Industry Leaders Updated on Key Issues
NCC officers, directors and advisors, along with other industry leaders who attended the NCC's Mid-Year Board Meeting in Memphis, were updated on the current economic challenges and other issues facing the U.S. cotton industry.
During the Meeting’s open session, keynote speaker Rep. Crawford (R-AR), whose Arkansas district includes multiple cotton farms and gins, said he is aware of the economic challenges facing U.S. cotton “including the ripple effect on small towns when gins aren’t ginning” – something he said some of those in Washington, DC, don’t recognize.
Rep. Crawford, who chairs the House Agriculture Committee’s Subcommittee on General Farm Commodities and Risk Management, said cotton farmers should have had “no problem” getting the ‘other oilseed’ designation for cottonseed under the 2014 farm bill’s Price Loss Coverage program when cotton industry leaders went to USDA for the change. Noting the Cotton Ginning Cost Share program will help in the short-term, he said the oilseed designation would have been better. He discussed the issues involved in getting the designation enacted into law and talked about Congress’ preparations to write the next farm law.
In the NCC Chairman's report, Shane Stephens also discussed the NCC’s actions involving the ‘other oilseed’ designation situation as well as other economic challenges.
“With the 2015 U.S. cotton acreage being the lowest in more than 30 years, exports being the smallest in 15 years and cotton prices at their lowest level since the 2009 recession,” Stephens said, “we concentrated our efforts on USDA, seeking secretarial designation of cottonseed as an ‘other oilseed,’ for eligibility under the 2014 Farm Bill’s ARC and PLC programs.” He said the NCC continues to work with key Congressional Members in seeking this designation. He also shared that while the ginning cost-share program provides much needed short-term assistance, “there’s still a need for additional support to bridge the gap until the next farm bill.”
The NCC has been very active, Stephens noted, in seeking appropriations for the industry’s priorities, among them an increase in gin laboratory funding and work to address the Food & Drug Administration’s (FDA) rules that would apply new food safety regulations to gins and cottonseed storage facilities.
Trade front efforts, Stephens stated, have ranged from the Turkish anti-dumping case to maintaining close communications with U.S. representatives and World Trade Organization (WTO) officials to ensure they are “informed on developments in the cotton policies of other countries and key factors impacting the global cotton market.”
He reviewed the NCC’s work on bale packaging experimental test programs and contamination prevention education, which has gained oversight from the NCC’s Quality Task Force.
“Contamination is a serious threat to our reputation and the premium that U.S. cotton enjoys,” Stephens stated. “I cannot overstate the importance of the U.S. cotton industry doing all that can be done to eliminate this threat.”
Stephens told attendees that Cotton Council International’s (CCI) message about the U.S. cotton industry’s continued commitment to quality and timely delivery was reinforced during a leadership exchange trip he led to China. Thanks to the vital financial support from a number of industry groups, CCI continues to play a pivotal role in expanding foreign demand for U.S. cotton.
CCI President Keith Lucas later reported on two CCI-coordinated overseas activities in which he participated this year that enabled him to feel the energy, enthusiasm, support and trust in U.S. cotton. Through his involvement in CCI’s “Cotton Day” events in Korea, Japan, Taiwan and Thailand, as well as the first ever Cotton Day in Bangladesh, Lucas said he saw how Asian consumers clearly loved their cotton. He noted that it is impressive to see events like Cotton Days, which bring together the entire cotton supply chain from spinners to manufacturers to consumers at one time and in one place to celebrate U.S. cotton.
“We need to take every opportunity to remind Asian consumers of the importance of cotton in their lives, particularly in the face of intense pressure from synthetics,” Lucas said. “CCI does an excellent job of it for U.S. cotton and for cotton in general.”
Lucas said CCI, which is planning to roll out Cotton Days in more countries, sees Bangladesh as a big opportunity for U.S. cotton in the future – as that country just became the number one cotton importing country in the world, yet U.S. cotton only has a 3% share. He emphasized the importance of his trip to Bangladesh’s Cotton Day where CCI also hosted a U.S. cotton information seminar for more than 75 mills in that country. That visit was in conjunction with the COTTON USA Executive Delegation which he led to Indonesia and Vietnam to meet with U.S. cotton customers in those important markets.
NCC General Counsel John Gilliland provided attendees further insight into trade issues the industry faced in 2016. Although Turkey announced in April a final determination in its antidumping duty investigation against U.S. cotton, imposing a 3% duty on all U.S. exports, the U.S. industry has yet to make a decision on a possible appeal. He said the industry is currently taking a wait-and-see approach as NCC staff – coordinating closely with the American Cotton Shippers Association and AMCOT – monitor U.S. export levels to assess whether or not an appeal is in the industry’s best interests.
Elsewhere, he said the WTO convened another round of “dedicated discussions” on cotton in Geneva this past July, following on last year’s Nairobi Ministerial. Negotiators considered the possibility of further reductions in domestic support and also discussed the pressures on global prices from man-made fibers and large cotton reserves, particularly in China. NCC staff engaged with U.S. trade officials in advance of the negotiations and will remain in contact as negotiators make plans to reconvene in October. He said there are reports that the U.S. government is taking a close look at China’s agricultural subsidy programs, especially for wheat. It is not yet clear whether the United States will file a challenge in the WTO against China’s subsidy programs or import barriers, but tensions between the two governments are rising.
Gilliland also reported that the White House hopes to secure congressional approval of the Trans Pacific Partnership agreement, which President Obama signed earlier this year but is finding very little encouragement on Capitol Hill. For example, Senate Majority Leader McConnell (R-KY) told the Kentucky Farm Bureau that he has no plans to put the agreement to a vote in the Senate this year, saying it will be an issue for the next President to resolve.
Reece Langley, NCC’s vice president for Washington Operations, updated attendees on key issues, among them the cotton ginning cost-share program, cottonseed policy, crop insurance issues, average costs to market survey changes, new crop traits and chemistries awaiting approval for the 2017 crop, efforts to preserve access to pesticides currently under review or in lawsuits, and the Food & Drug Administration’s animal feed rule impact on gins and cottonseed storage facilities. He also provided an election outlook for congressional races in Cotton Belt states.
He reviewed cotton’s priorities in the FY17 House and Senate agriculture appropriations bills which are: $11.52 million for the boll weevil/pink bollworm eradication programs and $235 million for the Market Access Program and Foreign Market Development programs. The Senate bill contains a $1.5 million increase for USDA Agricultural Research Service ginning laboratories and includes language urging the FDA to address industry concerns with the FDA animal feed rule and impact on gins and cottonseed storage. (see article below) Regarding the FY17 budget, he told attendees to expect a Continuing Resolution (CR) in September and a decision in December on either a long-term CR or an omnibus bill for the remainder of FY17.
Langley said the NCC continues to seek opportunities to advance legislation to make cottonseed eligible as a covered commodity under the farm law to provide stability for the industry until the next farm bill is completed, which may well involve extending the 2014 farm law beyond 2018 if a new farm bill is not completed before the 2019 crop year.
In her economic update, Jody Campiche, NCC’s vice president, Economics & Policy Analysis, told attendees that while world cotton acreage is projected to be slightly lower in 2016-17, world production is expected to be higher due to higher yields. She said USDA has projected an increase in world mill use for 2016-17, due to Chinese reserve sales.
“At this point, the increase in world mill use seems optimistic given the trend in recent years and the uncertainty in the global economy,” she said. “Competition from manmade fibers remains strong, and global GDP growth faces a challenging environment in the coming year.”
For 2016, U.S. acreage is projected to be almost 17% higher than in 2015 due, in part, to lower prices from competing crops and some area coming back into production that was prevented from planting last year. USDA has estimated a 2016-17 U.S. crop of 15.9 million bales, 23% more than last year. Campiche said the markets were surprised that the number was this high, given dry weather in much of Texas. It is important to note, she stated, that these production estimates are based on the first producer survey and actual production could vary significantly from the August estimate.
For the 2016 marketing year, Campiche said USDA is calling for an increase in U.S. exports of 2.3 million bales, from 9.2 to 11.5 million bales. While uncertain market conditions and decisions regarding management of stocks will influence the number, the current USDA estimate seems optimistic. The United States will need to gain additional market share to reach that number. Exports to China likely will not increase until China works through the stocks. With lower exports projected for India, she said, “we may have some opportunities to regain some market share from competitors.”
Campiche said the market rallied following the release of USDA’s July 12th supply and demand estimates but prices have faced some pressure over the past few weeks. Current prices are higher than they have been in two years but the market is awaiting news on this year’s crop size and there continues to be concerns about the strength of demand and uncertainty about the global economy.
Regarding China, Campiche said that country’s cotton production has been reduced due to further declines in cotton area while expectations for China’s mill use have increased as its stocks have declined due to the success of that country’s auction series being conducted through September. As of August 17, 8.5 million bales of China’s stocks have been sold, about 84% domestic and 16% imported. She said China’s stocks continue to remain a question mark but if they continue at the same pace, stocks could be significantly lower in two to three years.
Although world mill use has escalated in 2016 due to increased China consumption, the economist said China’s cotton policy has been of great benefit to manmade fiber -- with internal prices of cotton at twice the price of manmade fiber. She reminded attendees that due to the lower price of manmade fiber, higher cotton prices can result in a further shift to manmade fibers.
