At the National Cotton Council’s Mid-Year Board of Directors meeting in Memphis, NCC Chairman Mike Tate updated attendees on the major developments and activities since the 2019 Annual Meeting.
Tate noted that the NCC is pleased that the recently announced Market Facilitation Program, which the NCC advocated, should provide cotton producers some timely assistance; the 2018 farm law provides a solid safety net for producers and contains many of the NCC’s policy priorities; and another NCC priority was achieved when Congress passed a much-needed disaster assistance package. He noted that USDA has taken some steps toward the farm bill’s implementation, including plans for a September rollout of the ARC/PLC election that applies to the 2019 and 2020 crops as well as enrollment for the 2019 crop. As such, the NCC is planning a September educational effort on the implementation that will enable its members to participate in webinars.
The NCC also is raising awareness among its members, Tate said, on new warehouse reporting requirements and lint contamination prevention. Regarding the latter, he said the NCC’s Quality Task Force assessed the market implication of plastic contamination in bales with a 71/72 call, as well as options regarding the classing/reclassing of bales with a 71/72 call. The NCC Board voted to accept a recommendation from the QTF involving changes in the reclass procedures for bales with a 71/72 call.
Tate told attendees the NCC continues to maintain close communications with the Trump Administration regarding the impacts of the ongoing trade talks between the United States and China. On a positive note, he reported that the China Cotton Association has filed a request for U.S. cotton to be exempt from the tariffs (which include NCC-submitted supporting documents) but the NCC is not sure of the timeline on which the Chinese government will decide.
The chairman also reported that some 150 U.S. cotton producers have signed up for the pilot enrollment phase of the U.S. Cotton Trust Protocol. That is the new farm-level program designed to expand the acknowledgement by major brands and retailers that U.S. cotton is responsibly produced and that U.S. producers are “working continuously to shrink our environmental footprint.”
Later, Ted Schneider, chairman of the COTTON USA Sustainability Task Force, told the directors that the pilot goal is to have 300 to 350 participants by mid-October with 750 to 1,000 producers enrolled by October 2020. He encouraged industry members to visit the Protocol’s website, https://trustuscotton.org.
“I cannot stress the importance and timing of this program,” Schneider stated. “This is a perfect opportunity to reclaim market share that we have lost in recent years due to polyester, and for producers to share their message that the U.S. cotton farmer produces the most responsibly grown cotton in the world.”
Cotton Council International President Hank Reichle’s report included highlights of CCI’s “Cotton Day” in Japan. He attended the event which he said, “brought together the entire cotton supply chain from spinners to manufacturers to brands and retailers to celebrate U.S. cotton.”
Reichle also recapped his experience in leading a COTTON USA executive delegation to Korea, Taiwan and Vietnam. “It’s our reputation built up over the years in these important markets that sets us apart and makes U.S. cotton the fiber of choice,” he said.
Reece Langley, the NCC’s vice president, Washington Operations, updated attendees on key legislative and regulatory issues the NCC is addressing and provided a 2020 election outlook and a briefing on Committee for the Advancement of Cotton activities.
The update included the 2018 farm law election for ARC/PLC and enrollment beginning in September, and the expected sign-up in September for the WHIP disaster program for 2018 and 2019 natural disaster losses. Langley also reviewed the details of the 2019 Market Facilitation Program and ongoing discussions with USDA about how certain situations are being handled where the operators of a farm have changed from 2018 to 2019, double crop acres, and failed acres issues.
In addition, Langley discussed non-tariff phytosanitary barriers in export markets and regulatory issues as well as trade matters affecting the U.S. cotton industry among them the ongoing Generalized System of Preferences trade issues; the China trade situation and Congress’ consideration of the United States-Mexico-Canada Agreement.
Previously, keynote speaker Rep. David Kustoff, R-TN, shared his insight with the directors on relevant trade issues. He cited the importance of timely passage of the USMCA, resolving the U.S.-China tariff situation and reauthorization of the Export-Import Bank of the United States,which is set to expire on Sept. 30, 2019.
Jody Campiche, NCC’s vice president, Economics & Policy Analysis, told attendees that world mill use remains a key focus. Throughout much of the 2018 crop year, USDA projected a significant increase in world mill use as compared to 2017. However, the latest USDA estimate shows a 2.2 million bale decline in world mill use in 2018.
Regarding the current economic environment, Campiche said macroeconomic projections are less optimistic than a year ago. Tariffs have increased the costs of goods and uncertainties caused by the trade war are disrupting supply chains.
In USDA’s August report, Campiche said the agency made a slight upward revision in 2019 planted acres to 13.9 million acres and is projecting an abandonment rate of 9% for 2019. While current conditions are better than a year ago in all regions except the Southeast, conditions in the Southeast and Southwest have deteriorated in the past month. This is reflected in the latest USDA crop progress report with 49% of the U.S. crop rated as good to excellent. A month ago, 60% of the U.S. crop was rated as good to excellent. Though USDA estimated a crop size of 22.5 million bales in its August report, current crop conditions suggest a slight reduction in the U.S. crop size.
Campiche said although USDA has estimated 17.2 million bales of U.S. exports for the 2019 crop year, reaching that level could prove to be difficult given the uncertainty regarding world mill use and the loss of U.S. market share in China. She noted that the United States has shipped a higher level only once before—in the 2005-06 marketing year.
She also noted that with the implementation of the 25% tariff on raw cotton and yarn, U.S. exports of raw cotton and yarn to China have decreased significantly. Based on data through June 2019, the U.S. raw cotton market share is 17% in China for the 2018-19 crop year as compared to 48% for the 2017-18 crop year.
While export sales commitments as of the third week in August are high compared to previous marketing years, Campiche said the number of unshipped bales carried over from the previous marketing year is larger. Because some of those unshipped sales commitments were made at much higher prices, cancellations could be expected. China currently has 1.9 million bales in sales commitments for the 2019 crop year. Based on recent announcements from China, it is unclear if those commitments will be shipped. Continued trade tensions between the United States and China could lead to further reductions in world mill use. World production is projected to increase by 6 million bales in 2019 which likely will put downward pressure on prices.