USDA's Farm Service Agency has agreed to a request from Plains Cotton Growers Inc. that it continue to allow the temporary outside storage of cotton pledged as collateral for Commodity Credit Corp. loans until May 1.
Based on forecasts that the 2005 crop would exceed the available commercial storage space in Kansas, Oklahoma, New Mexico and the Texas High Plains, USDA issued a “Notice to Trade” to approved cotton warehouses in January, authorizing them to store cotton outside until April 1.
On March 27, the Farm Service Agency issued a notice extending the deadline to May 1.
Plains Cotton Grower officials said the extension was needed to “prevent significant disruption in cotton shipments” that would have occurred while warehouses moved the cotton to indoor storage.
They cited the a lack of facilities for indoor storage and the fact that warehouses were focusing most of their manpower on shipping the cotton to ports to meet heavy export demand as reasons for extending the April 1 cutoff.
“It is our belief that while none of us want cotton stored outside one day longer than is absolutely necessary, we cannot risk the market implications that may arise from any delayed shipment of this crop,” said Steve Verett, executive vice president of Plains Cotton Growers, in a letter to FSA officials.
“However, if warehouses are forced to choose between moving cotton insider to maintain loan eligibility or delaying shipments to accomplish that task, the decision will have to be made to maintain loan eligibility.”
The January FSA announcement drew criticism from cotton merchants who complained that approved commercial storage was available in other areas of the Cotton Belt that are closer to ports, the final domestic destination for 70 percent of the U.S. crop.
“As a Mid-South or Southeastern cotton grower, you should be unhappy about this,” said William B. Dunavant Jr., retired CEO of Dunavant Enterprises Inc., speaking at the Mid-South Farm and Gin Show in early March. “It works to your disadvantage. There is ample storage space in the country for this crop, though it's not in Texas.”
Talking to reporters after his speech, Dunavant said merchants were concerned that the then-approaching April 1 deadline would have a negative impact on the pace of cotton shipments from the High Plains region.
“If they have to stop and move the cotton inside, it will definitely cause problems for merchants who are trying to meet rigorous shipping deadlines,” he said.
USDA has been forecasting that U.S. merchants would export more than 16 million bales of cotton — much of it to China — in the 2005-06 marketing year that ends July 31.
But some analysts have questioned whether the warehouse and transportation segments of the industry were capable of meeting the deadlines imposed by Chinese textile mills, which reportedly have begun keeping limited supplies of cotton in inventory.
According to USDA estimates, the 2005-06 Texas crop is expected to reach 8.3 million bales, 700,000 bales more than in 2004-05 and nearly double that produced by the state's growers in 2003-04.
According to the USDA Farm Service Agency Web site, 241,296 loan bales were being stored in “open yards” at 19 compress and warehouse facilities in west Texas as of March 28.
Under the extension, USDA said cotton may be stored outside at warehouses approved for temporary storage until May 1. The Commodity Credit Corp. will advance the maturity date of any cotton marketing assistance loans if the cotton securing the loan is stored outside as of May 1.
After May 1, producers will be given 15 days to redeem such cotton at the adjusted world price level. Following that, the loan must be repaid at principal plus interest, according got FSA officials.
The agency said USDA warehouse examiners will continue to conduct spot-checks of cotton pledged as loan collateral. “If an examiner discovers loan bales stored outside without CCC approval in place, CCC will give the warehouse operator 15 days to either move the bales inside a CCC-approved warehouse or request approval for temporary outside storage until May 1.”
It said USDA is also developing a plan to allow reconcentration of cotton between warehouses.