CURRENT ISSUE ARTICLES

Administration Submits FY13 Budget Proposal

NCC Met '11's Tests, Ready for '12's Challenges

China, Economy, Weather Keys in '12 Outlook

FCC Moves to Block LightSquared's Network

Interior Secretary Confirms Need for Endangered Species Reform

Sales, Shipments Steady

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Administration Submits FY13 Budget Proposal

The Administration's FY13 budget proposal submitted to Congress, though it will not be adopted, provides an indication of the Administration's priorities and will set the initial tone for the FY13 budget debate.

The proposed budget would cut $32 billion from agriculture over 10 years by eliminating direct payments, sharply reducing funding for crop insurance and "better targeting conservation spending." The Budget contends that direct payments are no longer needed in a strong farm economy. The Administration's explanation also expresses concern that direct payments are capitalized into land values. Crop insurance would be reduced by about $8 billion by reducing the subsidies to companies, cutting producer premium subsidies by 2% if the subsidy exceeds 50%, capping administrative expenses and adjusting subsidies for CAT coverage.

The Administration's changes to conservation programs include: capping total enrollment in the Conservation Reserve Program at 30 million acres by '13 to save $977 million; eliminating the Watershed Rehabilitation Program to save $15 million per year; slightly increasing funding for the Conservation Stewardship Program from $1.4 billion to $1.403 billion; and increasing funding for the Environmental Quality Incentives Program from $769 million to $972 million.

The President's budget would increase for USDA's Research, Education and Economics funding by $68 million. The budget for the Agricultural Research Service would be slightly increased to $1.103 billion to address climate and environmental issues and to enhance crop land productivity. The request for the Agriculture and Food Research Initiative competitive grants program is $325 million, the same as '12. Congress provided $264 million in FY12. The Administration's budget would fully fund the Market Access Program and the Foreign Market Development export market development programs at $200 million and $34.5 million, respectively.

Senate Agriculture Committee Chairwoman Stabenow (D-MI) said in a statement that the budget proposal "reinforces the need for Congress to pass a strong, fiscally responsible farm bill immediately this year, to provide farmers with the certainty they need to continue being successful." She expressed concern about proposed cuts to crop insurance and agreed with the proposal to eliminate Direct Payments.

In House Agriculture Committee Chairman Lucas' (R-OK) statement, he said … "this proposal shows a lack of perspective and understanding in how agriculture can realistically contribute to deficit reduction." He noted the proposed crop insurance cuts … "threaten the integrity of the program itself" while ignoring efficiencies that could be found in conservation or nutrition spending.

The full budget proposal is available at www.whitehouse.gov/omb/budget and Agriculture Secretary Vilsack's comment on the agriculture proposal is available at www.usda.gov.

NCC Met '11's Tests, Ready for '12's Challenges

Outgoing NCC Chairman Charles Parker told attendees at the '12 NCC Annual Meeting in Fort Worth, TX, that the NCC's '11 agenda was very demanding and involved work on a number of critical issues across a broad front. He said the NCC was successful with its priorities because of strong leadership, outstanding support and NCC members' personal involvement – and armed with the NCC delegate-approved policies from last week's meeting, "I am convinced that the U.S. cotton industry will successfully address the many challenges that confront us in 2012."

In recapping major '11 activities, the Missouri producer noted that the NCC engaged in a major education effort to make new Congressional members aware of the importance of effective and predictable farm policy. That included Parker's meetings with a number of key freshman members of the House Agriculture Committee to discuss the NCC's position on the farm bill, budgetary pressures and the need to assess alternatives for an effective farm safety net.

Other challenges included the Continuing Resolution debate where amendments were offered that were direct attacks on vital agricultural programs, including one to prevent funding of the annual payment to Brazil and another seeking an overall payment limit of $250,000 per person.

He said the industry also responded to the NCC's call in securing co-sponsors and support for the House passage of H.R. 872—the bill to exempt pesticide applications from NPDES permits when those applications are made in accordance with product labels.

Other NCC initiatives included: 1) visits with key trade officials to review the Brazil trade dispute, the latest on Doha negotiations and potential engagement and outreach with West African cotton interests; 2) the NCC's active and successful opposition to agricultural appropriations bill amendments that would re-write '08 farm bill provisions and violate our country's agreement with Brazil; and 3) work with other agricultural groups to strongly oppose disproportionate cuts in a deficit reduction package, while reminding lawmakers that agriculture was the only sector that has stepped forward to accept a proportionate share of budget reductions.

Parker also cited industry unity and commended specific industry leaders for their efforts on getting NCC adoption of the Stacked Income Protection Plan (STAX) which "gained the respect of Congress and was included in an Agriculture Committee package that was prepared for delivery to the Joint Deficit Committee."

Parker recapped other major '11 NCC activities ranging from updated cotton flow policies to facilitating a key Vision 21 project stakeholders meeting. Details of all major NCC activities in '11 can be found in the NCC's '12 Report to Members at www.cotton.org/about/report/2012/index.cfm. In addition, a complete listing of '12 US cotton's leaders along with industry award recipients is at www.cotton.org/news/meetings/2012annual/index.cfm.

China, Economy, Weather Keys in '12 Outlook

In the Annual Meeting's joint session of delegates, NCC Vice President of Economics and Policy Analysis Dr. Gary Adams said US cotton's '12 outlook will be influenced primarily by China's national reserves stocks, uncertainty over the general economy and weather developments in the Southwest – where the year is not starting out as normal, particularly in Texas and Oklahoma.

Adams said the NCC sees a potential '12 US cotton crop of 18.30 million bales, with 17.51 million upland bales and 783,000 extra-long staple (ELS) bales. When combined with international '12 production of 101.1 million bales, the world crop for '12 is estimated at 119.4 million bales. Regarding '12 US offtake, the NCC sees exports expanding to 12.9 million bales and mills consuming 3.5 million bales versus the current marketing year's 3.4 million bales.

The NCC sees '12 world mill use of 113.8 million bales, an increase of 3.5% from '11, but Adams said, "growth of this magnitude will only be achieved with competitive pricing and a rebuilding of the textile pipeline." Barring some major production problems – which is still a possibility given La Nina – global production is projected to exceed consumption and allow world ending stocks to build to 64.1 million bales.

"While that is a level comparable to 2006-09, it is important to remember that as much as 30% of those stocks could be held in China's government reserves," Adams said. "By late January, more than 11 million bales have been purchased into the China reserve, with some speculating that total purchases could exceed 15 million bales."

Adams noted that while China's reserves policy is providing short-term support to the cotton market, China's implementation of this policy "is the single largest wildcard in the cotton market."

Regarding prices, he also noted that though the forecasted stocks/use relationship is likely to dampen upside price potential, current polyester prices and cotton's need to remain competitive with grains are supportive of prices on the downside.

For the '12 marketing year, Adams said the strength of cotton demand will hinge on the global economy's overall health and be dependent on cotton prices that are less volatile and more competitive with polyester than what was observed in '11. He reminded delegates about '11's sharp price swings saying, "That type of volatility did not serve the interests of any industry segment. Few growers had cotton to sell at those very high prices. Some textile mills were caught up in a wave of panic buying without corresponding yarn orders. Also, cotton merchandisers were caught up in the fallout from the dramatic price swings as sales cancellations and arbitrations sharply increased."

Additional details of the '12 Cotton Economic Outlook are on the NCC's website at http://www.cotton.org/econ/reports/annual-outlook.cfm.

The NCC's 29th Annual Early Season Planting Intentions Survey results, also presented at the joint session, show US cotton producers intend to plant 13.63 million acres of cotton this spring, down 7.5% from '11. Upland cotton intentions are 13.34 million acres, down 7.5% from '11, while extra-long staple (ELS) intentions of 287,000 acres represent a 6.4% decrease.

With assumed above-average abandonment in Texas and Oklahoma and all other states set at historical averages, total upland and ELS harvested area would be 10.88 million acres, which is 20.3% below planted area. Applying state-level yield assumptions to projected harvested acres generates a cotton crop of 18.30 million bales, compared with '11's total production of 15.67 million bales.

Adams noted final production is very dependent on weather developments, particularly in the Southwest, and if conditions worsen, the US crop could be 2 million bales lower than early-season expectations.

The NCC survey, mailed in mid-December '11 to producers across the 17-state Cotton Belt, asked for their intended '12 cotton acreage as well as for their intended plantings of other crops in '12. Survey responses were collected through mid-January.

Adams noted that, "The expected drop in cotton area is consistent with current market signals. Since 2011, cotton prices have weakened relative to competing crop such as corn, soybeans and peanuts."

(state details are in table below)

Prospective '12 U.S. COTTON PLANTINGS
	'11 Actual   (Thou.) 1/	'12 Intended (Thou.) 2/	Percent Change
SOUTHEAST	3,406	2,969	-12.8%
Alabama	460	379	-17.6%
Florida	122	110	-10.0%
Georgia	1,600	1,397	-12.7%
N. Carolina	805	714	-11.3%
S. Carolina	303	273	-10.0%
Virginia	116	97	-16.0%
MID-SOUTH	2,475	2,304	-6.9%
Arkansas	680	619	-9.0%
Louisiana	295	243	-17.7%
Mississippi	630	589	-6.5%
Missouri	375	384	2.3%
Tennessee	495	470	-5.0%
SOUTHWEST	8,045	7,620	-5.3%
Kansas	80	80	-0.3%
Oklahoma	415	374	-10.0%
Texas	7,550	7,166	-5.1%
WEST	500	448	-10.4%
Arizona	250	222	-11.3%
California	182	169	-7.4%
New Mexico	68	58	-15.0%
TOTAL UPLAND	14,426	13,341	-7.5%
TOTAL ELS	306	287	-6.4%
Arizona	10	9	-6.7%
California	273	257	-5.8%
New Mexico	3	4	9.8%
Texas	20	17	-16.7%
ALL COTTON	14,732	13,628	-7.5%
1/ USDA-NASS
2/ National Cotton Council

FCC Moves to Block LightSquared's Network

Based National Telecommunications Information Administration (NTIA) conclusions, the Federal Communications Commission (FCC) moved to block LightSquared's planned nationwide wireless network.

In its statement, the FCC said: "NTIA has now concluded that there is no practical way to mitigate potential interference at this time. Consequently, the Commission will not lift the prohibition on LightSquared. The International Bureau is proposing to (1) vacate the Conditional Waiver Order, and (2) suspend indefinitely LightSquared's Ancillary Terrestrial Component authority to an extent consistent with the NTIA letter."

In January '11, LightSquared had been granted a conditional waiver by the FCC that would have allowed for their dramatic expansion of terrestrial use of the mobile satellite spectrum immediately adjacent to the frequency band used by GPS receivers. Over the past year, GPS user groups -- from the aviation industry to agriculture -- repeatedly petitioned the FCC and Congress to rescind the waiver and block LightSquared's expansion due to concerns about interference with GPS devices. The NTIA finally agreed with GPS stakeholders, concluding that LightSquared's proposed use of the spectrum cannot be remediated sufficiently to allow its coexistence with GPS use of the spectrum, and so their plan should not proceed.

The FCC has the final word on whether LightSquared can go forward, unless the company decides to take the issue to court.

Sub Interior Secretary Confirms Need for Endangered Species Reform

At a House Natural Resources Committee hearing on the President's FY13 budget, Chairman Hastings (R-WA) questioned Secretary of Interior Ken Salazar on litigation involving the Endangered Species Act (ESA). Hastings noted that the Interior Dept. is actively involved in more than 200 lawsuits and legal actions concerning ESA and that department resources spent in legal defense are resources that are not going to recovery but, rather, to lawyers and special interest groups. He also stated that the Interior Dept. has entered into settlements with plaintiffs. Those would result in requiring the Interior Dept. being required to make decisions affecting petitions to list more than 700 species under the ESA and concern was expressed that such settlements very likely could undermine transparency and science-based ESA decisions.

"Congress and the public should be allowed to know how these settlements came about and the requirements that they will impose," Hastings said.

Chairman Hastings specifically asked Secretary Salazar if he knows how much money is spent by the Department on litigation costs, including payments made to settle lawsuits. The Secretary responded that, although he had requested this information, he did not know. Salazar went on to say that, "I do think it's important that we move forward with ESA reform and that we find ways of dealing with these conflicts in a manner that is not as litigation-driven and conflicted-ridden as it has been."

Anti-pesticide activist groups have been using the ESA in numerous lawsuits regarding pesticide registrations. Plaintiffs have been successful in convincing the courts to impose restrictive mitigation measures (buffer zones) until the lengthy consultation process is completed.

The latest suit was filed in Jan'11 by the Center for Biological Diversity and the Pesticide Action Network. (see 10/7/11 Cotton's Week)

The complaint alleges that EPA failed to consult with the Services as required by ESA Sec. 7 regarding the effects of 306 registered pesticides on 216 endangered species throughout the nation. Seventeen of the listed pesticides are among the most commonly used agricultural pesticides. The plaintiffs are asking the court to restrict pesticide uses that may result in their entering endangered species' occupied or critical habitat until the consultation process is complete. This action could potentially disrupt every type of agriculture – from row crops to specialty crops – nationwide.

The Natural Resources Committee held a full Committee hearing last year examining how ESA litigation is costing jobs and impeding true recovery efforts.

Sales, Shipments Steady

Net export sales for the week ending Feb. 9 were 111,200 bales (480-lb). This brings total '11-12 sales to approximately 11.0 million bales. Total sales at the same point in the '10-11 marketing year were approximately 15.3 million bales. Total new crop ('12-13) sales are 598,100 bales.

Shipments for the week were 318,000 bales, bringing total exports to date to 4.6 million bales, compared with the 6.8 million bales at the comparable point in the '10-11 marketing year.

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