deadline is April 10. However, the NCC will request a short extension to allow for producer leadership discussion at the ACP meeting on April 15-16. Earnest will provide an extensive report on cotton classing operations at this meeting.

Written comments may be submitted to Darryl Earnest, deputy administrator, Cotton and Tobacco Program, AMS, USDA, STOP 0224, 1400 Independence Ave., SW, Washington DC 20250-0224. Comments also may be submitted electronically at www.regulations.gov.

The NCC submitted comments to USDA’s Natural Resources Conservation Service (NRCS) on the interim final rules for the Environmental Quality Incentives Program (EQIP) and the Wetlands Reserve Program (WRP). USDA issued the rules and a request for comment on the programs in January.

The NCC’s comments on EQIP generally focused on proposals regarding irrigation issues and asking for further clarification on several sections. The comments also indicated support of the new ranking system for EQIP projects. The new ranking system should work better for cotton producers as applications will be categorized by similar operations before being ranked.

The NCC applauded NRCS efforts to implement the new valuation rules to determine a fair market value for lands enrolled in the WRP. It is expected that further requests for comments will continue into the spring, including a request for comments on the revamped Conservation Security Program.

According to the Commerce Dept., February (four-week month) total cotton consumption in domestic mills was 113.8 million pounds for a seasonally adjusted annualized rate of 3.09 million bales (480-lb). Last year’s February annualized rate was 4.53 million bales.

The January (four-week month) estimate of domestic mill use of cotton was raised by 426,000 pounds to 129.9 million pounds. The revised seasonally adjusted annualized rate of consumption for January is 3.67 million bales. This is lower than last year’s January annualized rate of 4.70 million bales.

Based on Commerce estimates from Aug. 3, ’08-Feb. 28, ’09, projected total pounds consumed during crop year ’08-09 would be 1.8 billion pounds or 3.77 million bales. USDA’s latest estimate of ’08-09 crop year mill use is 3.75 million bales. Preliminary March domestic mill cotton use and revised February figures will be released by Commerce on April 23.

Net export sales for the week ending March 19 were 335,300 bales (480-lb). This brings total ‘08-09 sales to approximately 11.4 million bales. Total sales at the same point in the ’07-08 marketing year were approximately 11.4 million bales. Total new crop (’09-10) sales are 223,900 bales.

Shipments were 215,600 bales, bringing total exports to date to 7.3 million bales, compared with the 8.0 million bales at the comparable point in the ’07-08 marketing year.