WEST TEXAS FLOWMEETING: EXPORT CHALLENGES
IMPACTING ALL PARTS OF COTTON SUPPLY CHAIN

Friday,October 20, 2006                           By Shawn Wade

      Eventhough the 2006 High Plains cotton crop isn't going to match the 2004 and 2005crops in overall size, West Texas cotton merchants, shippers, ginners andproducers will still face significant challenges in the marketing and deliveryof 2006-crop High Plains cotton to a demanding export market.

      Thatwas the message delivered time after time during the 2006 Texas Cotton Association's(TCA) West Texas Cotton Flow/Marketing Meeting in Lubbock October 19. Heldannually, the TCA meeting is designed to facilitate open communication andrelationships between cotton merchants, warehouses and transportationproviders.

      Asalways, the TCA meeting provided a wealth of information to those who attendedand included presentations from Candace Thompson, Acting Deputy Administratorfor Commodity Operations for the USDA Farm Service Agency, of Washington, DC;American Cotton Shippers Association President Manfred Schiefer, of Lubbock;Neal Gillon, ACSA Executive Vice President and General Counsel from Washington,DC; TTU Cotton Economics Research Institute Director Dr. Sam Mohanty; and,Texas Cooperative Extension economists Dr. John Robinson of College Station,and Dr. Jackie Smith of Lubbock.

      Duringhis report on the status of the 2006 crop, Smith reported that productionestimates for the 2006-crop from the October National Agriculture StatisticsService (NASS) Crop Production Report indicates the High Plains will produce3.8 million bales. He explained that a significant number of the area's drylandacres have been lost and the dryland acres that remain will probably accountfor 20 percent or less of the crop.

      Withso little dryland cotton expected the 2006 crop will essentially come fromirrigated acreage. Based on early reports Smith noted the crop has a goodchance to meet or exceed the NASS projection. He concluded by noting that a 3.8million-bale crop would still rank as the third largest on record and could bean indication that the area's production benchmark might now be in theneighborhood of 4 million bales.

      Schieferreported on current ACSA activities and commented on the status of the U.S.export market following the elimination of the Step 2 program. He explainedthat since Step 2's elimination U.S. cotton prices have become uncompetitive inthe world market and it was critical that the industry find a way to reversethat situation or risk becoming a residual supplier of cotton to the world. Healso noted FSA's adoption of the 7.5 percent bale moisture standard for loaneligibility and voiced ACSA's position that over-the-top water sprayapplication systems be eliminated.

      Amongthe highlights of the 2006 West Texas Flow meeting were the comments of CandaceThompson, USDA FSA Acting Deputy Administrator for Commodity Operations, whodiscussed recent Commodity Credit Corporation changes for the Upland Cottonmarketing loan program. Thompson discussed the implementation process FSA isworking through to enact changes published earlier this year in regard to theUpland Cotton marketing loan program.

      Onthe bale moisture issue raised by Schiefer, Thompson noted that the departmenthas no plans to increase warehouse inspection activities to monitor the balemoisture standard, but would continue to act aggressively and call for theimmediate repayment of loans made on bales processed at a gin found to haveexceeded the 7.5 percent bale moisture standard.

      Dr.Sam Mohanty presented a report detailing possible cotton production shifts inthe U.S. and world based on projected expansion of ethanol refining capacity inthe U.S. and continuation of current supply and demand trends. Mohanty summedup his comments by reiterating China's increasing role in the cotton supply anddemand picture and the growing importance of India as a major competitor toU.S. cotton in the export marketplace.

      Gillonreported on the political climate in Washington, DC and the tenuous positionthat Republican lawmakers find themselves as they attempt to reverse a growingtide of discontent among voters. He noted that based on recent polling dataRepublicans appear to be in danger of losing their majority in the House ofRepresentatives with anywhere from 15-30 seats at serious risk this November.

      Inthe Senate, Gillon noted the possibility that Democrats could win enough seatsto bring the body to a 50-50 split with Republicans retaining control by virtueof Vice President Cheney's role as President of the Senate. He noted that ifthe House switches and the Senate becomes a 50-50 split, the agriculture policylandscape would be altered significantly.

      Gillonadded that a Democratically controlled House might not be an unwelcomedevelopment in farm country considering it would mean Rep. Collin Peterson ofMinnesota becomes Chairman of the House Agriculture Committee. He noted thatPeterson has clearly stated his support for the current Farm Bill and would bea formidable obstacle to the Bush Administration's efforts to drasticallyrestructure U.S. farm policy.

      Alsoon the agenda was the annual West Texas Flow Panel comprised of Shippers,Warehouses, Ginners, Steamships, Trucks, and Railroad industry representatives.This year's panel included: Liz Chandler, Traffic Manager, ECOM U.S.A.,Lubbock; Rick Willis, Manager, Trinity Company warehouse, Brownfield; ChrisBreedlove, Manager, Olton Coop Gin, Olton; Norman Gilbert, Empire Truck Lines,Irving; Warren Warner, Managing Director, Foreign Trade Zone 260; and Les Lewis,Vice President of Mallory Alexander, of Grand Prairie.

      Oneway or another virtually all of TCA's invited speakers warned that, even thoughthe 2006 crop appears to be significantly smaller than the area's 2004 and 2005production records, the predominantly export bound High Plains crop still facesa variety of challenges as merchants and shippers work to deliver millions ofbales to foreign destinations in a short time.

      Changingcotton flow patterns, accelerated by China's recent textile expansion anddeclining U.S. textile processing capacity, show that foreign cotton end-usersprefer to receive their U.S. purchased cotton during a fairly short window thatcontinues to strain every phase of the cotton flow chain.

      Thebottomline opinion from the 2006 TCA West Texas Flow/Marketing meeting for thisyear is that the issues expected to impact movement of the 2006 crop seem to bea carbon copy of the issues that have impacted the industry during the previoustwo years and will require a concerted effort from all segments to overcome.

 

2006 COTTON QUALITY SUMMARY

The following is a summary of the cotton classed atthe Lubbock and Lamesa USDA
Cotton Division Cotton Classing Offices for the 2006 production season.

 

Week Ending October 19, 2006:

 

Office

Bales

Color

Leaf

Staple

Lamesa

20,506

21+

2.98

36.06

Lubbock

26,059

21+

3.03

36.42

 

Mike

Strength

Uniformity

Bark

Lamesa

4.36

28.90

81.20

3.3%

Lubbock

4.23

30.74

81.69

9.4%

 

 

Season Totals To Date:

 

Office

Bales

Color

Leaf

Staple

Lamesa

50,196

21+

2.70

35.74

Lubbock

71,231

21+

2.89

35.95

 

Mike

Strength

Uniformity

Bark

Lamesa

4.37

28.71

80.83

3.3%

Lubbock

4.26

30.48

81.45

5.5%