Cotton's Week: February 3, 2006

The House of Representatives passed the Budget Reconciliation Conference Report. Both the House and the Senate had passed versions of the Report in December. However, the Senate removed a technical portion of the bill during its debate on the Report. Because the conference reports were no longer identical, the bill had to go back to the House of Representatives to be passed in order to reflect the changes made in the Senate. The President is expected to sign the bill.

The bill’s agriculture provisions were not changed from what originally was approved in December. The bill reduces conservation, research, rural development and commodity programs by $2.7 billion over the five-year period. It also would extend for two years the Milk Income Loss Contract, which compensates dairy farmers when milk prices fall below a level set by the federal government. It reduces advances on direct payments to 40% of the payment for the ’06 crop year and to 22% for the ’07 crop year. The bill also eliminates the Step 2 cotton program effective Aug. 1, ’06.

There were no provisions included to extend the funding baseline for commodity programs past the current term of the farm bill. However, the funding baseline for conservation programs was extended. The measure also would reduce funding for agriculture conservation programs by $934 million over five years and cut funding for agriculture research programs by $620 million.

USDA has advised Sens. Dorgan (D-ND) and Grassley (R-IA) that it has assembled a database that complies with a’02 farm law provision requiring USDA to track farm program payments.

In a Jan. 4 letter, Under Secretary for Farm and Foreign Agriculture Services Dr. J.B. Penn advised Sens. Dorgan and Grassley that USDA has a database that includes all conservation and commodity program payments and “can be used to track payments to individuals, including those who directly receive payments as well as those who receive payments as members of larger entities.

“We believe that we have created a database that can answer questions relating to payments including those payments attributable to a person (also known as tracking payments to a “warm” body),” the letter stated. The letters were released by the Sustainable Agriculture Coalition, an organization that lobbies for conservation programs and supports stricter payment limits.

The Coalition called on USDA to make the data publicly available but USDA has not announced its intentions. Sec. 1614 of the ’02 farm law requires the Secretary, as soon as practicable after the date of enactment, to establish procedures to track the benefits provided, directly or indirectly, to individuals and entities under titles I and II, which are commodity and conservation Programs.

The US and Republic of Korea (ROK) have opened talks which could lead to a Free Trade Agreement (FTA).

The announcement could lead to one of the largest free trade agreements between the US and a trading partner exceeded only by the agreements with Mexico and Canada. The ROK is the world’s 10^th largest economy with a gross national product of nearly $1 trillion.

Korean officials acknowledged that the largest obstacle to reaching an agreement will be opposition by 3.5 million Korean farmers who earlier protested in Hong Kong during the WTO negotiations and against the FTA again yesterday in Seoul. Korea strictly limits imports of rice and meat and maintains tariffs of 45-50% on fresh fruit.

Although recent trade agreements have been approved by Congress by the narrowest of margins, the announcement of talks with Korea did not draw strong objections.

The US cotton industry has a longstanding, strong relationship with the Korean textile industry.  At one time, Korea purchased nearly 100% of annual cotton imports from the US and still is an important customer – purchasing about 500,000 bales per year. Cotton Council International has operated market development and promotion programs in partnership with the Korean industry for more than 30 years.

The US textile industry is expected to insist that a FTA between the US and Korea include a strict rule of origin and strong enforcement to prevent transshipments of products, which do not comply with the rule of origin. The American Farm Bureau and other ag interest organizations announced formation of a coalition to support the FTA. Cattlemen, fruit and vegetable producers and the processed food industry have expressed support for the negotiations provided they achieve a substantial increase in market access.

Secretary of Agriculture Mike Johanns announced that beginning immediately, USDA will notify certain agricultural producers with Conservation Reserve Program (CRP) contracts expiring in ’07 that they may extend or re-enroll their contracts.

Farm Service Agency (FSA) county offices will begin notifying certain CRP participants by mail with expiring contracts in ’07 if they are eligible for re-enrollments or for two- to five-year extensions. Participants eligible for re-enrollment will be offered a 10- or 15-year contract provided there are restored wetlands on the original land enrolled in the contract. Fifteen-year contracts expiring Sept. 30, ’07, are not eligible for extension; also, no extensions will be offered that would have the effect of a contract with duration, in aggregate, exceeding 15 years.              

FSA used the Environmental Benefits Index (EBI) to determine eligibility for CRP re-enrollments or extensions. Additional credit was considered for contracts within national conservation priority areas.

FSA ranked individual contracts into one of five tiers based on the environmental benefits of the original EBI score. Eligible participants ranking in the first tier (i.e. between 81-100%) of the EBI will be afforded the opportunity to re-enroll their land in new contracts. Farmers and ranchers with wetlands in this top tier ranking are eligible for a 15-year contract.

Eligible participants ranking in the second tier (i.e. between 61-80%) may extend their CRP contracts for five years. Eligible participants ranking within the third tier (i.e. between 41-60%) may extend their CRP contracts by four years. Eligible participants ranking in the fourth tier (i.e. between 21-40%) may receive three-year extensions. Eligible participants ranking in the bottom tier may extend their contracts by two years.

Before approving a re-enrollment contract or an extended contract, FSA will review the contract to ensure that the required cover is maintained and there is compliance with other contract provisions. In addition, to be eligible, participants must be able to show that they meet eligibility requirements for the new enrollment period. In the case of re-enrollments, updated rental rates will apply.

USDA also announced that a general CRP sign-up will be held this spring. Producers will be able to make offers for CRP's competitive general sign-up from March 27-April 14, ’06, at their local FSA offices. Offers for general sign-up will be evaluated based on five environmental factors (wildlife, water, soil, air and enduring benefits) and cost.

Secretary of Agriculture Mike Johanns announced that the ’06 Conservation Security Program (CSP) sign-up will be held Feb. 13-March 31, ’06 in 60 watersheds nationwide.

Last week Senate Agriculture Committee Chairman Chambliss (R-GA) and Ranking Member Harkin (D-IA) sent a letter to Secretary Johanns urging a swift announcement so that producers would have an opportunity to apply before the planting season.

CSP is a voluntary conservation program that supports ongoing stewardship of private agricultural lands by providing payments for maintaining and enhancing natural resources. Payments are made using three tiers of conservation contracts. ’06 marks the third CSP sign-up; land currently enrolled in CSP covers nearly 11 million acres in the 220 eligible watersheds.

The sign-up will include only those producers who do not have an existing CSP contract.

To be eligible for CSP, most of a producer's agricultural operation must fall within the boundaries of a selected watershed. Applications which meet CSP's minimum requirements will be placed in enrollment categories. Producers should begin the application process by filling out a self-assessment to determine if they meet the basic qualifications for CSP. Self-assessment workbooks are available in hard copy at USDA Service Centers within the watersheds and on the web. After completing the self-assessment, producers should schedule an appointment to discuss their application with the NRCS local staff to determine if they meet specific CSP eligibility requirements.

Additional information about CSP, including a map detailing the current eligible watersheds, is available at http://www.nrcs.usda.gov/programs/csp.

USDA distributed a “High Moisture Cotton Alert” notice to the trade after warehouse examiners inspected cotton bales at two separate warehouses in the Mid-South last week.

Following the inspections, a portion of production from two gins was found to be either water-packed or false-packed cotton bales that are not considered eligible for marketing assistance loans under Commodity Credit Corp. rules. These findings resulted in the publication of the notice which can be viewed at http://www.fsa.usda.gov/daco/BCD_Notices/BCD121.pdf.

After the notice was published, the National Cotton Ginners’ Assoc. immediately notified all gins and state/regional gin associations and reminded them of the NCC Quality Task Force fact sheet, http://www.cotton.org/tech/quality/upload/05balemoisturemanagementpaper.pdf, addressing the potential impacts of excessive bale moisture.

US cotton industry delegates to the NCC’s ’06 Annual Meeting Feb. 9-13 at the JW Marriott Star Pass Resort in Tucson, Ariz., will develop policies and programs in six key program arenas: farm and economic policy; international trade; public relations and international market development; research and education; packaging and distribution; and health, safety and the environment.

In his address to NCC delegates on Feb. 13, NCC outgoing Chairman Woods Eastland will cover the state of the US cotton industry and outline a ’06 NCC action plan. Joining him on that morning’s program will be Stuart Rothenberg, editor and publisher of The Rothenberg Political Report, a Washington-based biweekly newsletter that reports on and analyzes current political developments.

Among other important convention sessions are Cotton Council International’s Board of Directors and the American Cotton Producers on Feb. 10; and the NCC’s Economic Outlook presentation, six NCC program committees and the National Cotton Ginners Assoc. annual membership meeting on Feb. 11. Additional Annual Meeting information is at http://www.cotton.org/news/meetings/amreg/.

Net export sales for the week ending Jan. 26 were 465,300 bales (480-lb.). This brings total ’05-06 sales to about 11.7 million. Total sales at the same point in the ’04-05 marketing year were almost 10.1 million bales. Total new crop (’06-07) sales are 220,800 bales.

Shipments for the week were 297,100 bales, bringing total exports to date to 5.8 million bales, compared with the 4.6 million at the comparable point in the ’04-05 marketing year.