Cotton's Week: May 15, 2009

Cotton's Week: May 15, 2009

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Reform Proposed for OTC Markets

The Obama Administration has proposed a comprehensive regulatory framework for all Over-The-Counter (OTC) derivatives. The plan calls for the amendment of the Commodity Exchange Act (CEA) and the securities laws to require clearing of all standardized OTC derivatives through regulated central counterparties (CCP). In addition, all OTC derivatives dealers and all other firms that create large exposures to counterparties should be subject to supervision and regulation.

The proposal also calls for amended legislation that would: 1) authorize the Commodities Futures Trading Commission (CFTC) and the Security Exchange Commission (SEC) to impose recordkeeping and reporting requirements, including requirements for all trades not cleared by CCPs to be reported to a regulated trade repository and 2) establish a system for the timely reporting of trades and prompt dissemination of prices and other trade information.

Further, the Administration’s plan calls for the CFTC and the SEC to have clear and unimpeded authority for market regulators to police fraud, market manipulation and other market abuses. In addition, the CFTC and SEC should have the authority to set position limits on OTC derivatives that perform or affect a significant price discovery function with respect to futures markets.

In their press statement, Administration officials indicated that they would work with Congress to implement this framework and bring greater transparency and needed regulation to these markets. Further details of the Administration’s proposal are at

Climate Change Compromise Reached

House Energy and Commerce Committee Democratic leaders reportedly have reached a series of compromises that could clear the way for Committee consideration of comprehensive climate change legislation as early as May 18.

Committee Chairman Waxman (D-CA) and Rep. Markey (D-MA), chair of the Subcommittee on Energy and Environment, reportedly agreed to modify their initial draft to:  require a reduction in greenhouse gas (GHG) emissions of 17% by ’20 compared to ’05 levels – the initial draft required 20%; require 15% of each state’s power to come from renewable sources – the original draft required 20%; set aside 15% of GHG emission allowances for energy intensive industries (steel, cement, etc.) – there was no set-aside in the initial draft; and provide 3% of allowable emissions to the automobile industry as incentives to build better battery-powered and other advanced technology vehicles.

There are still a number of outstanding issues including whether to: 1) use funds generated by a cap-and-trade program to assist low income citizens impacted by higher energy costs and 2) impose a border tax on products imported from countries that do not have GHG emission reduction targets and which make US manufactured products uncompetitive.

China, for example, accounts for 20% of world GHG emissions. Those emissions are expected to increase by 5% per year from ’05-’30, while US emissions are projected to increase only 0.5% during the same period.

The legislation to be considered by the Committee is currently silent on whether agriculture will receive credit for sequestration and can sell credits to those unable to meet caps.

In recent days, House Agriculture Committee Chairman Peterson (D-MN) has voiced concern about the way EPA is determining if ethanol is qualified as a renewable fuel due to a requirement to consider the effects of indirect land use. He indicated that he will not support any climate change legislation until legislation is signed into law which repeals indirect land use requirements as part of the analysis and corrects the definition of bio-mass and certain other provisions in the recently enacted energy legislation.

Chairman Peterson and ranking member Lucas (R-OK) introduced legislation on May 14 “to correct flawed provisions in the Renewable Fuel Standard.” The Renewable Fuel Standard Improvement Act, HR 2409, would eliminate the requirement in the Energy Independence and Security Act of 2007 that EPA consider indirect land use when calculating the GHG emissions associated with bio-fuels and strikes the overly restrictive definition of renewable bio-mass.

NCC Conveys Textiles Trade Concern

The NCC joined textile and fiber organizations in conveying concern about a proposal to expand the provisions of the Afghanistan/Pakistan Reconstruction Opportunity Zone (ROZ) legislation to include cotton knit shirts, blouses and trousers.

The communication to the US Trade Representative explained that the expansion of coverage to include those products would disrupt “core business” conducted with Western Hemisphere countries under existing trade preference programs. These products account for a significant portion of US yarn and fabric exports to the region which are converted to apparel and exported to the United States.

If the preferences under the ROZ are expanded, the resulting increase in exports of cotton shirts and trousers will contain Chinese yarn and fabrics thereby displacing US cotton, yarn and fabric which are exported to the W. Hemisphere. US exports to Andean and C. American countries and to Mexico are critical to the US cotton and textile industry; thus the expansion of products covered by the ROZ would be highly disruptive.

Use of Certificates For ’09 Crop Clarified

USDA’s Farm Service Agency issued a notice clarifying that commodity certificates will continue to be exchanged for a ’09 crop marketing assistance loan (MAL) commodity up to the individual loan maturity date for that ’09 crop commodity. However, commodity certificates will not be available for exchange for any ’10 and subsequent crop MALs.

The termination of commodity certificate exchanges by the crop year of the MAL collateral means that for some periods during calendar year ’10, commodity certificate exchanges may be processed for ’09 crop MALs, but not for ’10 and subsequent crop year MALs. The complete notice may be accessed at the NCC home page,

New Currency Bill Introduced

In the House, principal co-sponsors Ryan (D-OH) and Murphy (R-PA) were joined by 38 co-sponsors in introducing HR 2378. In the Senate, principal authors Stabenow (D-MI) and Bunning (R-KY) were joined by two additional co-sponsors on S 1027.

The Currency Reform for Fair Trade Act of 2009 is spurred by continued concerns that China and other countries maintain the value of their currencies at artificially low levels to gain a trade advantage. The legislation defines currency misalignment as occurring when a government engages in a protracted large-scale intervention in exchange markets resulting in an under or over-valuation of currency by at least 5% during an 18-month period. The misalignment distorts trade by acting as a subsidy that reduces prices on imports from the country undervaluing its currency and an added tariff on imports into that country. If the Commerce Dept. determines a country’s currency is misaligned, there is an offset by means of either counterveiling duties or antidumping duties.

Consistent with the WTO rules, the remedies only can be enacted when the International Trade Commission (ITC) determines the practice caused material injury to US companies or workers.

EPA Revokes All Carbofuran Tolerances

EPA completed regulatory action to revoke existing carbofuran (Furadan) tolerances due to unacceptable dietary risks. A tolerance is the legal allowance for pesticide residues on food.

Without a tolerance, any residue would deem a food or feed product adulterated and, therefore, unmarketable.

In March ’09, FMC, the sole registrant for carbofuran, cancelled registrations for uses on a number of crops, including cotton, in order to reduce EPA’s estimated risk (Federal Register Volume 74, Number 51, pp. 11551-11553).

However, EPA decided to proceed with its July ’08 decision which concluded that combined exposure to carbofuran from food and water significantly exceeds EPA’s level of concern for children, and does not meet the US food safety standard. Following the tolerance revocations, EPA plans to proceed with cancellation of any remaining carbofuran uses due to unreasonable ecological and worker risks.

Carbofuran tolerances for all commodities will be revoked effective Dec. 31, ’09, meaning that no food crops in the United States will be allowed to have residues of carbofuran after Dec. 31, unless it can be shown that the crop was treated before that date. EPA is working with the Food and Drug Administration to ensure that food treated before the effective date of the tolerance revocations can continue to be sold and distributed.

Supporting documents and related materials are under Docket ID No. EPA-HQ-OPP-2005-0162, which is available at:

FMC believes EPA’s action to be highly unusual and contrary to EPA’s past position, which would have maintained at least imported food tolerances for the product. Since EPA announced its intention to cancel carbofuran registrations in ’06, FMC has modified the product label and generated additional data, all of which confirm the product’s safety.

FMC plans to file objections to EPA’s action EPA and seek an administrative hearing.

Furadan is an important crop protectant for controlling late season aphids. Although not registered for foliar application, cotton producers have been using the product under Section 18 emergency exemptions. The revocation of tolerances will prohibit any future Section 18 requests. NCC staff has worked with FMC for many years, providing data and engaging with EPA officials, to preserve the product’s use.

Additional Cotton Flow Data Sought

The Farm Service Agency (FSA) has informed warehouse operators who are Cotton Storage Agreement (CSA) holders of requests to provide data derived from the weekly Bales Made Available for Shipment (BMAS) cotton flow reports. Due to numerous requests for more pertinent information, FSA is proposing to release additional summary data to the same extent as the existing reports.

The letter notes that these reports would not be “official” USDA publications and will be provided for informational purposes without interagency review. Assurance is being given to CSA holders that the underlying data supplied by each warehouse operator will remain confidential as only summary data would be released, which eliminates any possibility of identifiable proprietary information. The letter concludes by asking warehouse operators to indicate whether or not they are in favor of releasing the proposed Cotton Flow Summary.

CSA holders may provide comments to by June 1, ’09.

USDA Estimates US Cotton Production

In its May report, USDA sees US ’09-10 marketing year cotton production of 13.25 million bales. Mill use is set at 3.50 million bales while exports are expected to fall to 11.00 million bales. With beginning stocks of 6.80 million bales, US ending stocks would fall to 5.60 million bales on July 31, ’10, with a stocks-to-use ratio of 38.6%.

In its final estimate of the ’08-09 US cotton crop, USDA gauged US ’08-09 production at 12.82 million bales, a reduction of 10,000 bales from the previous month. The upland crop estimate was pegged at 12.39 million bales while the ELS crop totaled 431,000 bales.

State level data for area, yield and production are at

Mill use for ’08-09 was lowered 100,000 bales to 3.55 million bales and exports were unchanged at 12.50 million bales. That estimated total offtake generates ending stocks of 6.80 million bales.

USDA estimates ’09-10 marketing year world production to be 106.46 million bales. Mill use is set at 113.54 million bales. With beginning stocks at 62.31 million bales, this would result in world ending stocks of 57.77 million bales on July 31, ’10, and a stocks-to-use ratio of 50.9%.

For the ’08-09 marketing year, USDA puts world production at 107.88 million bales, down 460,000 bales from the April report. World mill use increased 280,000 bales. Consequently, world ending stocks are estimated to be 62.31 million bales with a stocks-to-use ratio of 56.6%.

Sales Slump, Shipments Steady

Net export sales for the week ending May 7 were 57,400 bales (480-lb). This brings total ’08-09 sales to slightly more than 13.0 million bales. Total sales at the same point in the ’07-08 marketing year were about 14.0 million bales.

Total new crop (’09-10) sales are 665,500 bales.

Shipments for the week were 240,800 bales, bringing total exports to date to 9.4 million bales, compared with the 9.9 million bales at the comparable point in the ’07-08 marketing year.

Prices Effective May 15-21, '09

Adjusted World Price, SLM 11/16

45.83 cents


Fine Count Adjustment ('07 Crop)

 1.25 cents

Fine Count Adjustment ('08 Crop)

  0.85 cents

Coarse Count Adjustment

  0.00 cents

Marketing Loan Gain Value

 6.17 cents

Import Quotas Open


Limited Global Import Quota (480-lb bales)


ELS Payment Rate

  7.23 cents

*No Adjustment Made Under Step I


Five-Day Average


Current 5 Lowest 3135 CFR Far East

62.60 cents

Forward 5 Lowest 3135 CFR Far East


Coarse Count CFR Far East

64.73 cents

Current US CFR Far East

66.65 cents

Forward US CFR Far East



'08-09 Weighted Marketing-Year Average Farm Price  

Year-to-date (Aug.-March)

49.74 cents


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

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