Tuesday, February 27, 2007

Price in our time...

Cotton producers are taking Will Rogers seriously:
"I originated a remark many years ago that I think has been copied more than any little thing that I've every said, and I used it in the FOLLIES of 1922. I said America has a unique record. We never lost a war and we never won a conference in our lives. I believe that we could without any degree of egotism, single-handed lick any nation in the world. But we can't confer with Costa Rica and come home with our shirts on."

With oddly optimistic reports of utterances from WTO Chief Pascal Lamy of an impending breakthrough, Big Cotton is fearing the worst. Add in the tide flowing away from open-ended access to the Treasury by enacting some sort of payment limits and ending the three-entity rule, and the business plan for cotton production looks shaky.

We'll be looking for any hints from USTR Susan Schwab at the Commodity Classic in Tampa. (Now with added fiber from Wheat!) My experience with is good negotiators don't drop hints, and if they did it would likely shoot over my head. My prediction is a pretty tightly scripted recital of administration policy, but ya never know. If she gives a press conference something might pop up.

I think there is immense pressure to salvage some hope of a deal, and any deal will mean goodbye to LDP's and CCP's. They are simply too market distorting. Now handing out rent stamps - er, fixed payments, I mean - seems to be trade neutral.

Compounding cotton's worries are upcoming meetings over Brazilian complaints against our cotton program. Cotton growers are not optimistic.

The NCC says the WTO has slated a compliance panel to hear oral arguments in the Brazil-United States Cotton Compliance dispute Feb. 27-28. Hard on the heels of that will be a “high profile” March session on cotton at the WTO headquarters in Geneva. The two meetings focus too much attention on U.S. cotton at a time when WTO leaders obviously are trying to restart the suspended Doha Round negotiations, according to Jay Hardwick, chairman of the American Cotton Producers, the producer arm of the NCC. The timing of the sessions is “an unfortunate turn of events that can severely undermine the credibility of the WTO dispute settlement process,” says Hardwick, a cotton producer from Newellton, La. [More]

Cotton will see the biggest changes, and it has already begun. Some cotton farmers will grow corn. In fact, Southeastern corn users such as Big Chicken (don'tja just love these "big" labels?), may be counting on it in case a supply crunch ignites the basis in August to ration the last 17 bushels of corn.

Completely off-topic: Under the heading of "What could go wrong?", while working on this post I found this great insight from Mike Woolverton at KSU:

Some producers have expressed concern that after luring them with tantalizing visions of historic profits, the corn market will collapse. Two things might cause that to happen, neither of which seems likely. First, if corn producers overshoot and plant 12 or 14 million more acres and if growing conditions give record breaking yields across the country, corn price would drop from the current level. One or the other of those might happen, but the likelihood of both happening this year seems small. Secondly, ethanol processing margins might go far enough into the red to cause some of the plants to shut down. The subsequent decrease in demand for corn would cause price to fall. In order for that to occur, oil price would have to fall more than it has in recent weeks; even then, Congress would likely raise the ethanol-in-gasoline mandate levels to prevent injury to grain producers, farmer/investors, and rural communities that would result from a demise of the ethanol industry. Soybeans, cotton, wheat, and other crops are on track to lose the battle for acres this year, although producers of those crops are already benefiting from prices higher than the fundamental supply and demand factors for each of those crops separately would justify. But this is just the first battle in the ‘ground war’ that is likely to intensify and continue for years to come. [More]
One thing the administration has successfully managed - their proposal has anchored the farm bill debate. By offering a full-range of ideas, they have co-opted isolated competing ideas for public scrutiny.

The old negotiation rule applies: open strong.

1 comment:

brian said...


I'll give you a third scenario where corn prices might tumble - the Chinese economy collapses. I know this sounds ridiculous, but I have one financial advisor - a long-time Wall Street guy - who swears the Chineses economy is a house of cards. He claims it's pumped up on the margins by state run enterprises that are essentially bankrupt. We'll see, but he has mucho credibility with me on other issues. Did you check the Shanghai exchange this morning?