U.S. highlights - Adjusted World Price formula calculations - U.S. Dept. of Agriculture, Foreign Agricultural Service report

The Secretary of Agriculture reduced the formula Adjusted World Price (AWP), which determines producer loan repayment rates, in three of four weeks in March. Adjustments to the AWP are permitted when:

1) the AWP is less than 115% of the base Loan Rate, and

2) when U.S. cotton price quotes c.i.f. northern Europe are higher than an

index of international cotton price quotes. Below are the relevant calculations in cents per pound:

Week       Calculated   Actual    Actual
Ending       AWP          AWP    Adjustment
March 5     41.27        40.19      1.08
     12     40.08        40.08      0.00
     19     40.14        40.08      0.06
     26     41.06        40.08      0.98
Source: Agricultural Stabilization and Conservation Service (ASCS)

A six-week transition period from using current shipment prices to using forward shipment prices in the calculation of the AWP will commence beginning with the April 16 AWP calculation. The procedure was adopted to avoid a dramatic change in the AWP that could occur with no transition period, due to differences between forward and current crop quotes. Since cotton export commitments are often concluded well in advance of shipment, the calculation of the AWP is adjusted to include forward shipment price quotes to insure that the AWP accurately reflects world market supply and demand conditions. As the transition period progresses, greater weight is given to forward quotes. After the transition period, the AWP is based entirely on forward quotes. Due to the widening gap between U.S. and international cotton price quotes, "Step 2" certificate values climed in March. The certificates--payable to both U.S. merchants and domestic mills--are valued at the difference between the U.S. northern Europe price and the northern Europe price minus 1.25 cents per pound. (The U.S. northern Europe price is the 5-day average of the lowest U.S. quote for 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 1-3/32 inch cotton c.i.f. northern Europe.) Below are the relevant calculations in cents per pound:

Week       U.S. Northern   Northern       Certificate Value
Ending     Europe Price    Europe Price   for the following week
March 5       60.45           56.11           3.09
     12       58.75           54.80           2.70
     19       59.30           54.78           3.27
     26       60.85           55.58           4.02
Source: Agricultural Stabilization and Conservation Service (ASCS)

When both current and forward shipment price quotes are available, Step 2 certificates, (based on current shipment quotes) will be issued to domestic users and exporters for contracts entered into for delivery prior to September 30. Certificates based on forward shipment price quotes will be issued to exporters for contracts entered into for delivery after September 30. However, April 23 is the earliest that a certificate based on forward shipment price quotes can be announced. The U.S. northern Europe forward price must exceed the northern Europe forward price by more than 1.25 cents per pound for 4 consecutive weeks before such a certificate can be made available. USDA's Prospective Plantings report--a nationwide survey of planting intentions--revealed that U.S. cotton producers intend to plant almost 5 percent less acreage to upland and Pima cotton in crop year 1992/93 than in 1991/92. The report showed that U.S. cotton producers currently intend to plant 13,489,000 acres of upland and Pima cotton in 1992/93, a reduction of 655,000 acres from 1991/92. Producers in the Texas/Oklahoma region are expected to reduce plantings by 560,000 acres, while producers in the Delta area are expected to increase cotton acreage by 43,000 acres. The U.S. Department of Commerce reported a daily average cotton consumption of 35,819 bales by U.S. mills during February 1992, more than 600 bales per day greater than the previous month. The increased consumption during February led USDA to raise its forecast of U.S. cotton consumption to 9.4 million bales for MY 1991/92 or 100,000 bales above last month's projection. If this estimate is realized, U.S. cotton consumption in MY 1991/92 will reach its highest level since 1966/67.

COPYRIGHT 1992 U.S. Department of Agriculture
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