Cotton's Week: May 12, 2006

In its final estimate of the ’05-06 US cotton crop, USDA increased total production to 23.89 million bales, up from the previous estimate of 23.72 million. The upland crop estimate was increased 196,000 bales to 23.26 million bales while the extra long staple (ELS) estimate was lowered 24,000 bales to 631,000 bales.

Final planted area is estimated to be 14.25 million acres, while final harvested area is estimated to be 13.80 million acres. The ’05-06 national average upland yield is an estimated 825 pounds per harvested acre, 117 pounds above the 5-year average of 708 pounds. The estimated national average ELS yield of 1,127 pounds per harvested acre represents a 152-pound decrease from the five-year average.

In its May report, USDA projects the ’06-07 US cotton crop at 20.70 million bales – down from its final estimate of US ’05-06 production of 23.89 million bales. USDA says ’06-07 mill use will be 5.80 million bales and exports will reach 16.50 million bales. That estimated total offtake would be 22.30 million bales, resulting in ending stocks of 4.90 million bales.

USDA sees ’05-06 mill use and exports unchanged at 6.00 million bales and 17.00 million bales, respectively. The estimated ’05-06 total offtake stands at 23.00 million bales, generating ending stocks of 6.50 million bales and an estimated ending stocks-to-use ratio of 28.3%.

The report has world production for the ’05-06 marketing year at 113.41 million bales, down 170,000 bales from the April report. World mill use was raised 270,000 bales to 117.20 million bales. Consequently, world ending stocks are estimated to be 52.42 million bales for a stocks-to-use ratio of 44.7%.

The House Appropriations Committee passed the FY07 agriculture appropriations bill, which provides $18.4 billion in discretionary spending for USDA, the Food and Drug Administration and other agencies.

The Agriculture Appropriations Subcommittee, chaired by Rep. Bonilla (R-TX), passed the bill last week. The full House likely will debate the bill next week. The bill allocated $40.269 million for cotton pest programs. The combined cotton pests’ account will fund eradication activities for the boll weevil and pink bollworm eradication programs, which have been highly beneficial to the cotton industry.

In the coming months, the Senate will produce its version of this bill.

Farmers and ranchers offering testimony regarding farm policy at a hearing conducted by the House Committee on Agriculture in San Angelo, TX, urged the committee to maintain the safety net included in the ’02 farm law.

Rickey Bearden, immediate past president of Plains Cotton Growers, Inc., and a Plains, TX, cotton producer, said a new farm bill should include: 1) marketing loans with all production eligible; 2) direct and counter-cyclical payments; 3) improved crop insurance and a permanent disaster program; 4) conservation programs on a voluntary cost share basis; 5) public-private market development programs; and 6) agricultural research at all levels of the agriculture industry.

Bearden said the current farm program provides a good safety net but “does not guarantee us a profit.” He said the cotton target price of $0.72 per pound and loan rate of $0.52 per pound are essentially the same as what were in place in 1981. “To put this in perspective imagine if you had not received an increase in your salary since 1981, yet virtually all of the costs associated with doing your job had increased,” he said.

Bearden also noted that USDA should reconsider how it defines a farm, currently described as any operation with $1,000 in gross sales per year. That definition, he says, fuels farm program detractors who object to a small percentage of the nation’s farmers receiving 80% of program benefits. He said while it’s true that 34% of US farms (700,000) receive 80% of payments, “what also is true and usually left unreported, is that this group of farms produces an estimated 90% of the commodities that receive government support. Commercial-sized family farm operations drive our local rural economies. Limiting program benefits is ultimately a limitation on the producers’ ability to support themselves and their rural community.”

Al Spinks, a Midland cotton producer, testified that Congressional support of the boll weevil eradication program and agricultural research and development also is important.

“I appreciate the cost share funds provided to APHIS that facilitates operation of the boll weevil eradication program,” he said. “This year, every acre of cotton in Texas is in an active eradication program. Producers are contributing a majority of the cost for this highly successful program, but USDA’s cost-share is still a critical part of the programs success. It is a pleasure to think that with Congress’ continued support, the eradication of the boll weevil may be just a few years away.”

Spinks noted his disappointment with the administration’s FY07 budget proposal that reduces cotton research by 15%; suggests closing the USDA gin labs at Lubbock and Las Cruces, New Mexico; and provides less research funding for the USDA-ARS Cropping Systems Research Laboratory in Lubbock.

“I urge each of you to encourage your colleagues in Congress to reject these proposed cuts and closures,” he said.

Committee Chairman Goodlatte (R-VA) agreed with Texas producers on payment limits. He also assured them that the next farm bill “will be written by Congress, not the secretary of agriculture and not Geneva. We will not write a farm bill that will unilaterally disarm agriculture in trade talks. We will ensure that American agriculture stays competitive.”

USDA released a risk management analysis paper, the first in a series intended to provide information and continue the national discussion about best policy approaches in preparation for the ’07 farm bill. The briefing papers will assess general themes advanced at the ’07 farm bill forums held during ’05. 

The first paper describes: 1) the risks that agricultural producers face, 2) the effectiveness of current options available to producers through the private sector and the government to mitigate risks on farm operations, and 3) issues related to the performance of current programs. It concludes with a discussion of program alternatives. USDA points out that the alternatives do not represent farm policy proposals, but are generalized, not all-encompassing ideas.

The Senate debated on a Health Savings Accounts (HSA) bill. The concept is intended to help small businesses afford health care by making it easier to band together to buy insurance, bypassing state laws requiring coverage of certain conditions. This concept could help agricultural associations offer health care to their members.

Although this is the first time any HSA legislation has passed out of the Senate Health Education Labor and Pensions Committee, it did not survive a cloture vote on the Senate floor. The bill may be considered again by the full Senate in the future.

In a new effort to connect US cotton with the Chinese textile industry, Cotton Council International (CCI) opened its Shanghai office as CCI President David Burns hosted the ribbon cutting ceremony and met with cotton and textile trade media.

“Our strategy in China is multi-faceted, encompassing the cotton buyers in China, the international textile buyer and the Chinese consumer,” said Burns, a Laurel Hill, NC, producer. “We hope to assist our mill customers not only to better buy their cotton, but also to better sell their products.”

CCI, whose work in China goes back to the ’78 opening of its Hong Kong office, has become much more involved with the needs of mills and consumers in China, which has grown to be the world’s pre-eminent textile manufacturing nation, the world’s largest cotton importer and US cotton’s largest overseas market.

“Against this backdrop, CCI is committed to developing a win-win commercial relationship between U.S. cotton and the Chinese textile industry,” Burns said.

With CCI’s Shanghai office in the same building as Cotton Incorporated, Burns noted that Chinese mills can enjoy the combined resources of the two organizations for reliable after sales service.

Net export sales for the week ending May 4 were 176,300 bales (480-lb). This brings total ‘05-06 sales to about 16.4 million bales. Total sales at the same point in the ‘04-05 marketing year were almost 13.7 million bales. Total new crop (‘06-07) sales are 503,300 bales.

Shipments for the week were 470,300 bales, bringing total exports to date to 11.9 million bales, compared with the 9.5 million bales at the comparable point in the ’04-05 marketing year.

With Cotton Outlook now publishing a forward “A” Index quote, the six-week blending of the current and forward “A” Index quotes for calculation of the adjusted world price (AWP) will begin with the AWP in effect for the week of May 19-25. The six-week blending process is used to transition the AWP from old crop to new crop. 

The formula during the first two weeks is two times the current quote plus the forward quote divided by three. For weeks three and four, the formula is the current quote plus the forward quote divided by two. For weeks five and six, the formula is the current quote plus two times the forward quote divided by three. After the transition period and until the end of the ’05-06 crop year, the forward “A” will be used exclusively in calculating the AWP.