In testimony before the House Agriculture Committee’s Subcommittee on General Farm Commodities and Risk Management, NCC Chairman Eddie Smith stressed that stable farm policy is essential for the US cotton industry and that sound farm policy should provide an effective financial safety net for producers while abiding by US trade policy commitments.
In summarizing ’08 farm law key aspects, Smith said that the NCC continues to support that law's cotton program components: the marketing loan and direct and counter-cyclical payments. Each component, he stated, serves a distinct purpose that is beneficial to US farmers and the industry.
Smith said the ’08 farm bill also made historic changes to payment limitations and program eligibility. Limitations were made more restrictive by eliminating the three-entity rule, applying direct attributions and the adjusted gross income test was substantially tightened.
“Unfortunately, USDA went beyond the statute by modifying actively engaged rules, complicating spousal eligibility and requiring producers to authorize the IRS to release information to USDA in implementing key payment eligibility provisions,” Smith testified. “For cotton growers, good farm policy is of little value if commercial-size farming operations are ineligible for benefits. Frankly, the statutory changes combined with overzealous regulations have pushed us to the brink and we will strongly oppose any further restrictions.”
Looking ahead to future policy, Smith acknowledged that the ’12 farm bill debate will take place with several new and increased points of pressure, including the record budget deficit.
“The WTO Brazil case puts cotton's marketing loan and counter-cyclical programs under special scrutiny,” he noted. “While we are relieved that U.S. negotiators have been able to put together an interim agreement that has convinced Brazil to suspend retaliation against nearly $1 billion in U.S. exports, we know there are expectations about modifications to the cotton program as part of the 2012 farm bill.”
Smith stated that the US cotton industry has initiated internal policy deliberations with the appointment of a farm policy task force and is prepared to work with Congress to address the challenges faced in the writing of the ’12 farm bill.
He also noted that development of the ’12 farm bill must consider the competitive balance between commodities due to both farm and energy policies.
The NCC’s full testimony is available at the NCC website’s home page, www.cotton.org.
NCC Briefed on WTO Brazil Case
NCC Chairman Eddie Smith, along with NCC President Mark Lange and Senior Vice President John Maguire, were briefed by high level Administration officials regarding the latest developments in the ongoing trade dispute with Brazil.
Following briefings with key Congressional staff, Administration officials provided Chairman Smith with additional details and background regarding the June 17 Framework Agreement between the United States and Brazil (see 6/18 Cotton’s Week ).
Also, the Export Credit Working Group, which is comprised of agricultural trade associations, including the NCC, heard an update from the Administration on the long-running trade dispute that includes the export credit guarantee programs, in addition to certain provisions of the upland cotton program.
Administration officials indicated that the full text of the Framework would be posted on US government websites in the coming days.
Tax Extenders Bill Voted Down
Senate Majority Leader Reid (D-NV) said he will abandon efforts to promote passage of a tax extenders bill (H.R. 4213) after a third attempt failed to advance the bill to a final vote.
The 57-41 vote came despite attempts to win the support of key Republicans by easing some of the new tax increases in the legislation and finding new sources of money to fully offset the amendment's extension of federal Medicaid funding for states. The only un-offset provision in the legislation would have been the extension of federal financing for unemployment insurance benefits, which would have added $33 billion to the budget deficit.
Sen. Reid said it is unclear what the next step will be for the extenders bill. In addition to extending a number of tax provisions that are important to the business community, the legislation includes a retro-active extension of the biodiesel tax credit and a $1.5 billion ad hoc disaster assistance package covering ’09 crop losses, authored by Agriculture Committee Chairman Lincoln (D-AR) with Sens. Cochran (R-MS) and Wicker (R-MS).
Financial Markets Governance Bill Approved
During a marathon 20-hour session, House and Senate negotiators agreed to a far-reaching overhaul of statutes governing financial markets. The legislation is a response to the financial crisis that began in ’07 and led to double-digit unemployment and multibillion-dollar bailouts.
The last compromise resolved a deep disagreement over a provision championed by Senate Agriculture Committee Chairman Lincoln (D-AR) on derivatives trades by banks. The provision would have required banks to shed their business in the complex financial instruments, which were partially blamed for the ’08 financial market meltdown that prompted the legislation. The breakthrough came when House Agriculture Committee Chairman Peterson (D-MN) offered a proposal that would require banks to wall off the riskiest derivatives from the part of the bank that holds deposits. The House plans also allowed banks to keep certain derivatives that pose less risk.
Lincoln
said her goal is to make sure that “banks should be banks.”
The legislation (HR 4173), approved by the House-Senate conference committee, would impose new restrictions on risky financial instruments and require banks and other financial institutions to hold more capital to protect against future financial upheaval.
Under the derivatives compromise, banks will be able to keep their business in derivatives that are tied to interest rate swaps and also would be permitted to continue to trade in derivatives related to foreign exchange swaps, credit, gold and silver, investment-grade credit default swaps and any transaction used to hedge risk. Financial institutions will need to divert derivatives related to commodities, energy, metals, agriculture, equities and below-investment-grade credit default swaps into a separately capitalized entity walled off from federally insured deposits. Any credit default swaps — a type of derivative linked to the meltdown of insurance giant AIG — remaining in the bank would go through a central clearinghouse.
The conferees also struck an 11th-hour deal on the so-called Volcker rule, which would curb proprietary trading by banks. Large banks and hedge funds would face a new fee, designed to generate $19 billion, to help defray the costs of the new legislation. The conference report will move to the full House and Senate next week where it must be approved before it can be sent to the President.
Ag Groups Applaud Supreme Court Ruling on Biotech Alfalfa
The US Supreme Court reversed a lower court’s nationwide ban on the cultivation of biotech alfalfa. It said in a 7-to-1 vote that a district court judge in
San Francisco
had abused his discretion in barring the USDA from effecting a partial deregulation and in prohibiting the planting of the biotech alfalfa seeds, pending the completion of an environmental review.
In the lower court case, environmental groups and individual organic alfalfa farmers sued USDA claiming the agency’s decision to grant deregulated status to Roundup Ready alfalfa violated the National Environmental Policy Act (NEPA). After finding a NEPA violation, the lower court prohibited almost all planting and sale of Roundup Ready alfalfa and the Ninth Circuit affirmed.
The Supreme Court reversed the injunction, finding that the District Court went too far in presuming that the only remedy available for a NEPA violation is a nationwide injunction rather than the USDA Animal and Plant Health Inspection Service’s (APHIS) proposed partial deregulation. The court explained that “a partial deregulation need not cause respondents any injury at all, much less irreparable injury.”
The news was welcomed by a coalition of agricultural organizations, including the NCC, who had filed a joint friend-of-the-court brief to the Supreme Court in support of the petitioners in Monsanto Co. v. Geertson Seed Farms.
Monsanto also is currently fighting a lawsuit challenging the regulatory approval of its Roundup Ready sugar beets, and this ruling could affect that case, as well as litigation involving other crops.
Senate Uncertain on Competing Climate Bills
With the Democratic Caucus divided over whether to advance climate change legislation, senators are increasingly looking to an energy-only bill approved last year by the Energy and Natural Resources Committee as their fallback plan. That bill would require that 15% of all electricity be produced from renewable sources by ’21.
Energy and Natural Resources Chairman Bingaman (D-NM) passed his bill (S 1462) out of committee last July with bipartisan support and without including nuclear and advanced coal technologies among the sources that count toward the mandate. The compromise that won bipartisan backing in committee was Bingaman’s agreement to accept a 15% renewable energy mandate instead of the 20% he initially sought.
However, environmentalists say that compromise made the bill too weak. Sen. Dorgan (D-ND) said that he plans to offer an amendment to increase the mandate to 20%.
As Bingaman faces pressure from environmentalists and their Senate backers to strengthen the mandate, a competing bill (S 3464) recently introduced by Sen. Lugar (R-IN) threatens to divert GOP support. Sen. Lugar’s bill, which would create “diverse energy standard” benchmarks for increasing the electricity generated from “low carbon” sources, would leave it to states and utilities to “determine the energy mix that makes the most sense to them within a national framework.” Nuclear power and electricity generated from coal-burning plants that capture and store carbon emissions could count toward the targets of 15% by ’15 and 50% by ’50.
Sen. Kerry (D-MA) continues to press aggressively for the climate bill that he and Sen. Lieberman (I-CT) wrote. Their bill would set caps for emissions in different sectors of the economy, combined with incentives to promote nuclear energy, offshore drilling and development of technology to burn coal cleanly.
There is growing sentiment among a group of moderate Democrats toward avoiding a fight over emissions caps, which Republicans have labeled an energy “tax,” in favor of Sen. Bingaman’s narrower approach.
US Mill Cotton Use Steady
According to the Commerce Dept., May (four-week month) total cotton consumption in domestic mills was 136.7 million pounds for a seasonally adjusted annualized rate of 3.58 million bales (480-lb). Last year’s May annualized rate was 3.33 million bales.
The April (four-week month) estimate of domestic mill use of cotton was lowered by 290,000 pounds to 129.9 million pounds. The revised seasonally adjusted annualized rate of consumption for April is 3.48 million bales. This is higher than last year’s April annualized rate of 3.18 million bales.
Based on Commerce estimates from Aug. 2, ’09-May 29, ’10, projected total pounds consumed during crop year ’09-10 would be 1.6 billion pounds or 3.40 million bales. USDA’s latest estimate of ’09-10 crop year mill use is 3.40 million bales.
Preliminary June domestic mill use of cotton and revised May figures will be released by Commerce on July 22.
Sales Slip, Shipments Strong
Net export sales for the week ending June 17 were 86,900 bales (480-lb). This brings total ’09-10 sales to approximately 13.5 million bales. Total sales at the same point in the ’08-09 marketing year were approximately 13.9 million bales. Total new crop (’10-11) sales are 2.2 million bales.
Shipments for the week were 326,500 bales, bringing total exports to date to 10.2 million bales, compared with the 11.4 million bales at the comparable point in the ’08-09 marketing year.
With a little less than two months remaining in the marketing year, weekly shipments must average roughly 340,000 bales to reach the USDA projection of 12.3 million bales.
AWP Moves to Forward Crop Quotes
With the June 24 announcement of upland cotton’s Adjusted World Price (AWP), USDA indicated that beginning on June 25, the loan repayment rate and associated Fine Count and Course Count adjustments will be based on new crop (or forward) quotes as reported by Cotlook, Inc. The shift to new crop quotes was prompted by the loss of one Uzbekistan and two West African quotes on June 23, leaving only three current crop quotes for “A”-type cotton.
The timing and circumstances of the move to new crop quotes adheres to the current farm law, which eliminated the six-week transition period from current crop to new crop quotes established under previous statutes and regulations. The ’08 farm bill and implementing regulations specify that upland cotton’s AWP will be based on current quotes through the end of the marketing year or for as long as sufficient quotes are available and only then may move to new crop quotes. The move to new crop quotes was determined to be the least disruptive to cotton marketing and maintains consistency between the AWP and the Fine Count and Coarse Count adjustments.
Also of note, the AWP that was announced on June 24 is based on current crop quotes for the first three days of the week when sufficient current crop quotes were available. The next announcement on July 1 will be based solely on new crop quotes.
Effective June 25 - July 01, ’10
Adjusted World Price, SLM 11/16
77.84 cents
*
Fine Count Adjustment ('09 Crop)
0.71 cents
Fine Count Adjustment ('10 Crop)
0.81 cents
Coarse Count Adjustment
0.00 cents
Marketing Loan Gain Value
0.00 cents
Import Quotas Open
7
Special Import Quota (480-lb bales)
477,015
ELS Payment Rate
0.00 cents
*No Adjustment Made Under Step I
Five-Day Average
Current 5 Lowest 3135 CFR Far East
94.88 cents
Forward 5 Lowest 3135 CFR Far East
86.45 cents
Coarse Count CFR Far East
NA
Current US CFR Far East
93.30 cents
Forward US CFR Far East
88.40 cents
'09-10 Weighted Marketing-Year Average Farm Price
Year-to-Date (August-April)
61.75 cents
**
**August-July average price used in determination of counter-cyclical payment
