Cotton Industry Update

Agricultural Council of ArkansasBoard of Directors Meeting

Brinkley, ARMay 19, 2015

Key Issues• Farm Bill Implementation• Appropriations• Trade Issues– TPA and TPP– Turkey Antidumping Investigation– WTO Negotiations and Cotton Discussions

• Market Comments

New Crop Insurance Products• STAX available for purchase in more than 99% of

cotton counties– Initial data shows over 11k policies purchased w/182

in AR• New options to update APH yields, vary

coverage level by practice and enhanced use of enterprise unit coverage

• Still some implementation issues working to correct in 2016

• Continue education efforts

Payment Limits• $125,000 limit/entity for PLC, ARC, MLG, LDP– Separate limit for peanuts

• USDA developed interim process for tracking benefits & applying MLG/LDP to payment limit

• Reconciliation of payments relative to pay limit before ARC/PLC payments in Oct. 2015

• Ongoing efforts with Congress and USDA to address the issue long term

• Mechanism needed to ensure continued loan redemptions and cotton flows to market; avoid forfeitures

Actively Engaged Proposed Rule• Comment deadline May 26• Farm Bill directs USDA to:– Define significant contribution of “active personal

management”– Consider setting limits on how many persons can

qualify with provision of only management– Exempt entities/operations comprised solely of

family members• Family members – lineal family connections

– Proposed rule applies to general partnerships and joint ventures that include non-family members

Actively Engaged Proposed Rule• Entities with one non-family individual only

providing management – no changes/current rules apply

• To add 2nd non-family “manager” – must be large operation = 2,500 acres (FSA STC flexibility)

• To add 3rd non-family “manager” – must be large and complex operation = diversification, geographic area, agriculture activities conducted (requires USDA/FSA review/approval)

Actively Engaged Proposed Rule• Adding 2nd and 3rd managers triggers additional

reporting/documentation requirements• 2nd and 3rd managers added – all individuals in

operation meet new requirements for documenting activities and new definition for “active personal management”

• Required management time – 500 hours annually or at least 25% of management time necessary for the operation

Actively Engaged Issues• Focus of industry comments:– Impractical to apply arbitrary limit to # of managers if

required to meet new definition of management– Consider flexibility for family operations that lose family

exemption due to family member providing the lineal linkage exiting operation

– Ensure family operation exemption is fully exercised by USDA

– Define “significant contribution” of management based on necessary activities/responsibilities, without requiring specific hours or maintenance of time logs

Appropriations• FY ‘16 Agricultural Appropriations– Attempt “regular order” – open amendment

process– Submitted letters with cotton priorities:• APHIS – Boll weevil and pink bollworm eradication -

$11.52 M• FAS – Market Access Program and Foreign Market

Development program• ARS – Cotton research and maintain three gin labs• Prevent any amendments that harm crop insurance,

tighten pay limits/eligibility, or reduce funding

Trade Issues• TPA and TPP– Trade Promotion Authority (TPA) – Passed out of

respective House and Senate committees; lost a procedural vote in Senate as D’s vote against the measure; debate now progressing in the Senate

– Trans Pacific Partnership (TPP) – yarn forward rule of origin is priority for industry – agreement by end of 2015?

Trade Issues• Turkey Antidumping Investigation– Politically motivated case• Self-initiated investigation of US cotton on Oct. 18, 2014

– Administration and Congressional actions– Industry actions to date• NCC filed industry comments and injury analysis

– Status and next steps• Developing additional injury analysis submission; 2nd

questionnaire sent to merchandising firms; expect site visits by Turkish authorities; public hearing in Turkey; conclusion by fall 2015 or 6 month extension

Trade Issues• WTO Cotton Dedicated Discussions– Cotton is still a focal point in WTO– Dedicated discussions on cotton are held twice a

year– US’s message to other countries: • We have made significant policy changes; • We are not the problem with the world markets; • Other countries must be held accountable and be

transparent

China Balance Sheet

12/13 13/14 14/15 15/16 Change

Production 35.0 32.8 30.0 27.0 -3.0

Mill Use 36.0 34.5 35.0 36.0 1.0

Imports 20.3 14.1 7.7 6.0 -1.7

Stocks 50.4 62.7 65.3 62.3 -3.0

Stocks/Use 140% 182% 186% 173%

Million Bales

U.S. Balance Sheet

12/13 13/14 14/15 15/16 Change

Production 17.31 12.91 16.32 14.50 -1.82

Mill Use 3.50 3.55 3.65 3.80 0.15

Exports 13.03 10.53 10.70 10.70 0.00

Stocks 3.80 2.45 4.40 4.40 0.00

Stocks/Use 23% 17% 31% 30%

Million Bales

World Balance Sheet

13/14 14/15 15/16 Change

Production 120.4 119.3 111.3 -8.0

Mill Use 109.0 111.5 115.3 3.8

Trade 40.0 33.8 33.7 -0.1

Stocks 102.4 110.3 106.3 -4.0

China 62.7 65.3 62.3 -3.0

All Others 39.7 44.9 44.0 -0.9

Million Bales

World Cotton Mill Use

2006 2011 2015

Total 124.2 104.0-20.2

115.3+11.3

China 50.0 38.0-12.0

36.0-2.0

All Others 74.2 66.0-8.2

79.3+13.3

Million Bales

Cotton Prices

09 10 11 12 13 14 150

50

100

150

200

250

Nearby NY A Index

Cents per Lb

Challenges Going Forward• Educating large class of new Members of

Congress and staff on cotton industry and issues

• Increasing need to grow PAC resources• Rebuilding cotton demand• Leveling the playing field• Improving cotton’s profitability

MerchantsGinners Cottonseed

Producers Cooperatives

Warehouses Manufacturers