U.S. highlights – August 1991 cotton market activity – U.S. Dept. of Agriculture, Economic Research Service report
Generally good crop developments were reported throughout the U.S. cotton growing areas in August. Beneficial rains were reported in the Texas/Oklahoma region early in August, while ideal crop conditions prevailed in the San Joaquin Valley and Delta areas. These developments led USDA to increase its production forecast for 1991/92 to almost 17.9 million bales, the third largest U.S. crop on record. An important development for the U.S. crop during August was the triggering of the “Step 2” Certificate Program. Step 2 allows generic CCC commodity certificates to be issued to eligible domestic consumers and exporters if the U.S. northern Europe price is more than 1.25 cents per pound higher than the northern Europe price for four consecutive weeks. (The U.S. northern Europe price is the 5-day average of the lowest U.S. quote for Memphis 1-3/32 inch cotton, c.i.f. northern Europe. The Northern European price is the 5-day average of the five lowest quotes for Middling (M) 1-3/32 inch cotton C.I.F. northern Europe). The certificate values are determined by the difference between the U.S. northern Europe price and the northen Europe price (minus 1.25 cents per pound) during the fourth week. The U.S. northern Europe price ranged between 1.94 to 3.49 cents per pound higher than the northern Europe price throughout August and the second week of September. The higher U.S. prices triggered “Step 2” certificates payments to eligible domestic users and exporters beginning August 30th. For exporters, the date of the sales contract is used to establish the eligibility during the weeks certificate payments are authorized. Domestic users are eligible when the cotton bales are opened to be processed. Step 1 of the competitive adjustments provisions of the 1990 Farm Act was also active this month. This provision allows the Secretary to reduce the AWP in order to help keep U.S. cotton competitively priced in international markets. The Secretary can reduce the AWP by the difference between the U.S. northern Europe price and the northern Europe price, if the AWP falls below 115 percent of the loan rate. For the last 5 weeks, the AWP fell to less than 115 percent of the loan rate, but the Secretary used his discretionary powers to reduce the AWP only in 2 of these weeks. Below are the calculations:
Announcement
Date Calculated AWP Reduction “Adjusted” AWP
Aug. 15 56.48 — —
Aug. 22 55.71 2.03 53.71
Aug. 29 55.35 1.64 53.71
Sep. 05 54.98 — —
Sep. 12 54.01 — —
For the week ending August 22, the Secretary of Agriculture reduced the AWP by the maximum allowable 2.03 cents per pound, the difference between the Memphis quote and the A-index. For the week ending August 29, the Secretary adjusted the price by less than the allowable limit. For the week ending September 5, the AWP was again less than 115 percent of the loan rate, but the Secretary elected not to further adjust the AWP. (Chart 2 on page 32 illustrates both the AWP and its recent adjustments). Since there are currently only about 130,000 blaes of old crop cotton under loan and the AWP is still above the loan rate, the reductions may not have significantly impacted the market.
COPYRIGHT 1991 U.S. Department of Agriculture
COPYRIGHT 2004 Gale Group
