FRANFORT, Ky. — As is the case with many goods produced in the United States, agricultural commodities can be affected by global production – as cotton producers know too well.
U.S. Rep. David Scott (D-Ga.) introduced legislation that would help producers by updating current legislation that has been on the books for almost a century. House Resolution 2620 is a bill that amends the U.S. Cotton Futures Act to allow for the development of certain new cotton futures contracts, according to information from the House Agriculture Committee.
Scott said the legislation is a straightforward bill that will update a law Congress passed nearly 100 years go. "As it currently stands, the 1916 Cotton Futures Act requires all cotton listed on U.S. Futures Exchanges to be graded and classed by the USDA. However, given that cotton is literally grown and shipped all over the world, it is critical that the United States Congress update the 1916 act to reflect the global market structure of today," he explained.
"Without this legislative fix, a new contract will likely be listed at other exchanges in Europe or Singapore. It is essential that we keep our U.S. businesses, markets and market participants competitive on the world stage."
Scott realized his wish last week as the bill passed the Senate and is headed for President Barack Obama’s desk.
House Agriculture Committee information explained: "Current law requires that 100 percent of the cotton tendered under a U.S.-listed cotton futures contract be sampled and graded (classed) by the USDA. This restriction has hampered the development of new cotton futures contracts designed to hedge against market risks for foreign-grown cotton or U.S. cotton merchandised abroad."
It stated H.R. 2620 would amend the law to allow U.S.-based futures exchanges flexibility in handling foreign-grown cotton and foreign delivery points. Scott said for cotton which is grown and shipped outside of the United States, it is an impracticality to have the USDA grade and class those bales.
"However, let me emphasize, cotton that is either grown in the United States or is to be shipped to the United States must still be graded and classed by the USDA," he said. "Again, this bill is about updating a nearly 100-year-old law to reflect the global nature in which cotton is listed and hedged on U.S. Futures Exchanges. Last year, this bill was passed on the floor of the House by voice vote."
This current legislation moved through Congress relatively quickly once it passed out of the House Committee. That took place on June 17. Texas Republican and Ag Committee Chair K. Michael Conaway commended both Scott and his fellow Georgia Rep. Austin Scott, a Republican, for putting together "this narrow but important" change to the Cotton Futures Act.
"H.R. 2620 will help cotton merchants better hedge against the risks they face while preserving the tools currently available to the U.S cotton industry," he said. Austin Scott added the bill is a market-oriented initiative reflecting the modern realities of the global cotton market.
Ag Committee Ranking Member Collin Peterson (D-Minn.) said H.R. 2620 will modernize cotton marketing by giving American-based futures exchanges the ability to use a new tool to handle foreign-grown cotton and foreign delivery points. "The legislation will allow the cotton industry to better hedge against risk, which is especially important to compete in today’s global market," he said.
In a posting from the U.S. Government Publishing Office, the House report of the bill states the intent of H.R. 2620 is "to enable the listing of futures contracts on U.S.-based exchanges that allow for the delivery of cotton from multiple origins, including the United States, and to a variety of global delivery points, also including the United States."
The legislation would exempt cotton grown outside of the U.S. from the classing and sampling requirements of the Cotton Futures Act. To read the complete report, go to http://1.usa.gov/1HUVJGL
