Cotton's Week: April 3, 2009

The Senate and House both passed their respective ’10 budget plans, generally along party lines, by a 55-43 vote in the Senate and a 233-196 vote in the House.

Due to the diligent work of Cotton Belt Members, no amendments were offered on payment limits and the resolutions generally resembled those passed by the House and Senate Budget Committees last week. Cotton Belt Members’ efforts included the Sens. Lincoln-Roberts and Reps. Berry-Conaway letters to the Senate and House Budget Committee chairmen, as well as the Sens. Chambliss-Lincoln and Reps. McIntyre-Lucas letters to Secretary of Agriculture Vilsack regarding farm bill implementation.

Conference negotiations will focus on whether to include provisions that would, like the House plan, allow health care overhaul legislation to move through the filibuster proof reconciliation process and how much in discretionary spending should be provided to the Appropriations panels to write the 12 annual spending bills.

The Senate plan would provide the Appropriations panel with $1.08 trillion, which is $15 billion less than the President requested and about $8 billion less than the House resolution.

The Senate also endorsed, by a 51-48 vote, an amendment offered by Sen. Lincoln (D-AR) and Sen. Kyl (R-AZ) that lowers the estate tax rate to 35% and provides an inflation-adjusted $5 million per-person exemption on the estate tax.

USDA’s March Prospective Plantings Report indicates US producers intend to plant 8.81 million cotton acres in ’09, down 7.0% from last year. Upland area is projected to be 8.67 million acres, down 6.8% from ’08 while extra long staple (ELS) area is projected at 143,500 acres, a 17.5% decline. The NCC’s planting intention survey, released in early February, indicated US farmers intend to plant 7.97 million upland acres and 142,000 ELS acres.

State and regional acreage estimates are provided in the table, along with a comparison to the NCC acreage survey released in February. 

In a report to the Plains Cotton Growers Assoc. annual meeting in Lubbock, John Maguire, the NCC’s senior vice president of Washington Operations, reminded attendees that the NCC is 1) clearly communicating to lawmakers that the new farm law does not need to be re-opened for budget savings and 2) aggressively emphasizing to USDA that the agency should implement that law fairly and according to Congressional intent.

Maguire said the NCC has worked diligently in preparation for the budget debate to convey opposition to farm program cuts included in President Obama’s budget proposal and any efforts to re-open the ’08 farm law.

Maguire told the group that after a lengthy and arduous debate, the current farm law introduced significant commodity program changes while maintaining an important safety net for production agriculture along with enhanced conservation and nutrition programs.

Maguire said cotton producers received some good news this week in USDA’s announcement that it extended this year’s sign-up deadline from June 1 to Aug. 14 for the Direct and Counter-Cyclical Program (DCP) and the new Average Crop Revenue Election (ACRE) Program.

 In addition, Maguire reminded attendees that the cotton program will receive additional attention with the expected conclusion of the arbitration phase of the Brazil-US dispute in the World Trade Organization (WTO). The Arbitration Panel should deliver its findings in four to six weeks.

Maguire said the US cotton industry believes that Brazil’s damage claims are overstated in its WTO challenge of the US Export Credit Guarantee (GSM) program and certain aspects of the US cotton program.

Brazil is claiming damages of $1.3 billion for the GSM program; $350 million in one-time damages from Step 2; and damages of $1.0 billion from the upland cotton marketing loan and counter-cyclical programs. These claims come despite the fact that the Step 2 program ended almost three years ago and export credit programs have been altered or discontinued. In addition, claims of injury due to the cotton program are unreasonable given the realities of the world fiber market and recent declines in US cotton production.

A frustrating aspect of the case, Maguire noted, is the WTO’s use of the ’99-05 period for analysis. “Unfortunately, changes in the world and U.S. cotton market and programs since 2005 are not fully appreciated in the current dispute deliberations,” he said. “More recent data will be extremely important when the U.S. seeks a compliance panel to demonstrate the response to the Brazil dispute panel findings.”

Maguire explained to the group that the size of potential damages will be important in determining the scope and type of countermeasures Brazil will be allowed to use. He also noted that it is possible that any retaliation by Brazil could look beyond agriculture.

Agriculture Secretary Vilsack announced that USDA has extended the sign-up deadline from June 1, to Aug. 14, ’09, for both the Direct and Counter-Cyclical Program (DCP) and the forthcoming Average Crop Revenue Election (ACRE) Program.

"Extending the DCP and ACRE sign-up deadline will help ensure that America's farmers have enough information and time to determine whether to participate in the ACRE Program,” Vilsack said.

Sign-up for ACRE is expected to start in late April, with an official sign-up announcement to be made in the coming weeks. Producers can elect ACRE at their Farm Service Agency (FSA) county office after the sign-up period commences.

The ACRE program, authorized by the ’08 farm law, provides eligible producers a state-level revenue guarantee, based on the five-year state Olympic average yield and the two-year national average price. ACRE payments are made when both state and farm-level triggers are met. By participating in ACRE, producers elect to forgo counter-cyclical payments, receive a 20% reduction in direct payments and a 30% reduction in loan rates. The decision to elect ACRE binds the farm to the program through the ’12 crop year, the last crop year covered by the ’08 farm law.

For more information about ACRE, DCP and other price support programs, please visit your FSA county office or http://www.fsa.usda.gov.

Agriculture Secretary Vilsack rescinded the rule that was to immediately terminate base acres on federally owned lands. Had it remained in effect, the Dec. 23, ’08 rule would have made any federally-owned land that was leased ineligible to receive direct payments and counter-cyclical payments beginning with the current crop year.

Vilsack stated that the rule “would have hurt farmers across the United States and eroded the safety net for farmers and ranchers,” and that the action is “in keeping with President Obama’s commitment to American agriculture.”

The action follows several months of efforts by the NCC, local and national farm and conservation groups, and affected producers to get the rule rescinded.

"Senators Lincoln (D-AR), Cochran (R-MS) and Chambliss (R-GA) and Representative Childers (D-MS) and Berry (D-AR) had encouraged the Secretary to rescind the rule," NCC Chairman Jay Hardwick said. "We appreciate their efforts on behalf of producers who were detrimentally affected by the actions of the previous Administration."

Net export sales for the week ending March 26 were 421,800 bales (480-lb). This brings total ’08-09 sales to about 11.8 million bales. Total sales at the same point in the ’07-08 marketing year were about 11.7 million bales. Total new crop (’09-10) sales are 247,500 bales.

Shipments were 309,000 bales – a marketing-year high – bringing total exports to date to 7.6 million bales, compared with the 8.2 million bales at the comparable point in the ’07-08 marketing year.

On Jan. 7, the 6^th Circuit Court of Appeals issued a decision which invalidated a ’06 EPA rule exempting pesticide applications on or near water from the need to obtain a National Pollutant Discharge Elimination System (NPDES) permit under the Clean Water Act (CWA).

The court’s ruling stated that any pesticide application from which any residue makes its way into the “waters of the U.S.” are required to obtain a NPDES permit. Because of the broad interpretation of US waters, this ruling essentially established the requirement for all pesticide applications to be permitted under the CWA. An NPDES permit involves public hearings, fees, reporting, monitoring, and allows for citizen litigation.

April 9^th is the deadline for litigation parties to request a full-court rehearing of the case. The January decision was made by only three judges of a 15-member panel. En banc reviews are historically difficult to obtain but lawyers involved in the case believe that, if a review is granted, a different decision is possible because the court did not consider protections in CWA for non-point source pollution.

EPA’s request for a rehearing will be crucial in the court’s decision. In a March 6^th letter, Agriculture Secretary Vilsack clearly articulated the burden this ruling would place on American farmers and urged EPA Administrator Lisa Jackson to request a review. Agricultural groups have been asking the leadership of the House and Senate agriculture committees also to send such a letter but, to date, have not been successful.

Should the court deny a rehearing of this case, the parties also plan to request a stay of the mandate. They will ask the court to delay the effectiveness of its decision for at least 18 months in order for EPA to develop a permitting system to cover pesticide applications.

In this event, NCC will work with EPA to generate a general permitting system with the least possible burden to farmers and pesticide applicators.