Cotton's Week: June 26, 2009

Cotton's Week: June 26, 2009


NCC Issues Statement on House Energy Bill

The NCC commended House Agriculture Committee Chairman Peterson’s (D-MN) stalwart efforts, in the face of formidable opposition, to successfully negotiate amendments to H.R. 2454, The American Clean Energy and Security Act -- which authorizes USDA to develop and administer agricultural offsets in a cap-and-trade program.

The NCC’s statement said it supports development of these offsets as a means to mitigate, to some degree, the impact of significantly higher energy and input costs to production agriculture and agribusiness. Upon consideration of the legislation’s broad impacts, however, the NCC said it has concluded that the higher costs of energy and other production inputs for every sector of the US cotton industry will far outweigh any benefits resulting from offsets. Production, marketing, and processing will be adversely affected in varying degrees. A preliminary analysis of direct energy costs related to production, ginning, marketing, and yarn spinning indicates that every 10% increase in input prices will increase costs by at least $175 million. The estimate, which should be viewed as a lower bound, does not fully account for the ripple effects that higher energy costs will have on all industries that supply inputs to the US cotton and textile industry.

The statement continued, “NCC is deeply concerned about the international disparity that this bill would establish for U.S. industries. China and India, the two largest cotton and textile producing countries, are competitors with U.S. cotton in the international market. Both countries are significant and growing greenhouse gas emitters and both have thus far refused to sign onto any agreement to curtail their emissions. The additional production costs that will result from implementation of the provisions of H.R. 2454 will place U.S. cotton and cotton products at a clear disadvantage in international markets, which are critically important to the U.S. cotton industry. For these reasons, NCC urges support for Chairman Peterson’s amendments but can not support the bill without significant modifications and improvements to address the concerns outlined above.”

The full House began floor debate on the bill today, and a vote on the bill was possible today or June 27.

Implementation Needs Clear Direction

NCC Chairman Jay Hardwick told a House Agriculture Committee subcommittee that critical parts of the regulations implementing payment limitations and adjusted gross income eligibility tests are inconsistent with the Food, Conservation, and Energy Act of 2008 or are unclear – causing uncertainty and concern among producers.

Testifying before the General Farm Commodities and Risk Management Subcommittee, Hardwick said the ’08 farm law’s changes on payment limitations and eligibility provisions were the most significant and far-reaching in more than 20 years. He said producers face an enormous challenge trying to understand those changes and also are dealing with additional uncertainty caused by regulations that “over-reached and guidelines and forms that seem to change monthly.”

He testified that regulatory changes made by USDA to the rules involving the determination of whether a program participant is actively engaged in farming are not consistent with the farm law. Specifically, the new rules impose requirements on individual shareholders that are inconsistent with the statutory requirement that corporate farming activities be judged on a collective basis. He said requirements that individual contributions by shareholders must be regular, identifiable, documentable, separate and distinct introduce vague and unhelpful standards that are subject to different interpretations and are contrary to a common-sense approach to farm management and decision-making. 

Hardwick noted that the introduction of the direct attribution of benefits in the new farm law could result in a 50% cut in benefits in certain circumstances. Other changes include strengthened penalties for breaking the rules and removing the discrimination against spouses. The old Adjusted Gross Income eligibility test was replaced with eligibility requirements based on new, untried definitions of farm and non-farm income at much lower levels. These new income limits also contain tough monitoring and enforcement provisions.

Other specific implementation concerns he noted included: 1) new "risk of loss" requirements, 2) uncertain and problematic new rules on financing and 3) new rules clamping down on the ability of a farming operation to reorganize its structure -- restricting a farm's ability to react to these new, unwarranted changes in corporate governance requirements, for example. Hardwick said the regulations were published late and the Handbook and other guidelines were not issued until spring, after many operations already had begun decision-making for the ’09 crops.

Hardwick stated that Farm Service Agency (FSA) personnel had worked hard to implement the new payment limitation provisions, but "the degree to which the implementing regulations over-reached has made the job of FSA personnel, and the ultimate impact on farmers, even more problematic. A significant source of confusion and inconsistency will be eliminated if the regulations are revised to eliminate the 'separate and distinct' requirement for corporations, partnerships and LLCs, to conform the ‘at risk’ provisions to the existing law, and to recast the spousal eligibility rules. USDA should correct all areas where they have gone beyond the new farm law. We also urge simplification of all forms.”

Hardwick noted the hardships and uncertainty posed by new income tests. He said producers now have to designate all income as farm or non-farm to determine eligibility.

“Recognizing farm income is more than just the income listed on a Schedule F, Congress provided some direction in the statute by defining certain sources as farm income and providing the Secretary with authority to define other sources of farm income,” he stated. “We have been disappointed that USDA did not do more to obtain input from farmers and accountants concerning how best to designate sources of income as farm and non-farm. USDA did not ask for recommendations concerning how to define certain sources of income for the purpose of applying the new tests thus leaving farmers with the task of interpreting the appropriate designations of income. These designations are critically important because they determine eligibility for all program benefits.”

The regulations also now allow the Agriculture Secretary to require either a certification of average income or information and documentation regarding average income every year rather than every three years.

“We urge USDA to be consistent by changing the regulations to include the option to provide sufficient documentation as an alternative to third-party certifications and to clarify that such certification or documentation must occur only every three years,” Hardwick said.

Hardwick’s stated that, "Farmers find themselves in the middle of an implementation process they don't fully understand. There are significant uncertainties about many critical aspects of these new rules, but program eligibility and livelihoods hinge on how these important questions are ultimately answered."

He added,” Given these uncertainties and the lack of clear direction, it would be patently unfair and unwarranted if oversight agencies mount a massive review of this process sometime in 2010 in an attempt to claim lack of enforcement by USDA or to claim widespread program abuses.”

Hardwick’s written testimony can be found in the Issues Members Only area of the NCC’s website at

Immigration Reform Given Priority

President Obama held an immigration forum at the White House and vowed to immediately begin negotiations to craft comprehensive immigration reform with the goal of passing legislation in Congress later this year or early next year.

Joining the President in the forum were a bipartisan group of lawmakers, advocacy organizations and union groups. In his comments, the President reiterated his view that immigration reform cannot be done piecemeal and must be comprehensive legislation.

As reported in May 29 Cotton’s Week, a bill known as AgJOBS has been re-introduced in both the House and Senate.

The bill contains two main parts: 1) an “earned legalization” program enabling many undocumented farm workers and H-2A guest workers to receive a “blue card” temporary immigration status with the possibility of becoming permanent US residents by continuing to work in agriculture and by meeting additional requirements, and 2) revisions to the existing H-2A temporary foreign agricultural worker program.

USDA Honoring Flow Data Requests

At recent cotton warehouse meetings, USDA representatives commented on a February letter from the NCC’s Cotton Flow Committee seeking expansion of the data released in the quarterly cotton flow summary reports and to clarify the definition of the term “Active Shipping Order.” Cotton Growers Warehouse Assoc. and Cotton Warehouse Assoc. of America convention attendees were informed that USDA intends to honor both NCC requests.

In May, USDA sent letters to the trade requesting comments from all Commodity Credit Corp. Cotton Storage Agreement holders regarding the proposed data release. In the letter and at the warehouse meetings, USDA made it clear that the reports will not be “official” USDA publications. When the letter to the trade was sent, USDA published an online summary of the expanded data including that included the fourth quarter of ’08 data.

USDA reported that the NCC’s other request to clarify and define terms will be addressed through rulemaking, with a goal to have the new definitions in place by Aug. 1.

USDA also reported during the meetings that ’08 crop loan transfer activity declined substantially from ’07.

May Mill Use Rebounds From April

According to the Commerce Dept., May (four-week month) total cotton consumption in domestic mills was 125.7 million pounds for a seasonally adjusted annualized rate of 3.34 million bales (480 lb). Last year’s May annualized rate was 4.41 million bales.

The April (four-week month) estimate of domestic mill cotton use was raised by 551,000 pounds to 114.0 million pounds. The revised seasonally adjusted annualized rate of consumption for April is 3.09 million bales. This is lower than last year’s April annualized rate of 4.56 million bales.

Based on Commerce estimates from Aug. 3, ’08 through May 30, ’09, projected total pounds consumed during crop year ’08-09 would be 1.73 billion pounds or 3.61 million bales. USDA’s latest estimate of ’08-09 crop year mill use is 3.55 million bales.

Preliminary June domestic mill use of cotton and revised May figures will be released on July 23.

Sales, Shipments Steady

Net export sales for the week ending June 18 were 168,100 bales (480-lb). This brings total ’08-09 sales to about 13.9 million bales. Total sales at the same point in the ’07-08 marketing year were about 15.4 million bales.

Total new crop (’09-10) sales are 951,100 bales.

Shipments for the week were 293,400, bringing total exports to date to 11.4 million bales, compared with the 11.7 million bales at the comparable point in the ’07-08 marketing year.

With slightly more than a month remaining in the marketing year, weekly shipments must average roughly 213,000 bales to reach the USDA projection of 12.7 million bales.

Prices Effective June 26-July 2, '09

Adjusted World Price, SLM 11/16

43.04 cents


Fine Count Adjustment ('08 Crop)

 0.49 cents

Fine Count Adjustment ('09 Crop)

  0.29 cents

Coarse Count Adjustment

  0.00 cents

Marketing Loan Gain Value

 8.96 cents

Import Quotas Open


Special Import Quota (480-lb bales)


ELS Payment Rate

  6.23 cents

*No Adjustment Made Under Step I


Five-Day Average

Current 5 Lowest 3135 CFR Far East

59.81 cents

Forward 5 Lowest 3135 CFR Far East

63.39 cents

Coarse Count CFR Far East

59.13 cents

Current US CFR Far East

59.00 cents

Forward US CFR Far East

64.65 cents


'08-09 Weighted Marketing-Year Average Farm Price  

Year-to-date (Aug.-April)

49.08 cents


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

Error in element (see logs)