Cotton's Week: September 16, 2005

Cotton's Week: September 16, 2005

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Industry Priorities Relayed

In preparation for expected Congressional Budget Reconciliation action this fall, NCC representatives completed a series of meetings with House and Senate agriculture committee members.

Ricky Bearden, Plains, TX, producer; John Pucheu, Tranquillity, CA, producer and American Cotton Producers chairman; Rick Holder, Kinston, NC ginner; and John Mitchell, Cordova, TN, merchant; joined NCC Chairman Woods Eastland in communicating NCC priorities, including protecting producer eligibility of program benefits, assuring that any necessary cuts are balanced and proportional, and maintaining Step 2 for the farm bill’s life.

Congressional efforts to address the Katrina disaster have postponed action on budget reconciliation. Initially, the Agriculture Committees had instructions to deliver reconciliation recommendations to their respective Budget Committees by Sept. 16. Senate leadership now has established Oct. 19 for delivery of a budget reconciliation package by the Senate Agriculture Committee. The House has not fixed a date as yet.





NCC Updated on USDA’s Step 2 Plan

NCC leaders met with USDA Deputy Undersecretary Floyd Gaibler and Ralph Linden of USDA’s Office of the General Counsel to hear new proposals for terminating the Step 2 program by Dec. 31, ’05.  USDA officials acknowledge that given current industry expectations, there could be significant market disruptions and economic losses arising from a shutdown of the program by that date. They explained that the Commodity Credit Corp. (CCC) may have sufficient administrative and regulatory authority to offer compensation to current holders of Step 2 agreements in exchange for termination of the agreements. 

The NCC’s position on Step 2 is to retain the program for the life of the current farm bill. However, if circumstances prevent program retention, then the position is program maintenance through at least July 31, ’06.

The NCC group noted that there is an established policy review process to consider USDA’s requests. Chairman Eastland has requested that the Farm Policy Development Task Force convene in early October to review NCC’s policy with respect to Step 2.

USDA officials acknowledged that the proposed compensation for early termination of the Step 2 program applied only to current Step 2 agreement holders. When asked if USDA or the administration would take the initiative with Congress to work any such proposal, USDA officials declined to respond.

Following the meetings at USDA, Chairman Eastland, NCC President/CEO Mark Lange and other industry delegation members discussed USDA's newest proposal with key members of Congress and the House and Senate Ag Committee staff. These discussions are part of the NCC's long-term, continuing effort to work closely with Congress and the Administration to ensure that any modification to Step 2 causes the least possible financial damage to the industry and provides a sufficient transition period to ensure that market positions and decisions are not adversely affected. Committee staff indicated USDA had not yet briefed them on any alternative proposal and expressed several concerns about procedure, policy and budget implications.

Latest CBO estimates showed Step 2 outlays for FY06 at $272 million and $726 million for FY06-10. CBO projects that ending the Step 2 program on Oct. 1, ’05 would save $492 million over FY06-10 and program termination on July 31, ’06 would save $282 million.

During meetings with USDA officials, NCC representatives also were informed that USDA was prepared to move forward with the final counter-cyclical payment (CCP) for the ’04 crop. USDA’s normal practice is to issue the final CCP for cotton in October, once monthly prices and marketings data are finalized. However, as was the case for the ’02 crop, prices well below the loan rate insure that the CCP will be at the maximum level, allowing USDA to expedite payment. NCC sent a letter to Secretary Johanns in early September recommending such action.





Doha Talks, Trade Issues Reviewed

NCC Chairman Eastland, joined by NCC President/CEO Lange and NCC Senior Vice President John Maguire, met with USTR Ambassador Allen Johnson and US State Dept. Deputy Undersecretary Josette Shiner to review the status of the Doha Round of negotiations and NCC initiatives with W. Africa.

Chairman Eastland stressed the importance of the negotiations being a single undertaking that did not isolate cotton and avoiding any early harvest. He detailed the difficulties arising from China’s use of variable levies and other less transparent trade practices that encourage polyester consumption by Chinese mills, and expressed the NCC’s desire that any eventual Doha agreement do more to address these distortions. 

NCC representatives also reviewed NCC initiatives with USDA and USAID to address rural quality of life issues in W. Africa. Noting the NCC’s involvement in 3 recent programs to familiarize W. African cotton interests with US classing, soil protection and pest control, Chairman Eastland emphasized the NCC’s commitment to improving rural conditions in W. Africa.

Both Ambassador Johnson and Secretary Shiner expressed their appreciation for NCC’s W. African efforts and noted the importance of maintaining and expanding such programs. Each communicated that only a single undertaking in the Doha agriculture negotiations could be successful and no commodity should be isolated for separate consideration.





USDA Boosts Hurricane Help

Agriculture Secretary Mike Johanns announced that, in addition to the extensive resources USDA has committed to the Hurricane Katrina response and recovery efforts, he has appointed 2 senior advisors to assist in coordinating these efforts in the affected region. Farm Service Agency (FSA) Administrator James Little and Gilbert Gonzalez, senior advisor to the Secretary, will serve in this new leadership capacity.

"Gil Gonzalez and Jim Little will bring their in-depth knowledge and experience in community development and agriculture to the important role of coordinating USDA Hurricane response and recovery efforts in the region," Johanns said. "I have great confidence in this senior team to work with all of our federal, state and local partners. USDA is delivering all the assistance possible to help displaced residents along the Gulf coast."

With nearly 35 years of federal service, Little has extensive financial, management and program experience prior to accepting this appointment.

Gonzalez will serve as the USDA's primary liaison at the Joint Field Office (JFO), in Baton Rogue, LA. The JFO is the multi-agency coordination center established to respond to Hurricane Katrina. Working under the direction of Vice Admiral Theodore Allen, he coordinates federal assistance activities, particularly as they relate to the agriculture sector. He most recently served at USDA as deputy under secretary for policy and planning for Rural Development from ’01 until ’05 and as acting under secretary from December ’03 to July ’05.





USDA Sees 22.3 Million-Bale Crop

In its September crop report, USDA estimated the ’05-06 US crop at 22.3 million bales. Upland production was seen at 21.6 million bales and ELS production at 707,000 bales. Harvested area was estimated at 13.7 million acres, implying non-harvested area of 511,000 acres based on USDA’s revised acreage number. The resulting abandonment rate is roughly 3.6% for the ’05-06 crop. The national average yield per harvested acre was estimated to be 782 pounds, 64 pounds above the 5-year average.

On a regional basis, the Southeast crop is estimated at 4.73 million bales, based on harvested acres of 3.01 million and a regional average yield of 756 pounds. In the Mid-South,production is seen at 7.25 million bales, harvested area at 3.89 million acres and yield 895 pounds per harvested acre.

The Southwestupland crop is seen at 7.60 million bales with harvested area at 5.79 million acres and the regional average yield of 630 pounds. The West’s upland production is estimated at 1.99 million bales with harvested area at 723,000 acres and a regional average yield of 1,322 pounds.

The ELS crop is an estimated 707,000 bales. Harvested area is pegged at 265,000 acres with an average yield of 1,281 pounds per harvested acre. Detailed state-level results can be found at http://risk.cotton.org/ayp05.htm.





Greater ’04-05 Cotton Offtake Projected

In its September report, USDA gauged US ’04-05 cotton production at 23.25 million bales. Projected mill use increased 10,000 bales from the August report to 6.26 million bales. Exports were raised 300,000 bales to 14.30 million As a result of these changes, projected total offtake increased 310,000 bales to 20.56 million bales.

This month’s report also includes adjustments to ending stocks, which were prompted by the Census Bureau’s preliminary survey of ending stocks. The Census Bureau’s stock estimate for ’04-05 was significantly lower than USDA’s August stocks estimate and reflected an unusually large “unaccounted” residual. Therefore, this month’s USDA ’04-05 stocks estimate is revised down to 5.75 million bales.

For the ’05-06 crop year, USDA projected the US crop to reach 22.28 million bales, up 990,000 bales from the August report. US mill use was unchanged at 5.80 million bales while exports were increased by 300,000 bales to 15.30 million bales Ending stocks for ’05-06 are projected at 7.00 million bales.

USDA sees ’04-05 world production up 380,000 bales from the August report to 120.23 million. The agency increased the estimate for beginning stocks to 40.18 million. This results in a world supply of 160.41 million bales. Estimated world mill use was raised 80,000 bales to 108.15 million. The projected world ending stocks on July 31, ’05 is now pegged at 50.62 million bales.

For the ’05-06 marketing year, USDA put world production at 111.53 million bales, up 1.74 million bales from the August report. World mill use was raised 180,000 bales from the August report to a projected 112.20 million bales. Consequently, world ending stocks for ’05-06 are projected to be 51.20 million bales.





New Safeguard Petitions Filed

The US textile industry filed petitions with the Committee for the Implementation of Textile Agreements (CITA) to reapply 9 current safeguards covering 16 product categories.

The current safeguards on these categories expire on Dec. 31 of this year. If accepted and approved, the import limits imposed by these new safeguards petitions would expire at the end of ’06. The categories are: combed cotton yarn (301), cotton knit shirts (338/339), cotton/mmf woven shirts (340/640), cotton trousers (347/348), cotton/mmf brassieres (349/649), cotton/mmf underwear (352/652), other synthetic filament fabric (620), mmf knit shirts (638/639) and mmf trousers (647/648).

In related news, press reports indicate that the latest round of talks with the Chinese aimed at reaching a comprehensive agreement on textiles will be held in China on Sept. 26-27.





Sales, Shipments Beating Year Ago Pace

Net export sales for the week ending Sept. 8, ’05 were 134,400 bales (480-lb). This brings total ’05-06 sales to about 6.0 million. Total sales at the same point in the ’04-05 marketing year were almost 5.4 million bales. Total new crop (’06-07) sales are 130,800 bales.

Shipments for the week were 186,500 bales, bringing total exports to date to 1.6 million bales, compared with the 929,000 bales at the comparable point in the ’04-05 marketing year.





Prices Effective Sept. 16-22, 2005

Adjusted World Price, SLM 11/16

39.21 cents

*

Coarse Count Adjustment

0.00 cents

Current Step 2 Certificate Value

 4.56 cents

Marketing Loan Gain Value

12.79 cents

Import Quotas Open

 0

Step 3 Quotas (480-lb. bales)

 0

ELS Payment Rate

 0.00 cents

*No Adjustment Made Under Step I
 
Five-Day Average
 
Current 3135 c.i.f. Northern Europe

54.69 cents

Forward 3135 c.i.f. Northern Europe

 No Quote

Coarse Count c.i.f. Northern Europe

52.73 cents

Current US c.i.f. Northern Europe

59.25 cents

Forward US c.i.f. Northern Europe

No Quote

 
2004-05 Weighted Marketing-Year Average Farm Price  
 
Year-to-Date (August-mi-July)

42.85 cents

**

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



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