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August 28, 2015
 

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Judge Halts WOTUS Rule Implementation

A federal judge in North Dakota has halted implementation of the Waters of the United States (WOTUS) rule that went into effect on Aug. 28, but the injunction is only for select states that are part of the lawsuit.

The US District Court for the District of North Dakota ruled the states that have sued EPA have a good chance to win their legal case. In all, 28 states have filed suit in various courts with most of them being dismissed and consolidated in the Sixth Circuit Court of Appeals. The injunction will allow the states and other plaintiffs to make their legal case before the rule goes into effect. In the opinion of the EPA, however, the injunction only applies to the states that were party of the suit: The ruling by Ralph Erickson, the North Dakota federal judge, found that the states met the conditions necessary for a preliminary injunction, including that they likely would be harmed if the courts did not act and that they likely are to succeed when their underlying lawsuit against the rule is decided.

"Once the rule takes effect, the states will lose their sovereignty over intrastate waters that will then be subject to the scope of the Clean Water Act (CWA)," Erickson wrote in his order. "While the exact amount of land that would be subject to the increase is hotly disputed, the agencies admit to an increase in control over those traditional state-regulated waters of between 2.84 to 4.65 percent. Immediately upon the rule taking effect, the rule will irreparably diminish the states' power over their waters," he continued, and referred to the EPA's view of its jurisdiction as "exceptionally expansive."

The rule includes eight categories of waters that are regulated: 1) traditional navigable waters; 2) interstate waters; 3) territorial seas; 4) impoundments; 5) tributaries (if they meet the definition); 6) adjacent waters (if they meet the definition); 7) enumerated regional features with a significant nexus (case by case decision); and 8) waters in the 100-year floodplain/4,000 feet of a "water of the US" with a significant nexus (case by case decision). While the final rule provides a list of exclusions to jurisdictional waters, there still will be many new areas covered by this rule.

This expansion of CWA jurisdiction will make an increased number of projects and activities subject to the CWA permitting requirements. These permitting requirements apply to discharges of pollutants as well as fill material and potentially impose discharge limitations, mitigation requirements and other limitations where they previously did not apply. Additionally, because CWA permits are enforceable by members of the public, any person or group who can establish standing can file a lawsuit to enforce the CWA. This will result in an increased risk of litigation for those who find themselves subject to the law. The CWA exempts "normal farming practices" from certain permitting requirements of the law.

 
Leaders Updated on Key Industry Issues

NCC officers, directors and advisors, along with other industry leaders attending the NCC's Mid-Year Board Meeting in Charleston, SC, heard updates on farm law implementation and other key issues important to the US cotton industry.

In the NCC Chairman's report, Sledge Taylor said the NCC's agenda in '15 has included work on a wide range of issues, including work on numerous trade and regulatory issues and a strong focus on various aspects of farm bill implementation – an ongoing task but one in which the NCC was successful in convincing policy makers of the importance of getting the bill's insurance provisions implemented with the '15 crop.

Taylor said, "Coupled with the Council's efforts on farm bill implementation has been our extensive effort to educate the industry about the provisions in the bill. In total, the Council conducted 74 meetings across the Cotton Belt that were attended by 6,400 industry members."

He said the NCC has been very active in the appropriations process to secure funding for the industry's priority programs and to oppose any amendments that would reduce funding for agricultural programs or adversely impact farm policy and crop insurance. He noted that the appropriations process in the House also provided a legislative vehicle for including a provision that would direct USDA to allow the use of commodity marketing certificates for purposes of redeeming commodities from the marketing loan program.

On the trade front, he reported that the NCC worked closely with the National Council of Textile Organizations to defeat amendments of concern to the cotton and textile industries during Congressional consideration of Trade Promotion Authority. As negotiations continue on the Trans Pacific Partnership, the NCC continues to support the textile industry's efforts by urging the US Trade Representative to insist that a yarn forward rule of origin be required for products granted preferential access to the US market. The NCC also continues to be heavily involved in the Turkish anti-dumping investigation, rebutting Turkish government claims and holding numerous meetings with the Administration and Congressional Members to raise the profile on this issue and make sure they are aware of the critical importance of this market.

Taylor reported a NCC contamination elimination initiative is focusing on pre-harvest, in-season and post-harvest measures for preventing contaminants from getting into seed cotton and baled lint. He noted that the NCC's Quality Task Force is being re-established to not only monitor ongoing quality issues but to stay abreast of contamination incident reports. He also stated that the NCC is continuing efforts to improve US cotton flow with educational efforts underway with shippers, cooperative marketing associations, warehousemen and ginners – about the importance of using the Batch 23 process.

He reported on recent NCC efforts on a range of regulatory issues including his testimony regarding the proposed rule by EPA and US Army Corps of Engineers to define the waters of the US. During a hearing of the House Agriculture Committee's Conservation and Forestry Subcommittee, the NCC's testimony provided the opportunity to emphasize that the "waters of the US" proposal would require costly federal permits for many commonplace and essential farming practices. (see related story above)

"In addition to this testimony," Taylor noted, "we have been very active on this issue, as part of a large coalition that had submitted extensive comments to this rule and supporting legislation that would prohibit these agencies from moving forward with this rule."

He explained that the work CCI is doing in US cotton export markets translates into more demand for our product through the supply chain.

Cotton Council International (CCI) President Dahlen Hancock, who has a farming operation just south of Lubbock, updated directors on CCI's activities and shared his firsthand impressions of Cotton Days in Asia and the Executive Delegation to Latin America. He explained that the work CCI is doing in US cotton export markets translates into more demand for our product through the supply chain."

As a U.S. cotton producer who typically only sees the production end of the supply chain, I was amazed to participate in the astounding array of overseas promotional events for our fiber," Hancock said. "I had the opportunity to speak directly with the local industry and express my appreciation for their business and reinforce U.S. cotton's promise of excellent quality and responsibly produced fiber."

He noted that as consumer demand and exports continue to be vital to maintain US cotton's profitability (95% of US-grown fiber is exported either as fiber or yarn) and the business success of US cotton's partners, it is critical that CCI continues the high caliber of promotion and visibility for COTTON USA and cotton in general.

Reece Langley, NCC’s vice president for Washington Operations, reported on farm policy, crop insurance, trade, regulatory and tax issues, and the Congressional outlook for the remainder of ’15. He said when Congress returns on Sept. 8, its focus will be on approving a short-term continuing resolution (CR) to fund all of the federal government beginning with the new fiscal year on Oct. 1. The CR is necessary because none of the 12 individual appropriations bills have been enacted. It is expected that a long-term omnibus appropriations bill that includes all 12 spending bills will be approved by the end of ’15 to fund the remainder of FY16. Efforts will continue to ensure NCC’s priorities are included in the omnibus bill, including reauthorizing the use of marketing certificates for the marketing loan program.

Langley also reported on NCC's requests of the Risk Management Agency to provide additional enhancements for the STAX policy in '16, including the ability to make independent purchase decisions for irrigated and non-irrigated acres and adding the cottonseed endorsement to STAX. The NCC also is working with RMA in response to proposals on both prevented planting payment rates and skip row factors to address the industry's concerns.

Langley also updated the group on trade issues including the status and recent activities in the Turkey antidumping case against US cotton, the recent Trans Pacific Partnership negotiations and possible timeline for conclusion, and the upcoming World Trade Organization (WTO) ministerial meeting in Kenya. Leading up to this WTO meeting, there continues to be a focus on US cotton and cotton policy, with other countries and WTO officials calling for there to be even more "outcomes" on cotton that can be agreed to at the December ministerial. The NCC is working with the Administration and Congressional allies to ensure that US trade negotiators defend US cotton and not agree to any further concessions.

In regard to regulatory issues, Langley said the NCC is focused on efforts to move the process forward with EPA for pesticide label language approval of dicamba and 2,4-D for use over the top of cotton varieties with these recently deregulated traits. Also, he said the NCC continues to be active in a broad coalition of groups to address concerns with the "waters of the US" rulemaking, pollinator health issues and the impact on pesticide use, and passage of a food labeling bill in the Senate to establish federal pre-emption for the labeling of genetically-modified organisms (GMO) and non-GMO products. On tax issues, he said the NCC continues to push for Congressional approval of tax extenders legislation that will restore the $500,000 Section 179 expensing and 50% bonus depreciation provisions and urge their enactment on a permanent or long-term basis instead of the recent norm of late year retroactive extensions.

In her economic update, Jody Campiche, NCC's director, Economics & Policy Analysis, told attendees that '15/16 world production is expected to be the lowest in five years mostly due to lower production in the United States and China. She said USDA has projected an increase in world mill use for '15/16, but this will be a number to watch through the marketing year.

"At this point, the increase in world mill use seems optimistic given the trend in recent years and the uncertainty in the global economy," she said. "Competition from manmade fibers remains strong, and global GDP growth faces a challenging environment in the coming year."

USDA has estimated a '15/16 US crop of 13.1 million bales, down 19.8% from last year. Campiche said the markets were surprised by that number, and it is possible that actual yields may come in a bit higher than the USDA estimate. It is important to note, she stated, that these production estimates are based on the first producer survey and actual production could vary significantly from the August estimate which is facing increased uncertainty because of this year's late crop. 

For the '15 marketing year, Campiche said USDA is calling for a decline in US exports of 1.2 million bales, from 11.2 to 10 million bales. If realized, it would be the lowest US export number since '00. While uncertain market conditions and decisions regarding management of stocks will influence the number, the current USDA estimate seems conservative, particularly if the US crop exceeds the current estimate of 13.1 million bales. While exports to China will likely be lower, she said, "We may have some opportunities to regain some market share from competitors." 

Regarding prices, Campiche said they have moved in a sideways pattern for the past year with the global stocks situation weighing on the market. The market rallied following the release of USDA's estimate of 13.1 million bales but the market is awaiting news on this year's crop size and there continue to be concerns about the strength of demand and uncertainty about the global economy.

Bill Norman, the NCC's vice president, Technical Services, reported on the implementation status of China's revised bale packaging standard along with providing an update on the NCC's and Cotton Incorporated's involvement in Field to Market.

Norman reported on meetings with China government and industry officials this past June to determine how and when the new standard, originally intended for China's domestic production, would be applied to cotton imports. In a meeting with Mr. Wang, an Administration for Quality Supervision, Inspection and Quarantine (AQSIQ) official, Norman was informed that AQSIQ would direct the local Custom, Inspection and Quarantine (CIQ) offices to apply the standard to all imports of cotton fiber, but that a timeline for implementation had not been determined and that interpretation of the standard needed to be discussed with the standard writing committee, the National Technical Committee for Cotton Processing Standardization (CNTC). In a subsequent meeting with CNTC Executive Vice Director Mr. Hu, Norman was informed that all articles in the revised standard were compulsory. Further, the standard was meant to reduce contamination in cotton fiber and was not intended to be exclusionary regarding any specific bagging material. Mr. Hu also informed Norman that the United States should not be concerned with the bale tie portion of the standard as the number of bale ties did not impact bale contamination. Mr. Hu and his staff stated that US bagging should be acceptable provided the materials met the clause, "… cotton cloths and plastics that do not contaminate the cotton or produce foreign fibers …."

The revised China bale packaging standard is a concern to the US cotton industry, Norman said, because it contains specifications for bagging materials made from cotton cloth and of plastic film only, without mention of woven plastic bagging such as the fully-coated, woven polypropylene bagging used on approximately 60% of US cotton bales each year. In addition, the standard requires 8-10 wire ties or eight plastic ties on all bales, while most US bales utilize six wire or plastic ties. Norman reported that an AQSIQ delegation, that includes Mr. Wang, will be in Washington, DC, in late October and has requested time with US cotton representatives.

Norman also provided an update on Field to Market (FtM) activities, which included a review of the current membership status of the coalition and a summary of the environmental data for US cotton production which provides scientific underpinnings to the US Cotton LEADS™ responsible production claims. He also reviewed the status of FtM's Fieldprint Calculator tool and noted the status of several cotton pilot projects related to cotton being conducted to prove out the tool's metrics and user acceptance.

Details on CCI, NCC and Cotton Incorporated efforts at advancing US cotton's sustainability message through the Cotton LEADS™ program were provided in another report by Cotton Incorporated CEO Berrye Worsham.

 
Overall Crop Condition Still Above '14

According to USDA, cotton crop conditions are improved from where they were this time last year. Overall, 91% of the crop is rated fair or better as compared to 84% of last year's crop.

Virginia's crop condition leads the way in the Southeast with 100% of the state's crop rated fair or better. In the Mid-South, Tennessee leads the region with 99% of its crop rated fair or better as of Aug. 23. In the Southwest, 98% of the Oklahoma crop and 89% of the Kansas crop is rated fair or better. The Texas crop, as rated by USDA, showed 89% rated fair or better on Aug. 23. In the West, California has 100% of its crop rated fair or better and Arizona has 94% of its crop rated fair or better as of the last report.

As of Aug. 23, 83% of the US crop had set bolls, slightly behind last year's pace (90%) and the five-year average (92%). Nationwide, 14% of the crop had bolls opening as of Aug. 23, four percentage points behind last year's pace and the five-year average.

 
Sales, Shipments Steady

Net export sales for the week ending on Aug. 20 were 65,200 bales (480-lb). This brings total '15-16 sales to approximately 2.8 million bales. Total sales at the same point in the '14-15 marketing year were approximately 5.2 million bales. Total new crop ('16-17) sales are 174,500 bales.

Shipments for the week were 112,300 bales, bringing total exports to date to 348,800 bales, compared with the 318,500 bales at the comparable point in the '14-15 marketing year.

 

 
Effective Aug. 28-Sept. 3, ’15

Adjusted World Price, SLM 11/16

 48.21 cents

*

Fine Count Adjustment ('14 Crop)

0.00 cents


Fine Count Adjustment ('15 Crop)

 0.00 cents


Coarse Count Adjustment

  0.00 cents


Marketing Loan Gain Value

 3.79 cents


Import Quotas Open

13

 
Special Import Quota (480-lb bales)

887,155


ELS Payment Rate

0.00 cents


*No Adjustment Made Under Step I

 
Five-Day Average

Current 5 Lowest 13/32 CFR Far East

67.96 cents


Forward 5 Lowest 13/32 CFR Far East

NA


Fine Count CFR Far East

 70.50 cents

 
Coarse Count CFR Far East

0.00 cents


Current US 13/32 CFR Far East

76.00 cents


Forward US 13/32 CFR Far East

NA