Producers Must Be Alert To Financial Impact
of 2006 Loan Forfeiture RuleChanges

Friday,April 20, 2007                                 By Shawn Wade

      This week's up-tick in exportsales volume is good news for producers worried about the potential impact ofrecent changes in forfeiture procedures for the 2006 Upland Cotton MarketAssistance Loan (MAL) program.

      Export sales surged this weekas 795,800 running bales (RB) of 2006-crop cotton were reported sold. The surgewas a 2006 marketing year high and eclipsed the previous week's sales by twoand half times.

      China was the biggestpurchaser for the week buying 489,600 RB followed by Turkey (108,400 RB),Pakistan (47,400 RB), Indonesia (39,100 RB), and Taiwan (23,400 RB).

      Growers have been wonderingwhen the export market would finally come calling for U.S. cotton and need thisweek's activity to be the leading edge of a wave that moves a significantamount of loan cotton into the market.

      Without a significant levelof carry-through, cotton industry officials say the potential exists forseveral million bales of upland cotton loan collateral to be forfeit to theCommodity Credit Corporation later this year.

      The financial impact offorfeiture however is a consideration growers must weigh, especially if exportsales volume continues to lag. In the October 27, 2006 issue of "Cotton News"PCG officials outlined the potential financial consequences of new loanforfeiture rules that went into effect August 30, 2006.

      The information, a portion ofwhich is recapped below, was provided to help make producers aware of theadditional cost of forfeiting cotton. The crux of the issue is the CommodityCredit Corporation's decision to bill producers for unpaid compression feesand, if applicable, storage costs above newly implemented maximum storagecredit amounts on forfeited cotton.

      PCG isn't the only groupworking to make sure producers know the facts about 2006 loan forfeiture rules.The National Cotton Council has also recently added an informational bulletinand other materials to its website detailing the new rules.

      Joining the education effortthis week is the Texas Farm Service Agency, which will be sending a letter toall 2006 Cotton MAL participants in Texas with details and an example of how2006 forfeiture charges will be calculated.

      Prior to the 2006-crop yearCCC collected only unpaid warehouse receiving and any pre-loan storage amountlisted on the cotton's electronic warehouse receipt (EWR) from the producerwhen cotton was forfeited. CCC did not collect compression fees on forfeitedcotton because compression is not charged against the cotton until it shipsfrom the warehouse.

      CCC's decision to collect anamount equal to an unpaid compression charge from the producer at forfeiturewill add significantly to the cost of forfeiting cotton. If the warehouse'sstorage rate is also in excess of the maximum monthly CCC storage creditamount, the amount of the storage fee above the maximum storage credit that ispaid by CCC to clear the EWR will also be billed to the producer at forfeiture.

      "Knowing exactly where youstand in terms of potential charges that could be billed to you when forfeitingcotton is information a producer absolutely must have this year," says PCGExecutive Vice President Steve Verett. "It is vital that a grower carefullyweigh the cost of forfeiture against the offer prices they receive for their2006 crop cotton, especially when making a final decision to sell or forfeitloan cotton.

      "Thebest case scenario would be for this week's export sales volume to truly be aprecursor for the rapid movement of a sizeable portion of the cotton thatcurrently sits in the loan waiting for a willing buyer and better prices. Ifthe market hasn't turned that corner growers need to be very aware of what thefinancial impact of forfeiting 2006 crop cotton will be and act accordinglywhen the time comes," concludes Verett.

TTU CERI Study Details Foreign Ag Subsidies

Friday,April 20, 2007                                 By Shawn Wade

      A newly published study fromthe Texas Tech Cotton Economics Research Institute (CERI) was unveiled toCongressional staff and members of the professional staff of the House andSenate Agriculture Committees in Washington, DC earlier this week. The studydetails the agricultural subsidies used by 21 developed and developingcountries for seven key crops.

      The study, entitled "Guide ToForeign Crop Subsidies and Tariffs," is now available for download and viewingfrom the CERI website (http://www.aaec.ttu.edu/CERI/policy/).

      The study was requested bythe Southwest Council of Agribusiness to create a reference guide for theagriculture industry and Congressional staff.

      Trade policy impacts arebeing pushed as a key factor in the farm bill debate and there is considerablepressure to make significant changes to U.S. farm programs based on anassumption that they harm foreign producers and stifle trade. Results from theTTU study show a considerably different dynamic actually exists. Key findingsof the study include:

     All countries, both industrializedand developing, support their agriculture sectors, but use vastly divergentpolicy tools and combinations of tools. Most use guaranteed minimum prices andimport tariffs to protect domestic producers.

     Industrialized country governmentsare moving from price supports toward decoupled direct income payments.

     Developing countries supplementtheir price support programs with input subsidies, which are excluded fromcalculations of the Aggregate Measure of Support (AMS), but are nonethelesstrade distorting.

     Developing countries' tariffprotection is substantially higher than that of industrialized countries.

     The use of sanitary andphytosanitary (SPS) measures to restrict imports are more frequent amongdeveloping countries than in developed countries.

 

2007 Loan Tables Reflect Market's Continued
Preference For Longer, Stronger Cotton Fiber

Friday,April 20, 2007                                 By Shawn Wade

      The release ofthe 2007-crop Upland Cotton Loan Premium and Discount tables by the UnitedStates Department of Agriculture Farm Service Agency on April 10 indicates themarket still prefers longer, stronger cotton, despite the anemic pace at which2006-crop U.S. cotton has been trading.

      The new tables,which will provide generally modest increases in loan values for cotton withstaple lengths above 35 (1-3/32nds of an inch) will continue to reward growersthat produce longer cotton in 2007. Regardless of the amount, higher loanvalues are always well received by growers.

      Cotton withstaple lengths of 34 and shorter will see a mixed bag of changes that mostlyseem to fall in a narrow 50-point band above and below last year's loan levels.The table included at the end of this article provides a side-by-sidecomparison of 2006 and 2007 premium and discount values.

      The overallimpression of the new CCC loan chart for 2007 is that it is generally favorableto growers that are striving to produce better quality cotton. The new premiumand discount tables will continue to encourage growers to consider quality aswell as quantity when making variety selections.

      Producers areencouraged to take extra care when making their variety selections in 2007.

      According to FSA,the 2007 tables were prepared with the same procedures used to determine the2006 loan schedule, including the narrower 100 point minimum spread betweenstaple 32 and 33 cotton which was instituted in 2005 to better reflectprevailing market prices.

      The table belowprovides comparisons between 2006 and 2007 loan values for White Grades 11-41and Light Spot grades 12-42, Staple 32 through 35.

 

 

COMPARISON OF LOAN PREMIUMS AND DISCOUNTS FOR SELECTED
GRADE, STAPLE LENGTH, AND LEAF CONTENT COMBINATIONS
OF 2007-CROP AMERICAN UPLAND COTTON

 

Base Loan Rate: LUBBOCK = 51.60 /pound; U.S.= 52.00 /pound

 

 

 

Staple

33

34

35

36

37+

 

Color

Leaf

2006

2007

Change

2006

2007

Change

2006

2007

Change

2006

2007

Change

2006

2007

Change

 

 

 

Loan

Loan

 

Loan

Loan

 

Loan

Loan

 

Loan

Loan

 

Loan

Loan

 

 

11&21

1 & 2

35

10

-25

320

305

-15

555

565

10

680

695

15

695

715

20

 

 

3

25

5

-20

285

265

-20

505

515

10

615

620

5

630

640

10

 

 

4

-75

-85

-10

110

105

-5

290

295

5

375

385

10

400

410

10

 

 

5

-245

-245

0

-80

-65

15

80

105

25

130

155

25

150

175

25

 

 

6

-375

-375

0

-325

-320

5

-245

-240

5

-225

-215

10

-210

-200

10

 

 

7

-520

-520

0

-465

-460

5

-405

-400

5

-385

-375

10

-370

-360

10

 

31

1 & 2

5

-15

-20

255

250

-5

485

505

20

575

590

15

595

615

20

 

 

3

-10

-25

-15

235

230

-5

465

480

15

535

545

10

555

565

10

 

 

4

-115

-120

-5

90

85

-5

250

260

10

310

325

15

330

340

10

 

 

5

-260

-260

0

-135

-130

5

40

55

15

80

100

20

100

125

25

 

 

6

-390

-390

0

-355

-355

0

-275

-275

0

-255

-250

5

-240

-235

5

 

 

7

-530

-530

0

-480

-475

5

-430

-425

5

-405

-395

10

-390

-380

10

 

41

1 & 2

-120

-125

-5

90

95

5

230

230

0

285

290

5

290

295

5

 

 

3

-130

-135

-5

75

70

-5

210

205

-5

270

270

0

270

270

0

 

 

4

-190

-190

0

BASE

BASE

BASE

140

140

0

205

205

0

205

205

0

 

 

5

-305

-305

0

-220

-225

-5

-115

-120

-5

-85

-85

0

-85

-85

0

 

 

6

-445

-445

0

-425

-425

0

-375

-370

5

-360

-360

0

-360

-360

0

 

 

7

-590

-590

0

-575

-580

-5

-545

-545

0

-540

-540

0

-535

-535

0

 

12&22

1 & 2

-85

-95

-10

110

110

0

275

280

5

345

360

15

360

375

15

 

 

3

-95

-110

-15

90

90

0

250

250

0

310

325

15

330

340

10

 

 

4

-170

-180

-10

10

10

0

160

165

5

210

220

10

225

235

10

 

 

5

-330

-335

-5

-215

-210

5

-125

-115

10

-95

-80

15

-80

-65

15

 

 

6

-460

-460

0

-410

-410

0

-355

-355

0

-350

-345

5

-340

-335

5

 

 

7

-590

-590

0

-550

-560

-10

-530

-530

0

-520

-515

5

-520

-510

10

 

32

1 & 2

-165

-165

0

5

5

0

120

110

-10

170

165

-5

170

165

-5

 

 

3

-175

-175

0

-15

-20

-5

95

80

-15

155

150

-5

160

150

-10

 

 

4

-250

-245

5

-110

-120

-10

15

5

-10

55

50

-5

60

55

-5

 

 

5

-400

-405

-5

-325

-320

5

-250

-245

5

-225

-215

10

-225

-215

10

 

 

6

-525

-525

0

-495

-500

-5

-450

-450

0

-445

-440

5

-445

-440

5

 

 

7

-660

-665

-5

-640

-645

-5

-615

-615

0

-615

-610

5

-615

-610

5

 

42

1 & 2

-260

-260

0

-185

-180

5

-85

-75

10

-40

-30

10

-40

-30

10

 

 

3

-295

-285

10

-205

-205

0

-115

-105

10

-70

-55

15

-70

-55

15

 

 

4

-325

-315

10

-250

-245

5

-165

-155

10

-125

-115

10

-125

-115

10

 

 

5

-460

-455

5

-425

-420

5

-355

-345

10

-350

-335

15

-350

-335

15

 

 

6

-610

-605

5

-580

-575

5

-550

-540

10

-540

-530

10

-540

-530

10

 

 

7

-745

-740

5

-715

-715

0

-695

-690

5

-695

-690

5

-695

-690

5