Cotton producers were looking at prices 800 points higher than they were as July ended, but, as welcome as the improvement might be, growers still have a ways to go to dig their way out of their current economic dilemma.
Thus, says Gary Adams, president and CEO of the National Cotton Council, the organization will continue to seek another path for its efforts to have cottonseed designated as an “other oilseed” under the Agricultural Act of 2014 or 2014 farm bill.
Speaking at the Southern Cotton Ginners Association’s summer meeting in Little Rock, Ark., Dr. Adams said the NCC would like to have a legislative remedy this fall for the impasse that occurred after Agriculture Secretary Tom Vilsack said he did not have the legal authority to make such a designation.
“If that does not occur, then there's nothing to prevent us from asking the next Agriculture Secretary if he views the request differently,” said Dr. Adams, referring to the new administration -- Democrat or Republican -- that is scheduled to take office in January.
Dr. Adams also noted the industry was grateful for the Cotton Ginning Cost Share Assistance Program Secretary Vilsack did provide and reminded farmers who grew cotton in 2015 to be sure to sign up at their county Farm Service Agency offices by Aug. 5.
“We have been told in no uncertain terms there will be no extension of the deadline for the signup for this program,” he said.
Widening gap between costs revenue
Tracing the movement of costs and receipts for U.S. cotton since 2003, Dr. Adams said market revenues have been on a downward course since 2014 while producers’ costs have held their own or even risen slightly.
The growing gap between revenues and production costs was one of the reasons the National Cotton Council began seeking assistance through such innovative ideas as the designation of cottonseed as an oilseed so that it would qualify for participation in the Agricultural Risk Coverage (ARC) or Price Loss Coverage (PLC) programs in the Commodity Title of the farm bill.
Because of restrictions imposed by the WTO in the aftermath of the Brazil cotton case, cotton was left out of the ARC and PLC programs and is no longer a covered commodity under the farm bill. Producers remain eligible for the marketing loan and for shallow loss coverage under the Stacked Income Protection Program or STAX.
House Agriculture Committee Chairman Mike Conaway summed up the feelings of many in the cotton industry when he said the STAX program’s ineffectiveness will cause the committee to take another look at the cotton program when it begins writing the 2018 farm bill. His comments came in a speech at the Southern Peanut Growers Conference in Destin, Fla.
“Cotton will have to be dramatically different because the program just didn’t work,” he said. “The STAX program without a reference price – it just didn’t work – and cotton is in a world of hurt, right now, as most of you know.
“That led into issues with peanuts and with people growing other crops that came out of generic acres. All those things will be on the table, all those things will be up for discussion, and we’ll have that conversation with anyone who wants to have it over the next two-and-a-half years.”
Commodity funds not sole cause
While the nearly 800-point rise in December cotton futures at mid-July was largely attributed to the movement of commodity funds into the cotton markets, there were some fundamentals that are played a role, as well, according to the National Cotton Council’s Dr. Adams.
“A couple of things of note, USDA became a bit more pessimistic on the production for this year’s crop in some countries such as the two I mentioned – India and Pakistan – which are a big part of this,” he said, referring to a slide that had USDA lowering world production outside China from 66.9 to 65.2 million bales. “Together they account for about 35 million of those 65 million bales.”
Concerns are also developing about the crops in parts of Africa. “It does appear based on what we’ve seen there is a little less area in India this year; there’s a little less area in Pakistan devoted to cotton,” he said.
“In India, there is still some additional time if the rains pick up that more cotton could be planted, and that situation could change,” he noted. “I’m always a little leery this early in the year about writing off India’s crop. But that is one of the question marks behind a little bit of the rally in the markets.”
USDA also reduced its mill use estimate from 73.5 to 73 million bales (excluding China). If that trend continues, the markets could become more bearish and give up some of the gains of recent weeks.
“Part of the fuel behind that 73-million-bale number is China buying yarn off the world market,” says Dr. Adams. “So that dynamic’s going to be one to watch because if we continue in that it may paint a bit more pessimistic picture for that 73-million-bale number.”
Falling CCC loan rate
Besides the continued market uncertainty, National Cotton Council leaders are also worried about the situation that is playing out in the calculations for the Commodity Credit Corp. loan rate, which can now vary rather than being fixed by law as in previous farm bills.
Although prices have risen significantly in recent days, the overall market average used to calculate the 2017 loan rate is down and is pointing to an average of 49 cents per pound, 3 cents below the 2016 average of 52 cents for base grade and staple.
For more information on cotton issues, visit www.cotton.org.