Cotton's Week: September 19, 2008

During a three-day visit to Washington, DC, NCC Chairman Larry McClendon met with members of the House and Senate Agriculture Committees to discuss farm bill implementation and the ongoing Doha negotiations.

Joined by NCC CEO Mark Lange and Senior Vice President John Maguire, Chairman McClendon stressed that the US cotton industry expects the impending USDA regulations implementing the new farm law should focus only on those statutes requiring change – i.e. where Congress did not speak to change there is no reason for USDA to implement change.

Regarding the Doha negotiations, Chairman McClendon also made clear that USTR should hold the position established in July preventing any new trade provisions from allowing tariff increases above current tariff ceilings – effectively setting back the trade clock by 25 years.

Some developing countries continue to seek the opportunity to raise selected tariff rates above current maximum allowable limits under provisions of a proposed Special Safeguard Mechanism (SSM). Chairman McClendon reminded the members that the United States already has agreed to a reduction in annual amber box support for agriculture exceeding $11 billion while no meaningful increase in market access has been forthcoming.

Chairman McClendon also met with USDA Undersecretary Mark Keenum to underscore the NCC message that no changes in regulations should be initiated by USDA where Congress did not alter existing legislation.

The House Agriculture Committee approved legislation (HR 6849) that would suspend the so-called “10 acre” provision for the ’08 and ’09 crop years. The new farm law includes a provision which denies direct, counter-cyclical and ACRE payments to farms with fewer than 10 total base acres.

In the report accompanying the legislation, Congress strongly urged USDA to provide an opportunity for farms to be reconstituted or aggregated before applying the new rule. USDA issued a notice which prohibited reconstitutions or aggregation for ’08. USDA officials contend that the statute clearly requires them to deny payments and that the report language contradicts the statute.

With adjournment rapidly approaching, the Committee convened to consider legislation co-authored by Reps. Etheridge (D-NC) and Moran (R-KS), chairman and ranking member of the General Farm Commodities Subcommittee. The legislation has attracted numerous co-sponsors and has the support of NCC, American Farm Bureau Federation and virtually every farm organization (see www.cotton.org).

The Committee approved a modified version of the Etheridge-Moran legislation because a permanent fix would cost $90 million over 10 years according to the Congressional Budget Office and would have to be offset before moving through the House. The modification, which suspends the provision for two years, costs $20 million and is offset by reducing IT funds for the Risk Management Agency.

The legislation may be considered by the full House the week of Sept. 22.

The NCC, along with other commodity groups, sent a letter to the administrator of the Risk Management Agency (RMA) requesting expedited appraisals in the wake of recent hurricanes.

The letter urged the RMA to authorize emergency loss adjustment procedures. By doing this, loss determinations would be streamlined to accelerate the adjustment of losses and issuance of indemnity payments to crop insurance policyholders in the affected areas.

By instituting emergency loss procedures, RMA would limit unnecessary delays in processing claims that certainly will occur in the aftermath of disasters of this magnitude. RMA has instituted these procedures after past hurricanes and as recently as the ’08 floods in the Midwest.

The House approved the Commodity Markets Transparency and Accountability Act (HR 6604) by a vote of 283-133.

The legislation has been slightly modified from an earlier version which was overwhelmingly approved in July but failed to garner the two-thirds majority required under the procedure used to consider the bill. The White House has threatened to veto the legislation, which is designed to prevent potential price distortions caused by excessive speculative trading.

Key provisions of the bill include: Commodity Futures Trading Commission (CFTC) would be prevented from allowing US energy and agricultural commodities to be traded on foreign exchanges unless traders meet requirements of US exchanges; subjects swap transitions and large traders in over-the-counter (OTC) contracts to reporting requirements; directs CFTC to set position limits for traders in designated contract markets, derivative transaction execution facilities and electronic-trading facilities; requires CFTC to require regular reporting of OTC agricultural and energy transactions and to impose position limits if trading causes price distortions; and, increases number of CFTC employees by 100.

A coalition representing the financial services industry opposed the bill because it would “impede liquidity, market efficiency, or hedging options for commercial and non-commercial interests.”

The NCC’s Boll Weevil Action Committee (BWAC) met in Little Rock, AR, following a meeting of its Technical Advisory Committee (TAC) and adopted three recommendations from the TAC to strongly urge USDA to: 1) continue support and development of technology that would verify boll weevil identification using DNA isolated from fragments of the insect as the TAC suggested such information could be vital to post eradication monitoring; 2) continue support and development of research using pollen, molecular data, and weather data to determine the most probable origin of insects that re-infest areas previously documented with low or no weevil populations; and 3) establish a boll weevil colony for eradication program quality assurance and research purposes with the colony to be maintained north of cotton production areas.

In other business, the BWAC, chaired by Missouri producer Charles Parker, heard a report from Amy Mitchell, special programs manager with USDA’s Farm Service Agency (FSA) in Washington, DC. She reviewed issues arising from Section 1619 of the farm law which prohibits USDA from sharing certain types of producer information, except in certain cases where programs (such as boll weevil eradication programs) are cooperating with USDA. She reviewed the status of Memorandums of Understanding recently executed among Pest Eradication Programs, Animal and Plant Health Inspection Service (APHIS), state governments and the FSA in order to continue the sharing of acreage and field shape file data with the boll weevil eradication programs. She also detailed revisions that are being made to the FSA handbook which will standardize state FSA operations including FSA activities that support boll weevil eradication programs. FSA has worked with NCC to advise boll weevil eradication programs of the revised handbook development and the changes in operations as a result of the handbook revisions that are expected to be in place by Jan. ’09.

Additionally, the BWAC reviewed APHIS program administrative cost estimates and made recommendations to APHIS regarding allocations of federal cost share funds to active eradication zones.

North Carolina producer Marshall Grant, who was honored by the BWAC for his dedicated service to the industry, was presented with a Randy Gibbs print titled, “The Last Boll Weevil.” Marshall, a previous BWAC chairman, has been devoted to the national fight to eradicate the boll weevil since ’71. In his response, he made one request, “I want to be invited to the celebration of the eradication of the last boll weevil.”

NCC and Cotton Foundation members planning to attend the ’09 Beltwide Cotton Conferences on Jan. 5-8 at the Marriott Rivercenter/Riverwalk in San Antonio, TX, can make early housing reservations online beginning on Sep. 22 through Oct. 24. Go to the NCC’s home page, www.cotton.org/ and click on the BWCC icon or go directly to the BWCC home page at www.cotton.org/beltwide/ and click on the link on the left side of the page under early hotel reservations (members will be prompted to log in) in order to reserve a room at the Marriott Rivercenter or Riverwalk hotels or the new Grand Hyatt San Antonio. Housing reservations for other attendees will begin on Nov. 3.

Attendees also can complete “early” registration for the meetings by Dec. 8 by clicking on the registration link on the BWCC home page, which also features a PDF of the ’09 BWCC general schedule and other valuable information. Dec. 8 also is the last date to receive a refund on early Conferences’ registration.

A group of 12 Chinese textile manufacturers will tour the US Cotton Belt on Sep. 20-30. The COTTON USA Special Trade Mission, sponsored by Cotton Council International (CCI), is focusing on China, which will consume an estimated 53.0 million bales in ’08/09. China also is the world’s largest importer of cotton, with 12 million bales estimated for this coming year.

The US exported approximately 4.4 million bales to China in ’07/08, and current ’08/09 sales to that country have reached about 1.4 million bales. The Chinese textile mills represented on the tour consume more than 3.2 million bales, with US imports of about 1.3 million bales — almost one-third of US cotton sales to China last year.

“It is impossible to overstate how important a customer China is for U.S. cotton,” CCI President Robert Weil, II, said. “This type of visit will enable these Chinese manufacturers to grow even more comfortable with our fiber and with our industry as a reliable supplier.”

The tour begins on Sep. 22 in New York for a seminar with ICE Futures U.S., Inc. and then in Raleigh, NC, for a meeting with AMCOT, Southern Cotton Growers Assoc. and Cotton Incorporated, whose headquarters they will tour on the 23^rd.  On the 24^th in Memphis, they will meet with the American Cotton Shippers Assoc., AMCOT and the American Cotton Producers and tour the USDA Classing Office.

On the 25^th, they will meet with the NCC before visiting a cotton farm and a gin in eastern Arkansas and traveling to Lubbock, TX, for meetings with the Lubbock Cotton Exchange, Texas Cotton Assoc., AMCOT and Plains Cotton Growers Assoc. The next day includes sessions with the Exchange, AMCOT and Texas Cotton Assoc. along with Texas Cotton Producers, Inc. before visiting the Texas Agrilife Research and Extension Center and a nearby cotton farm. Their tour concludes on Sep. 29^th in Fresno, CA, at the American Cotton Shippers Assoc. Merchandising Office and in a meeting with the Western Cotton Shippers Assoc., AMCOT, San Joaquin Valley Quality Cotton Growers Assoc. and Supima.

In a statement, ICE Futures U.S. Inc.’s Board of Directors …. “considered the physical consequences of Hurricane Ike in the Ports of Galveston and Houston ... and determined that a market emergency exists ..." The board then "declared (1) a moratorium on the receipt or delivery of certificated cotton ...; and (2) that no delivery notices for certificated cotton … may be issued (by Exchange licensed warehouses located in the two ports)."

Earlier this month, ICE took similar action, but on a smaller scale, at two Exchange licensed cotton warehouses in the Port of New Orleans due to damage suffered by Hurricane Gustav.

More information on these and other actions relating to certificated cotton stocks is available on the ICE FUTURES U.S. NOTICE page, https://www.theice.com/exchange_notices.jhtml.

Net export sales for the week ending Sept. 11 were 476,200 bales (480-lb). This brings total ’08-09 sales to about 5.3 million bales. Total sales at the same point in the ’07-08 marketing year were slightly more than 5.2 million bales. Total new crop (’09-10) sales are 64,300 bales.

Shipments for the week were 298,300 bales, bringing total exports to date to 1.6 million bales, compared with the 2.0 million bales at the comparable point in the ’07-08 marketing year.