Cotton's Week: August 28, 2009

In an address at the mid-year meeting of the NCC Board of Directors, Chairman Jay Hardwick said the NCC’s efforts since the NCC’s Annual Meeting “have been focused primarily on the industry’s priorities as identified by our delegate body, which include farm bill implementation, federal budget pressures, the appropriations process, trade and a number of regulatory issues.”

Speaking at the meeting’s open session, the Louisiana producer said that while there is an overall satisfaction with the results of the industry’s efforts to achieve a workable farm bill, there are significant changes in program eligibility and payment limits. He also discussed the industry’s disappointment in the December regulation that included additional changes beyond the legislative language in provisions determining actively engaged in farming. 

“The Council submitted very extensive comments to these proposed rules,” Hardwick said. “In addition, 69 House members and 23 Senators signed letters to Secretary Vilsack asking him to implement these rules in a manner that reflects the law and Congressional intent. I also presented the Council’s testimony to the House Agriculture Committee Subcommittee on General Farm Commodities and Risk Management.”

Hardwick also reviewed NCC efforts on the farm bill’s conservation title. “Given the emphasis of conservation programs in the new farm law, the Council also has taken an active role in responding to proposed program rules,” he reported. “This includes our earlier comments to the EQIP and Wetlands Reserve Program. And earlier this month, the Council’s Conservation Task Force, chaired by Jimmy Webb, reviewed proposed regulations for the new Conservation Stewardship Program and will be submitting detailed comments prior to the September 28 deadline. In addition, the Council is developing educational programs for CSP.”

In reviewing trade issues, Hardwick said the industry’s priorities had been presented to US Trade Representative Ron Kirk in a meeting with NCC officials, which included Vice Chairman Eddie Smith, President Mark Lange and Senior Vice President John Maguire. Hardwick also noted Kirk’s recent statements on Doha negotiations and C4 criticism of the US cotton program.

“We later expressed our appreciation for Ambassador Kirk’s statements in Geneva, where he clearly affirmed that there will be no discussions on cotton until there is a completed Doha agreement,” Hardwick said. “I also am pleased to report that earlier this month, Ambassador Kirk -- during an AGOA forum in Kenya -- directly addressed criticisms of our programs by the C4 countries in telling them that it is ‘a horrible decision to single out one industry and one country.’”

Gary Adams, NCC Vice President of Economics and Policy Analysis, presented an economic update to the Board. He noted the downturn in the economy has reduced total textile trade and retail demand for textiles and apparel. Export demand for US cotton will hinge on both market and policy developments in China and India. Regarding US production, current USDA estimates place the crop at 13.2 million bales, but Adams noted that current conditions suggest a slightly larger crop. Looking forward, he said current futures prices for the ’10 crop are more favorable, but cautioned that a strengthening soybean market poses stiff competition for acres.   

John Maguire, NCC Senior Vice President, provided the Board with a Washington update that addressed farm bill implementation, trade issues, commodity futures markets, climate change legislation, food safety, Clean Water Act amendments and the Congressional schedule for the rest of the year. 

Robert Lehman, Squire Sanders Public Advocacy LLC, reported on the Obama Administration’s trade priorities and upcoming trade events. He also discussed the eventual continuation of Doha negotiations and the Brazil arbitration decision’s potential impact.

Cotton Council International (CCI) President Clyde Sharp reported on a wide range of Cotton USA activities and said CCI, for this year, is the largest recipient of combined Foreign Market Development and Market Access Program funds. He said, “One reason for this confidence is that CCI continues its reputation as a top performer in executing effective programs worldwide.”

Bruce Heiden, chairman of the Committee for the Advancement of Cotton (CAC), reported that 75% of the ’09 fundraising goal has been reached. He said, “I believe it is imperative that our industry support the Members of Congress who understand, believe in and fight for cotton’s issues. With the challenges facing U.S. cotton, it is incumbent on those of us in the industry to increase our fundraising efforts to make sure cotton’s voice is heard in Washington.”

Speaking during the Board’s executive session, NCC General Counsel William Gillon reported on the status of the Brazil arbitration decision and the NCC’s efforts with USTR, USDA and Congress to prepare for the decision. 

NCC Merchant Vice President Gary Taylor also addressed the Board during its executive session. Taylor provided a report on an industry delegation that traveled to China for meetings concerning that country’s registration requirements for companies exporting to China. He said progress had been made on the industry’s suggestion for the establishment of a central laboratory to conduct quality appeals and an agreement on sampling procedures to prevent tampering.

The NCC submitted comments to USDA regarding changes to the Conservation Reserve Program (CRP).

CRP is an important conservation program that has a long, successful history of addressing multiple objectives of improving soil, water and air quality while also improving wildlife habitat. CRP has become an integral part of many farm operations and it is often used as part of a larger farm conservation plan. Under the ’08 farm law, the overall CRP enrollment was reduced from 39.2 million acres to 32.0 million acres in FY10-12.

In its comments, the NCC also noted: 1) CRP’s importance to many Cotton Belt areas should be considered carefully in managing both future enrollments and reenrollments,  2) CRP has been a tremendous asset to producers who have environmentally sensitive land, 3) West Texas cotton production areas have experienced substantial benefits in the reduction of soil erosion due to CRP, and 4) many aspects of the current program work well for producers across the Cotton Belt, including the continuous sign-up provision.

USDA is expected to release further changes to CRP later this year stemming from changes made in the ’08 farm law. The NCC will continue to monitor these upcoming regulations and will submit comments to USDA.

The Food Quality Protection Act (FQPA) is a far-reaching law. Aside from the extensive tolerance reassessment and re-registration process which was completed in ’06, the FQPA also requires EPA to review the registrations of all pesticides every 15 years. EPA initiated this process in ’06 and has stated that compliance with the Endangered Species Act (ESA) would be a factor in this review.

There are more than 1,200 species listed as either endangered or threatened in the United States under the ESA and petitions requesting additional listing of species are ongoing. The law is administered by the Fish and Wildlife Service (FWS), in the Department of the Interior, and the National Oceanic and Atmospheric Administration’s National Marine Fisheries Service (NMFS), in the Department of Commerce. FWS is responsible for fresh water and terrestrial species and NMFS covers salt water species including those that spawn in fresh water. These two agencies, commonly known as the Services, list and delist species, designate critical habitat and formulate recovery plans.

The ESA requires all federal agencies to consult with the Services on all federal actions. Pesticide registration is considered a federal action. In the past, the EPA has considered its ecological fate assessments to be sufficiently comprehensive to account for any effects on endangered species. However, the Washington Toxics lawsuit in ’04 ruled EPA to be out of compliance with ESA for not consulting with the Services. 

Pesticide registration is authorized under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). This law is inherently incompatible with the ESA. For example, FIFRA requires EPA to formulate its decisions using sound science and data.  The ESA, on the other hand, takes a more precautionary approach where a ruling may be made, not on the actual presence of an endangered species, but on the potential for it to exist in a particular habitat. FIFRA allows EPA to consider the benefits of a pesticide use; the ESA has no such provision and, instead, requires the Services to protect species regardless of the economic impact.

This incompatibility has made it excruciatingly difficult for the Services and EPA to work together efficiently in consultations. For example, it took the Services more than four years to issue its “Biological Opinion” for just four of the 36 compounds listed in the Washington Toxics case. There have been several failed attempts to solve this problem.  The most recent attempt was a rule promulgated under Bush Secretary of Interior Kempthorne which would have allowed action agencies (in this case, EPA) to be more active in endangered species decisions. The rule was withdrawn by President Obama.

Because of the numerous lawsuits filed against it, the EPA seems to be taking an overly cautious approach as it begins the registration review process. In its preliminary assessment of clomazone (Command), the Agency is using a worst case volatilization incident to establish a two-mile radius “action area” for the consideration of endangered species. 

The NCC has submitted comments to EPA objecting to such an approach, which could result in the unnecessary prohibition or restriction of critical pesticide uses.

According to the Commerce Dept., July (four-week month) total cotton consumption in domestic mills was 125.6 million pounds for a seasonally adjusted annualized rate of 3.43 million bales (480-lb). Last year’s July annualized rate was 4.53 million bales.

The June (five-week month) estimate of domestic mill cotton use was raised by 824,000 pounds to 155.0 million. The revised seasonally adjusted annualized rate of consumption for June is 3.26 million bales compared to last year’s June annualized rate of 4.39 million bales.

Commerce’s estimate of both upland and extra long staple (ELS) consumption of cotton by US mills, when adjusted to represent the complete ’08-09 crop year, is approximately 3.59 million bales. USDA’s Aug. estimate of ’08-09 crop year mill use was 3.60 million bales. Commerce’s estimate of exports for the ’08-09 crop year is approximately 13.26 million bales, compared to USDA’s latest export estimate of 13.20 million bales.

Commerce’s survey-based estimate of stocks on hand as of July 31, ’09 was 6.31 million bales. USDA’s Aug. estimate of ending stocks for the ’08-09 crop year was 6.10 million bales.

Preliminary Aug. domestic mill cotton use and revised July figures, as well as revised supply and distribution data for the ’08-09 crop year, will be released by Commerce on Sept. 24. USDA’s next supply and demand estimates are scheduled to be released on Sept. 11.

Net export sales for the week ending Aug. 20 were 245,100 bales (480-lb). This brings total ’09-10 sales to slightly more than 2.9 million bales. Total sales at the same point in the ’08-09 marketing year were approximately 4.7 million bales. Total new crop (’10-11) sales are 87,400 bales.

Shipments for the week were 221,500 bales, bringing total exports to date to 512,300 bales, compared with the 788,900 bales at the comparable point in the ’08-09 marketing year.

Adjusted World Price, SLM 11/16	46.13 cents	*
Fine Count Adjustment ('08 Crop)	0.00 cents
Fine Count Adjustment ('09 Crop)	0.00 cents
Coarse Count Adjustment	0.00 cents
Marketing Loan Gain Value	5.87 cents
Import Quotas Open	8
Special Import Quota (480-lb bales)	486,312
ELS Payment Rate	4.23 cents
*No Adjustment Made Under Step I
Five-Day Average
Current 5 Lowest 3135 CFR Far East	62.50 cents
Forward 5 Lowest 3135 CFR Far East	NA
Coarse Count CFR Far East	64.28 cents
Current US CFR Far East	66.95 cents
Forward US CFR Far East	NA
'08-09 Weighted Marketing-Year Average Farm Price
Year-to-date (Aug.-June)	48.83 cents	**
** Aug.-July average price used in determination of counter-cyclical payment