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Articles from 2007 In August

WTO takes August to regroup

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Director-General Pascal Lamy, in opening the Trade Negotiations Committee meeting at the end of July urged members to study the draft texts on agriculture and industrial goods during the summer break and come back in September "ready to engage in intensive negotiations."

"We have already come a long way in this Round, and the distance left to go is not so great -- but it will require an extra effort," he said.

Draft papers released mid-July by the chairmen of the Doha Development Agenda agricultural and nonagricultural market access (NAMA) negotiating groups call for a U.S. agricultural subsidy cap of between of between $13 billion and $16.4 billion, the latter of which is lower than the U.S. had previously offered. The cap would include countercyclical payments, market loan gains, subsidies on crop insurance premiums and the sugar and dairy programs.

Lamy reported since the informal meeting held at the end of June, the negotiating process in Geneva has been "significantly reinforced and intensified."

Delegations had the month of August to reflect on the draft texts released earlier in July and then be in a position to return to the negotiations Sept. 3. Lamy encouraged members to use the month of August to "examine the texts in detail, to consult, discuss and engage bilaterally."

We'll see if they did.

September is here and it does not look like enthusiasm has grown for world trade talks. Neither of the Houses showed any sign of adopting stricter trade rules in writing their farm bills.

While ag lobbyists were scrambling with the House farm bill, the U.S. business community came out for reduced agricultural subsidies. In a letter to House and Senate leaders, corporate big guns called on Congress to put in place reforms in farm policy that will "create a dynamic opportunity for U.S. trade negotiators to increase the pressure on our trading partners to offer substantial new market access opportunities that would benefit American farmers, manufacturers and services providers."

The letter was signed by the Business Roundtable, U.S. Chamber of Commerce, National Retail Federation, National Association of Manufacturers and the Information Technology Industry Council. All of these groups have a large stake in the NAMA talks.

The groups recognized that nothing can happen on NAMA without a deal on agriculture first.

Bull's eye

Secretary of Agriculture Mike Johanns stated the administration would not support the House farm bill, in part because it does nothing to address many of the world complaints against U.S. farm programs.

"The House bill actually takes a step backward, creating farm policy that is less responsive to the free market, and it paints an even larger bull's eye on the backs of American farmers when it comes to international trade," he told reporters in a press call.

The marketing loan program is categorized as the most trade-distorting, amber-box program under WTO obligations, making it subject to intense scrutiny, Johanns stated. The House Bill raises loan rates on 14 of 25 eligible crops and raises target prices for 12 of 17 eligible crops.

"No one can convince me that there's wisdom in painting an even larger bull's eye. We should be protecting our programs from challenge and thereby protecting our farmers, not the opposite," he said. "The Administration proposed setting loan rates at 85% of the market price averaged over the previous five years, excluding the high and low years. Loan rate caps would be set at the level agreed upon by the approved version of the 2002 Farm Bill. Clearly this is more market-oriented, and it prevents government subsidies from influencing market decisions, and it better protects our safety net from challenge. It better protects our farmers."  

Corn+Soybean Digest

September 14, 2007

TDA Committee Extends Deadline to Sept 20

The Texas Department of Agriculture Cotton Stalk Destruction Committee for the Lower Rio Grande Valley decided August 28 to extend the cotton stalk destruction deadline.

Due to the extenuating circumstances caused by extensive rainfall, the committee approved a blanket extension of the 2007 deadline for cotton to be non-hostable in the LRGV by 19 days to September 20, 2007. All LRGV cotton producers now have until that date to render their cotton non-hostable before enforcement action will begin. At this time, there is no need for producers to apply for individual extensions. If producers foresee that they will be unable to meet the extended deadline, they should apply to TDA for an individual extension shortly before that date.

Even though the non-hostable date has been extended, all producers are encouraged to make every effort practical to render their cotton non-hostable as soon as possible.

Every week that the Boll Weevil Foundation is required to continue spraying hostable cotton increases the cost of operating our program.

Ford looking at soy-based foam for automobiles

Scientists at Ford Motor Company have formulated the chemistry to replace 40 percent of the standard petroleum-based polyol — used to create the foam used in vehicles for seat cushions, seat backs, armrests and head restraints — with a soy-derived material.

Many in the automotive industry are experimenting with a 5 percent soy-based polyol. “Five percent is relatively easy, a nice walk-before-you-run application, but there really isn’t a solid business case to do it,” says Matthew Zaluzec, manager of Ford a researcher at Ford. “At 40 percent, which was formulated in our lab by our researchers, we have the ability to make a significant impact on the environment while reducing our dependency on imported petroleum.”

Initial projections estimate that using a soy-based foam at high volumes could represent an annual material cost savings of as much as $26 million. As for the potential environmental benefit, according to the National Institute of Standards and Technology, soy polyols have only one-quarter the level of total environmental impact of petroleum-based ingredients.

Ford introduced soy foams in 2003 with soy-based seat cushions as well as a soy-based resin composite tailgate. Ford’s research of possible applications for soybean products actually dates back to the company’s early years. The Model T, for example, once contained 60 pounds of soybeans in its paint and molded plastic parts.

“Soy is a very green, renewable resource,” says Debbie Mielewski, technical leader for Ford’s research department. “Using a soy-based foam gives us the opportunity to conserve natural resources and reduce our environmental footprint.”

Most automotive manufacturers today use a 100-percent petroleum-based polyol foam. Per year, the U.S. market for this material is 3 billion pounds, 9 billion pounds worldwide. Mielewski says an average of 30 pounds of petroleum-based foam is used in each vehicle produced, making a strong case for auto manufacturers to consider and research other renewable, more environmentally friendly materials to produce the foam.

For some time, Ford researchers had been hitting a roadblock with the 40 percent soy-based foam because of its odd odor, reminiscent of vegetable oil. Ford formulation chemist Christine Perry says that issue is now resolved, thanks to a new synthesis method for soy polyol, developed by Ford. The new process uses room-temperature ultraviolet light instead of high heat and catalysts to make the soy polyol.

“Using high temperatures for the chemical reaction can cause numerous side products, which produce the rancid odor,” says Perry. “It also requires a metal catalyst and more energy. With our process, we have a simple reaction that is readily controlled by time of exposure. Plus, it is inexpensive and reduces the odor.”

Extensive testing of high and low soy percentages revealed that a 40- to 50-percent soy substitution produced a product with properties most similar to the 100 percent petroleum-based polyol foam.

For the past three years, the project has received funding from the United Soybean Board. Todd Allen, chairman of the USB’s New Uses Committee, noted, “We believe when the first soy foams are introduced on Ford vehicles, it will have a snowball effect on the use of soy polyols by other industries such as agriculture equipment, recreational vehicles, office furniture cushioning and other automotive components.”


Asian soybean rust reaches Oklahoma

Asian soybean rust has now reached Tulsa, Okla., the farthest north it has traveled in 2007. The fungal disease isn’t through with the Mid-South, however. The second week of August saw six new ASR finds in Louisiana and one in Mississippi, a Pearl River County sentinel plot.

With fresh finds in Jefferson Davis, Allen, Evangeline, Concordia, East Baton Rouge and Bossier parishes, David Lanclos, LSU AgCenter soybean specialist, has “already had calls on what should be done. Most of the questions are late-season concerns and coming from growers who have soybeans approaching R-5, or have just made it to that stage. They’re wondering about a fungicide.”

At this point, a lot of Louisiana soybeans have been desiccated, are shelling easily in hand and are showing excellent quality.

“I’m not recommending everyone go out and apply a fungicide mix at R-5, but we are seeing some quality differences in beans that had a strobilurin applied.”

Some of the new Louisiana discoveries were in sentinel plots, others in production fields. ASR is being found in the tops of plants and usually when that’s the case, “the severity is typically at 30 percent to 40 percent, at least.”

An interesting piece to the ASR puzzle involves how the disease responds to Mid-South weather. “We’ve been trying to educate growers and consultants about how heat and ASR interact. You know, ‘once it gets above X temperature, the disease really slows down.’

“Definite answers are elusive. If you go back and look at the conditions in 2006, we had nowhere near the moisture levels we’ve got at the end of this season.

“Obviously, wind patterns are a huge deal in ASR movement. That’s obvious in the current situation in Oklahoma. Will ASR move farther north from Tulsa and yet never hit the eastern side of the country? That’s something to watch.”

How much of Louisiana’s soybean crop is mature enough for ASR not to be a bother? “Right now, we’re probably 50 to 60 percent out of the woods. Late wheat-beans are the major worry. But a lot of the wheat-beans are approaching R-5.”

The cost

Agriculture economist Bob Stark recently checked the costs of fungicide applications. The impetus behind his study was the discovery of ASR in southwest Arkansas (now in Little River, Hempstead, Lafayette and Miller counties).

“The cost of production budgets for this year were developed last fall,” says the Arkansas Extension economist and associate professor of agriculture at the University of Arkansas-Monticello. “I was interested in touching base with some suppliers to see where we are with the prices that had been plugged into the budgets last fall.”

Caution: the numbers Starks cites are based only on suppliers in southeast Arkansas. Arkansas Extension plant pathologists are recommending that soybeans in southwest Arkansas be sprayed if plants are at R-1 to R-6.

“Spraying should only be from Clark County south to Magnolia, Ark., and west to the Texas/Oklahoma borders. If the fields are R-1 to R-4, they should get a combination of a triazole and a strobilurin. Any beans that are late R-4 to R-6 should receive only a triazole.”

Two strobilurins — Quadris and Headline — have been recommended, both at a 6-ounce rate. Starks says an application will run growers about $11 per acre.

“One thing I want to emphasize is these are average costs. Individual producers may be able to find slightly lower or slightly higher costs. It depends on the supplier and other factors.”

Among triazoles, there are several recommended, “including Folicur at 4 ounces, Laredo at 5 ounces and Domark at 5 ounces. I’m not endorsing only those three — they’re the only ones I could get prices on. There are others that plant pathologists are happy with. Regardless, those three triazoles will cost about $7.50, maybe a bit more.”

As for application costs, “I was given quotes based on 5 gallons of water per acre. The average cost was $4.25 per acre for aerial application. If you’re using a tank mixture of a strobilurin and a triazole, you’re looking at spending somewhere around $23 to $24 per application.”

After putting the numbers together, “plant pathologists told me 10 gallons of water per acre is better. That means there may be additional aerial application charges.”

On Aug. 9, averaging across markets, “old crop beans were at $8.07 statewide according to NASS. New crop beans were at $8.20.

“So take the $24 for a tank-mix application of fungicides and divide it by $8.20. That means the fungicide application will cost the equivalent of nearly 3 bushels. Farmers should make sure their yields justify that expense. If it does, they should protect their crop.”


24th Annual Western Cotton Conference

The Annual Western Cotton Conference will be held at Harris Ranch on September 6th. The meeting will begin at 10:00 a.m. followed by a luncheon and the Supima Annual Meeting.

Speakers include Neal P. Gillen, EVP & general counsel, American Cotton Shippers Association, John D. Dunavant, second vice president, American Cotton Shippers Association and Kevin McDermott, vice president, sr. manager, Jess Smith & Sons Cotton, LLC.

Please notify Western Cotton Shippers Association of your plans to attend the meeting and/or luncheon at: or by calling (800) 238-7192.

Rise Symposium in Tucson October 6

The latest research findings on watersheds in southern Arizona will be presented at the fourth annual Research Insights in Semiarid Ecosystems (RISE) Symposium.

It will feature invited speakers presenting recent research on the USDA-ARS Walnut Gulch Experimental Watershed and the UA Santa Rita Experimental Range and other outdoor laboratories.

The symposium will be held Saturday, October 6th from 8:30 a.m. to 2:30 p.m. at UA Marley Auditorium (Room 230), in Tucson.

Bears and bulls tugging on cotton prices

The cotton market turned bearish on news that USDA could again make upward adjustments in the size of last year’s Chinese and Indian cotton crops, reducing China’s import needs and correspondingly, U.S. exports.

In addition, fears continue to swirl around the equity markets.

Longer term, the outlook brightens, according to experts at the Ag Market Network’s Aug. 14 teleconference, as cotton prices must move higher to attract acres for the 2008 crop.

All this comes on the heels of USDA’s Aug. 13 crop condition report showing the Mid-South and Southeast cotton crops starting to show signs of damage from heat stress, with the lowest condition ratings in six weeks.

USDA’s August estimate of U.S. cotton production of 17.3 million bales was well below expectations, but the market didn’t look long in that direction, according to Mike Stevens, Swiss Financial Services. “The cut in U.S. exports and corresponding decrease in projected Chinese imports shifted the report to the bear side.”

USDA lowered total U.S. exports for new crop about 300,000 bales from the July estimate of 17 million bales. USDA also lowered domestic use slightly; ending stocks dropped by 100,000 bales, to 5.8 million bales.

“Technically, there is no other way to say it. The market looks poor,” Stevens said. “You can’t call it any other way. All the major moving averages are now pointing lower. As of yesterday, the nine-day moving average started to cross under the 40-day moving average. That’s not good.”

Carl Anderson, professor, Extension specialist emeritus, Texas A&M University, concurred. “That’s a very good signal that the market is technically weak. But those signals are not coming from the 2007-08 crop. When the market turns to 2008, we’ll see a whole different situation develop.”

Stevens noted that December 2007 cotton futures prices (around 60 cents) as of Aug. 13 represent a 50 percent correction of a recent nine-week run from contract low to contract high. “If that holds, look for a trading range of 60-64 cents. If that area doesn’t hold, you have to look at around 58 cents, with the high end of the trading range around 62 cents.”

Stevens and Anderson agree that getting the market to the upside will require an increase in export demand. But for now, “the Chinese are stretching their inventories much better than anyone thought they would,” Stevens said. “As a matter of fact, some of the smaller mills are slowing production waiting for new crop to come in.”

As soon as that happens, “I think we’ll get blown out of the water. So our window of opportunity is not as wide open as we thought it would be when we were thinking we were going to be the residual supplier.

“The market also needs a case of bull fever by the funds. We need those outside markets, including strong stability in the equity market. The stock market really frightened people when it started falling and most analysts feel like we haven’t seen the worst of it yet.”

Longer term, fundamentals improve for cotton, according to analysts. “We see a lot of opportunity for cotton producers to plant more grain next year as long as December 2007 futures continue to hold around a 60-cent level,” Anderson said. “At the end of the 2008 crop, we could see ending stocks drop down to 3 million or 4 million bales, and there won’t be a residual supply. That could make a big difference in the world market.”

“Cotton must keep up or lose more acres,” Stevens said. “If that’s the case, with $4 corn and $9 beans, which is what you’ve got with the 2008 contracts, December cotton is cheap at 68 cents.”

World fundamentals should improve in 2007-08, according to Anderson, who noted that world cotton production, estimated at 116 million bales, and world cotton use, projected at 127 million bales, “would create a gap of 11 million bales. Production could easily get to 118 million bales to 119 million bales, or drop to as low as 114 million bales. That is what is going to drive the fundamentals of the market.

“World stocks are expected to decrease by about 6 million bales this year (from nearly 58 million bales to 51.2 million bales). We’re getting to where stocks are tight enough to make a difference. The bias today is that this market is trying to find a bottom.

“But given the speculative element and the bullish attitude for speculators, it won’t take much to move this market very fast. So I want to caution everybody, try to keep positions in the market that are relatively safe and low risk as insurance against a sudden price move.”

Anderson stressed that import demand can shift quickly and prices can move up. “Don’t get caught in that situation, especially with straight futures. Options are so much safer. They may be a little more complicated and may require more near-term money.

“But I certainly would advise everyone, from the producer to the merchant to the mills to keep a very close eye on this market. We could see some very big changes to the upside over the next 12 months. I’m surprised this market is not looking down the road already. In my visits with producers, cotton prices have to go up or we’re going to lose some acres.”


China having trouble counting bales

Bullish factors for cotton prices in the coming months include lower world stocks, a deficit between world consumption and production and the need for the United States to increase cotton acres in the midst of high grain prices, according to Gary Adams, vice-president for economic policy development, National Cotton Council.

Adams, speaking at the NCC’s mid-year board meeting, said bearish factors for cotton prices include the potential for increased production in India, the uncertainty of cotton stocks in China and the impact of higher cotton prices on exports.

In recent years, China has emerged as the largest supplier of the U.S. retail market, with marketshare running around 30 percent, Adams said.

India has also emerged as a significant exporter on the world market, exporting a little over 4 million bales in the 2006 marketing year. “Their yields have improved, which has allowed their production to expand at a faster rate than mill use, a situation we could see continue over the next three to five years.

“Their textile industry looks poised for continued expansion, too, so the question is which industry is going at the faster pace and will they close that gap over the next couple of years?”

While Brazil harvested a 7-million bale cotton crop in 2007, “Brazil’s textile industry is under the same pressures you see in other textile industries in the United States or Mexico in terms of imported products from China. The result is that as that additional production comes on line in Brazil, much of it will go into the export market as raw fiber.”

Although China has emerged as the largest user, producer and importer of cotton in the world today, it continues to bring uncertainty to the market, noted Adams.

“This time a year ago, the expectation for China’s mill use was about 50 million bales, which is what it turned out to be. But expectations for imports were around 20 million bales, and that was cut in half. Where did that extra 10 million bales of cotton come from?”

Unaccounted-for stocks and higher production, according to Adams. “Last year, we thought China’s production was around 27 million bales and its stocks were around 13 million bales. The production estimate turned out to be 32 million bales and stocks on hand turned out to be 18 million bales. This underscores some of the uncertainty around the data.”

China will continue to expand its textile industry, notes Adams. “We’re still seeing yarn production and apparel exports growing at rates 15 percent to 20 percent above a year ago. That continues to drive its textile industry.

“It does face some challenges and constraints with high energy costs and tighter credit, which may temper some of its growth. Still, China consuming around 50 million bales and producing around 30 million bales paints a picture of substantial imports for the next several years.”

In 2007, Adams anticipates U.S. exports in the 15-million to 16-million bale range, although USDA has the figure slightly higher at 16.5 million bales. “We are off to a good start even at this early stage of the current marketing year. Total sales on the books right now are roughly 4 million bales.”

For 2007-08, USDA puts world mill use at around 127 million bales and world production at 115 million to 116 million bales, a gap of around 11 million to 12 million bales. “We have to keep in mind the unaccounted-for number. The discrepancy could run as much as 5 million to 6 million bales. It sets up a balance sheet where we should continue to see declining stocks, but perhaps not quite as tight as the numbers might imply.”

On the bullish side, December 2008 cotton futures must rally to assure sufficient cotton acres for 2008, according to Adams. “Corn futures are coming in around $4 and soybeans are holding between $8.50 and $9. At those relative price relationships, returns are still favoring competing crops.”

On the bearish side, there is still potential for expansion of production in India, Adams says. “And as cotton prices move up, the question is whether we can maintain demand at those higher price levels.”