Thursday, May 24, 2012
Keith Good Farm Policy: Plunging Prices Challenging Cotton Industry
By Keith Good
Gregory Meyer reported yesterday at The Financial Times Online (“Allure of cotton fading fast”) that, “The tastes of textile consumers such as Lululemon are an increasingly persistent worry for the cotton market. After two years of jarring price moves, the natural fibre is losing market share to synthetics at an accelerating rate.
“Cotton’s fading popularity has forced repeated cuts to world consumption estimates just a year after seemingly bottomless appetite from Asian textile mills lifted prices to an all-time high. Since those highs early last year, the market has plunged 68 per cent, with US futures dropping to 72 cents a pound, the lowest since early 2010. Flagging demand suggests lower prices will persist.”
The FT article noted that, “The US Department of Agriculture estimates world consumption has fallen 16 per cent from its record before the financial crisis, weakened partly by competition from other fibres.
“‘It’s due to both sluggish economic growth but also to loss of share for cotton as a result of the record prices that we saw in the fall of 2010 and spring of 2011,’ says Carol Skelly, a fibres analyst at the USDA. ‘We’re still seeing some lagged effects.’”
“Further ahead, many are predicting further falls for cotton prices,” the FT article said.
A statement yesterday from the National Cotton Council indicated that, “Cotton industry leaders from Brazil and the United States met in Atlanta, Georgia, to discuss issues of mutual concern and to search for avenues of greater cooperation. Sergio De Marco, President of ABRAPA, Brazil’s national cotton producer organization, led a delegation of Brazilian cotton leaders. Chuck Coley, Chairman of the National Cotton Council, led the U.S. delegation.
“The meeting focused on risk management, cotton’s sustainability and international promotion. Every cotton producer has been impacted by the extraordinary price volatility exhibited by the cotton futures market since early 2008. Price volatility disrupts orderly market activities and creates costly uncertainty that market participants must address.
“Cotton is being challenged in the retail market to demonstrate its sustainability. The Brazilian and U.S. cotton industries have individually taken steps to address these concerns. It was recognized that collaborative actions would produce greater recognition of cotton’s contribution to environmental improvement.”
Steven T. Dennis and Emily Pierce reported yesterday at Roll Call Online that, “Senate Agriculture Chairwoman Debbie Stabenow said today that the farm bill will come to the floor next month after the Senate finishes a measure on equal pay for women.
“Though the Michigan Democrat has struggled to cobble together a bill that meets the concerns of different areas of the country, she said she has a filibuster-proof 60 votes. However, she noted that she will continue to address any issues that arise once it is on the floor or after it is passed and heads over to the House.
“One Senate Democratic aide said Majority Leader Harry Reid (D-Nev.) pledged to bring up the bill as the second order of business when the Senate returns from next week’s Memorial Day recess.”
The “Washington Insider” section of DTN reported yesterday (link requires subscription) that, “Overall, the Senate bill spending is expected to be around $970 billion — almost a trillion dollars — over ten years, down from the farm bill baseline by about $23 billion. That would be a saving some $10 billion smaller than called for in the president’s budget and $8 billion less than called for in that of House Budget Committee Chairman Paul Ryan, R-Wis.
“Another issue that will have an effect on the floor debate is the number of amendments the leadership will allow. Pundits now are saying that this number is large, as are the number of controversial areas. The topics range from proposals to cut and/or change the Supplemental Nutrition Assistance Program, tighter payment caps, restoration of target prices at much higher levels, and modifications of the shallow loss safety net program, among others.”
Yesterday’s DTN item added that, “Senate farm bills typically have little trouble finding votes for final passage because of the broad benefits they provide. Still, in the current economic environment and in view of the sector’s prosperity, there may be more skepticism about strengthening safety nets for the sector. And if regional pressures grow and senators from southern states are not able to build the longer-term income supports they want into the bill, many or even most southern senators could oppose final passage. In that case, additional opposition on other issues from other quarters could determine the success of any stop-the-farm-bill faction this time around.
“The likelihood of such fights is very much on the mind of Senate Ag Chairwoman Debbie Stabenow, D-Mich., observers note, and she is reported to be reaching out to southern lawmakers, trying to heal the breach that split her panel last month. These ‘backroom talks’ are focused on tailoring some modest countercyclical program as a safety net for these commodities.”
Meanwhile, Iowa GOP Senator Chuck Grassley was a guest on yesterday’s AgriTalk radio program with Mike Adams, where in part, the discussion focused on the Farm Bill. In particular, Sen. Grassley addressed the issue of caps on crop insurance payments, as well as potential factors surrounding the Senate floor debate on the Farm Bill. A brief clip from yesterday’s AgriTalk program c
Agri-Pulse Associate Editor Sarah Gonzalez reported yesterday that, “Senator John Thune, R-S.D., reiterated the urgency of passing a new farm bill this year during a conference call with media today. He said it’s important that the Senate is quick to act on completing action on the Senate Agriculture Committee’s farm bill in June, allowing the House to develop its farm bill and for each chamber to reconcile differences between the two bills before the September 30 deadline.
“Noting that approving a farm bill ‘will be a much heavier lift in the House,’ Thune explained that ‘there is a deadline here at the end of September, so there’s a sense of urgency about it.’”
Ms. Gonzalez added that, “Addressing the concerns of southern commodities regarding the new commodity title, Thune said ‘I hope we can satisfy as much as possible those different commodity groups to get as big a vote as possible in the Senate and House. But this is a bill that’s got a lot of reforms in it.’”
Also yesterday, Ron Smith reported at the Southeast Farm Press Online that, “If U.S. farmers believe commodity prices will stay strong for the next five years, the Senate’s farm bill proposal could be a good choice, say Texas AgriLife Extension economists.
“But if markets tank, farmers have no deep-loss protection in the Senate’s proposal, say Joe Outlaw, professor and extension economist, and James Richardson, regents professor.
“‘Every commodity with high revenue rates in recent years wants a revenue-based program,’ Outlaw says. ‘The five-year benchmark will be high, but what happens if markets tank?’”
Mr. Smith noted that, “Richardson says if markets stay high, the Senate proposal could be ‘the best program some farmers can get,’ in a new farm law. ‘But they will no longer have (adequate) support if the market turns south.’
“In fact, support would get increasingly worse as markets fall. The base would erode. At some point the program ‘would become just yield protection. This program does not provide a true safety net,’ Richardson says.
“He says history shows that high prices turn to low prices. ‘We can overproduce any good commodity,’ he says.”
In more specific developments regarding dairy issues, a news release earlier this week from the National Milk Producers Federation (NMPF) stated that, “As efforts move forward this year in both the House and Senate to complete work on the 2012 Farm Bill, the economic analysis performed of the major dairy policy option in play helps demonstrate the effectiveness of that program, according to the [NMPF].
“That analysis was developed by Dr. Scott Brown of the University of Missouri, who was asked last month by the House Agriculture Committee to thoroughly review a modified version of the Dairy Security Act. Brown presented his analysis to the House Agriculture’s Livestock, Dairy and Poultry Subcommittee at a hearing on April 26th, the same day that the Senate Agriculture Committee approved a farm bill containing essentially the same program in its dairy title.
“Now that the Senate is expected to act on that bill in the coming weeks – and with the House Agriculture Committee also expected to begin marking up its own version of the farm bill – lawmakers ‘should be certain to take a look at the findings of Dr. Brown’s analysis and understand the merits of what the dairy producer community is advocating,’ said Jerry Kozak, President and CEO of NMPF. ‘The bottom line is that the ideas on the table on Capitol Hill are ones that will work on the farm once they’re part of this new farm bill.’”
The NMPF also released a summary of the Senate Farm Bill Dairy title yesterday, which is available here.
With respect to the executive branch, a news release yesterday from USDA stated that, “Agriculture Secretary Tom Vilsack announced today that the U.S. Department of Agriculture has made substantial, year-over-year gains in expanding credit opportunities for farmers and ranchers across the United States. The increase in farm and operating loans has helped improve farmer and rancher productivity, launched new start-up operations, and ensured opportunities in agriculture for many more Americans. With expanded access to credit, USDA is helping a new generation of farmers sustain and build upon what is now the most productive period in history for American agriculture. To that end, Vilsack announced the Department is seeking comments on a new microloan program to help small and family operations progress through their start-up years with needed resources, while building capacity, increasing equity, and eventually graduating to commercial credit.”
Also note that this morning’s Diane Rehm Show (NPR Radio- 10:00 Eastern) will focus on the Farm Bill. Guests on today’s show include Chairwoman Stabenow, Scott Faber, Vice President for Government Affairs, Environmental Working Group; former vice president, the Grocery Manufacturers Association, Jerry Hagstrom founder and executive editor of The Hagstrom Report and columnist, National Journal, and Chandler Goule Vice President of Government Relations, National Farmers Union.
Owen Fletcher reported yesterday at The Wall Street Journal Online that, “Soybean futures fell 1.4% to a nearly two-month low, as weather forecasts improved for U.S. crops and traders worried about signs of slowing Chinese demand.
“The decline extended a recent slide in U.S. soybean prices. Soybean futures peaked at the end of April after rallying for months as forecasters repeatedly cut their estimates for output in Brazil and Argentina, two major producers, because of a drought. Prices have since eased as some speculative buyers have exited the market and the U.S. growing season has gotten off to a fast start.”
David Rogers reported last night at Politico that, “Power in Washington these days is most defined by saying ‘no,’ which helps explain why Speaker John Boehner felt compelled last week — in the middle of May — to bring up a wintry debt ceiling fight more than six months away.
“At one level it was an act of defiance to appease the right and embarrass President Barack Obama, with whom Boehner knew he would be having lunch the next day. But it was also an admission of weakness in what’s become a high-stakes budget poker game matching the speaker against Senate Majority Leader Harry Reid.
“More than $600 billion in year-end tax and spending changes are already in play, but the ground has shifted to the point where Boehner had to leapfrog still further ahead to the debt ceiling issue, when his ‘no’ will mean something again.”
Mr. Rogers pointed out that, “So it is really Senate Democrats who are next in line to wield the power of ‘no.’ In November and December, they’ll be in position to block Republican-backed legislation to stop an automatic 10 percent sequester of Pentagon funds and to extend high-end tax breaks for the wealthy.
“Indeed, the new kid on the block is this tougher Democratic mind-set embodied by Reid. And the former Vegas gaming commissioner is ready to risk tens of billions in automatic spending cuts in January rather than give in any longer to Republican demands that all deficit reduction come from domestic savings — with no revenues.
“In an interview with POLITICO, Reid said he was open to a compromise that would salvage about four-fifths of the Bush-era tax cuts. But absent some concession on revenues, the $110 billion in spending cuts ordered by the debt agreement last August would go into effect.”
The article added that, “‘I am not going to back off the sequestration,’ Reid said. ‘That’s the law we passed. We did it because it wouldn’t make things easy for us. It made it so we would have to do something. And if we didn’t, these cuts would kick in.’
“‘To now see the Republicans scrambling to do away with the cuts to defense, I will not accept that,’ Reid said.”
Geneva Sands reported yesterday at The Hill Online that, “Sen. Tom Coburn (R-Okla.), a staunch fiscal conservative and Tea Party favorite, said he is certain that the United States will face another credit downgrade.
“‘S&P’s downgrade on us was right, matter of fact we’re going to get another downgrade. I can tell you right now, you can have a great legal case for suing the rating agencies for not downgrading us again because we have not demonstrated the political will to solve the problems,’ said Coburn on CBS’s midweek show ‘Face to Face,’ posted online Wednesday.”
This week’s Bridges Weekly Trade Digest reported that, “The US and EU should be open to pursuing a modest agreement on selected trade issues, should a broad, over-arching deal appear out of reach, US Trade Representative (USTR) Ron Kirk said on 22 May. The comments from the US’ top trade official come just weeks after European Trade Commissioner Karel De Gucht made a public call for the two sides to finalise a comprehensive bilateral trade pact by mid-2014. (See Bridges Weekly, 16 May 2012).
“Brussels and Washington, which already boast strong trade ties, have examined options for lowering trade barriers on previous occasions with mixed results.
“However, the prospect of a trans-Atlantic deal was revived in November, when leaders from both sides launched a High Level Working Group on Jobs and Growth – led by Kirk and De Gucht – that would evaluate areas for deepening the bilateral trade and investment relationship.”
The update noted that, “With Europe struggling to overcome its sovereign debt crisis, some EU national leaders – including UK Prime Minister David Cameron and German Chancellor Angela Merkel – have advocated for increased bilateral deals, including a US-EU pact, as a way to prop up economic recovery.
“In an article published prior to last weekend’s summit of G-8 leaders – where Europe’s financial woes was, as expected, the headline item on the agenda – UK Prime Minister David Cameron echoed an earlier call made during this year’s annual World Economic Forum in Davos, Switzerland for a Brussels-Washington deal.
“‘We must work together to give the world economy the one big stimulus that would really make a difference: an expansion of trade freedoms – breaking down the barriers to world trade and getting global trade moving again,’ Cameron said.”
Meanwhile, the WTO recently released its annual report for 2012, which “provides a brief summary of the organization, an overview of 2011 and a detailed review of the WTO’s main areas of activity: trade negotiations; implementation of WTO agreements and trade monitoring; dispute settlement; building trade capacity; and outreach. It also includes a personal message from the Director-General, who reflects on the events of 2011 and the challenges that lie ahead.”
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