Cotton's Week: September 1, 2006

USDA issued a final rule (71 F.R. 51422, Aug. 30, ’06) making changes in regulations governing storage, handling and ginning requirements for cotton pledged as collateral for a marketing assistance loan. Among other areas, the rule amends Commodity Credit Corp. (CCC) procedures concerning the movement of loan cotton, outside storage of loan cotton, payment of storage credit on loan cotton and enforcement of the warehouse shipping standard.

NCC Chairman Allen Helms stated that while there were some areas of concern with parts of the new regulation, it was clear that “USDA gave serious consideration to the industry’s consensus positions offered in the NCC’s comments.” 

Specifically, the rule contains the following provisions:

• Outside storage – a warehouse in an area that CCC determines has inadequate approved capacity to store the current crop may request approval to use outside storage and must agree to meet special storage and insurance requirements. CCC will not provide storage credits on cotton loan collateral during the time the cotton is stored outside. CCC will provide a 15-day grace period for outside-stored cotton without loss of storage credits.
• Transfer of loan cotton – the regulations establish a procedure whereby a producer (or a producer’s authorized agent) may move cotton marketing loan collateral from the original warehouse to another warehouse without canceling the marketing assistance loan. In order to “transfer” cotton marketing loan collateral, 1) the entity requesting the transfer must pay all warehouse charges associated with the transfer and 2) the payment of CCC storage credits subsequent to the transfer is limited to 75 days. However, if cotton is transferred from warehouses that are storing loan cotton outside or are not complying with warehouse shipping standards, there will be no such limitation on the payment of storage credits. 
• Maximum storage credit – the regulations adopt a maximum storage credit rate for the ’06 and subsequent crops which is the lesser of 1) the ’05-crop tariff rate for the warehouse or 2) $4.37 per bale per month for Arizona and California and $2.66 per month for all other cotton producing states. 
• Moisture and bale quality – in order to be eligible for the marketing assistance loan, cotton must, in addition to current rules, be “in good condition and not wet.” The new rule defines “good condition” as cotton that meets the Joint Cotton Industry Bale Packaging Committee’s standards of either a Grade A or Grade B bale. “Wet cotton” will be defined as a bale that exceeds 7.5% moisture (wet basis) at any point in the bale when measured at the gin.
• Liens -- for ’06 and subsequent crop-year cotton, CCC will bill producers for any warehouse compression fees that are unpaid for forfeited cotton.
• Warehouse shipping standard – the rule amends the warehouse shipping standard and requires warehouse operators with a cotton storage agreement to provide weekly reports to the CCC concerning bales made available for shipment during the week. The shipping standard is defined as making available for shipment 4.5% of the warehouse’s applicable storage capacity each week. Applicable storage capacity is defined as the higher of the CCC-approved capacity or the warehouse or the maximum number of bales stored at the warehouse at any time during the applicable crop year.

USDA’s fact sheet is at www.fsa.usda.gov/pas/publications/facts/html/uplandcot06.htm.  Additional information, including a copy of the rule, is at NCC’s web site, www.cotton.org.

At a meeting of the WTO Dispute Settlement Body, Brazil stated that the United States had failed to comply with the ruling in the Brazil–US Cotton case and formally asked for the establishment of a Panel to determine whether the US had complied with the earlier ruling.

The United States objected to the establishment of a Panel, which will delay Brazil’s request until the next meeting of the Dispute Settlement Body, likely to occur during the last week of September.

Agriculture Secretary Mike Johanns announced that $780 million would be made available in assistance to help farmers and ranchers manage drought and weather related production challenges. This funding includes a new $50 million program for livestock producers affected by drought, focusing nearly $30 million in unused conservation funds on drought, and accelerating the delivery of an estimated $700 million in counter-cyclical payments (CCP).

NCC had sent a letter to Secretary Johanns asking USDA to make the final ’05-crop CCP for upland cotton as soon as possible. Helms noted in the letter that “timely distribution of the final payment is especially critical” in light of increased financial pressures which include: 1) many areas in the Cotton Belt facing crop losses as a result of drought and 2) all growers being squeezed by higher energy costs.

As reported in the Aug. 18 Cotton’s Week, based on final monthly price data through June and the preliminary estimate for July, the weighted market-year average (MYA) price for upland cotton will be approximately 48 cents/lb., well below the national loan rate of 52 cents. Thus, the CCP for ’05 upland cotton will be at the maximum level of 13.73 cents/lb. Producers who have elected to receive the first two advance payments would receive the third and final installment of 4.12 cents (or 30% of 13.73).

In his announcement, Secretary Johanns directed that ’05-crop year CCP be delivered as quickly as possible to expand the financial resources of farmers facing drought. The estimated $700 million in payments to upland cotton and grain sorghum producers made this week constituted the earliest delivery of CCP on record. He also directed expedited payments to peanut producers, following the calculation of the final ’05 average price.

The nearly $30 million in unused conservation funds includes almost $19 million in unused Emergency Conservation Program (ECP) funds and $11 million in unused Grassland Reserve Program (GRP). The ECP funds will go to 27 states. Information on eligibility and a list of the states and funding as well as additional information on the drought assistance package and existing USDA disaster assistance is available is at www.usda.gov. The GRP funds will help to protect drought-affected grazing lands. The funds will be distributed to 14 states. These funds will be focused on pending GRP applications for rental agreements in drought-affected areas.

The Natural Resources Conservation Service (NRCS) state conservationists have been directed to work with their producers and state technical committees to focus remaining FY06 and a portion of FY07 conservation program funds on resource conservation practices related to drought response and mitigation. Programs such as the Environmental Quality Incentives Program (EQIP), the Wildlife Habitat Incentives Program (WHIP), the Agricultural Management Assistance (AMA) program, and GRP have built-in flexibility and local decision-making ability in order to encourage a focus on state-specific concerns, such as those related to drought. 

USDA said emergency loans are available to help producers in counties declared disaster areas. These low-interest loans are for producers who have suffered production or physical losses resulting from a natural disaster or quarantine in counties designated disaster areas by President Bush, or disaster or quarantine areas by Secretary Johanns. Prior to this announcement, USDA said it had allocated more than $30 million in emergency conservation program and emergency watershed protection program funds for ’06 disasters, including drought. The agency has released considerable Conservation Reserve Program (CRP) acreage to emergency haying and grazing and lowered the rental rate reduction to 10% from 25%.

The USDA Advisory Committee on Biotechnology and 21st Century Agriculture convened in Washington, DC, where Don Cameron, a Helms, CA, cotton producer, discussed his organic, conventional and biotech farming operation. Cameron explained to members that from his perspective, “coexistence [of approved traits of GM and non-GM crops] is not a problem out in the field.”

Deputy Undersecretary Chuck Conner also addressed the Committee, thanking members for their most recent report, “Opportunities and Challenges in Agricultural Biotechnology: The Decade Ahead.” Conner noted that report will be taken under thorough consideration by Secretary Johanns as USDA continues to shape biotech policy.

The Committee consists of representatives from academia, farming, industry and public interest groups to provide information and advice to the Secretary on issues related to agricultural biotechnology. In these sessions, members examined the coexisting relationship between biotech and non-biotech crops on American farms.

In cooperation with the Dept. of Energy (DOE), USDA is hosting the first annual “Advancing Renewable Energy Conference” on Oct. 10-12 in St. Louis, MO.

The event is part of President Bush’s “Advanced Energy Initiative” to develop strategies for reducing the nation’s reliance on foreign oil by ensuring a secure, domestic energy supply. The conference will focus on the advancement of biomass, wind and solar research, and the commercialization of renewable energy industries. Among the Administration’s goals to be examined is making cellulosic ethanol cost competitive with corn-based ethanol by ’12 and enabling more Americans to choose hydrogen fuel cell vehicles by ’20.

Keynote speakers will include USDA Secretary Johanns, DOE Secretary Samuel Bodman, Dupont CEO Charles Holliday and Patricia A. Woertz, CEO, Archer Daniels Midland Company.

For more information on the conference, visit www.AdvancingRenewableEnergy.com.

Net export sales for the week ending Aug. 24 were 79,900 bales (480-lb). This brings total ’06-07 sales to slightly more than 2.2 million. Total sales at the same point in the ’05-06 marketing year were about 5.4 million bales. Total new crop (’07-08) sales are 60,200 bales.

Shipments for the week were 91,500 bales, bringing total exports to date to 708,700 bales, compared with the 1.2 million bales at the comparable point in the ’05-06 marketing year.

Competitiveness provisions triggered a Step 3 quota based on price conditions for the week ending Aug. 31. When the Friday through Thursday weekly average US northern Europe price exceeds the northern Europe price ("A" Index) by more than 1.25 cents per pound for any four consecutive weeks, a special Step 3 import quota is triggered.

The quota is for 106,906 bales (480 lb), equal to one week of upland cotton mill use based on the most recent three months’ seasonally adjusted data. The quota will be established as of Sept. 7 and applies to upland cotton purchased no later than Dec. 5 and entered into the United States no later than March 5, ’07.

Currently, there are three import quotas opened in the total amount of 325,054 bales. Given current price conditions, additional Step 3 quotas are expected to be opened in the coming weeks.

Adjusted World Price, SLM 11/16	44.94 cents	*
Coarse Count Adjustment	0.00 cents
Marketing Loan Gain Value	7.06 cents
Import Quotas Open	3
Step 3 Quotas (480-lb. bales)	325,054
ELS Payment Rate	0.00 cents
*No Adjustment Made Under Step I
Five-Day Average
Current 3135 c.i.f. Northern Europe	60.98 cents
Forward 3135 c.i.f. Northern Europe	NA
Coarse Count c.i.f. Northern Europe	NA
Current US c.i.f. Northern Europe	64.50 cents
Forward US c.i.f. Northern Europe	NA
2005-06 Weighted Marketing-Year Average Farm Price
Year-to-Date (August-July)	47.74 cents	**
**August-July average price used in determination of counter-cyclical payment