1. Cotton Industry Update Agricultural Council of Arkansas Board of Directors Meeting Brinkley, AR May 19, 2015

2. Key Issues Farm Bill Implementation Appropriations Trade Issues – TPA and TPP – Turkey Antidumping Investigation – WTO Negotiations and Cotton Discussions Market Comments

3. New Crop Insurance Products STAX available for purchase in more than 99% of cotton counties – Initial data shows over 11k policies purchased w/182 in AR New options to update APH yields, vary coverage level by practice and enhanced use of enterprise unit coverage Still some implementation issues working to correct in 2016 Continue education efforts

4. Payment Limits $125,000 limit/entity for PLC, ARC, MLG, LDP – Separate limit for peanuts USDA developed interim process for tracking benefits & applying MLG/LDP to payment limit Reconciliation of payments relative to pay limit before ARC/PLC payments in Oct. 2015 Ongoing efforts with Congress and USDA to address the issue long term Mechanism needed to ensure continued loan redemptions and cotton flows to market; avoid forfeitures

5. Actively Engaged Proposed Rule Comment deadline May 26 Farm Bill directs USDA to: – Define significant contribution of “active personal management” – Consider setting limits on how many persons can qualify with provision of only management – Exempt entities/operations comprised solely of family members Family members – lineal family connections – Proposed rule applies to general partnerships and joint ventures that include non-family members

6. Actively Engaged Proposed Rule Entities with one non-family individual only providing management – no changes/current rules apply To add 2 nd non-family “manager” – must be large operation = 2,500 acres (FSA STC flexibility) To add 3 rd non-family “manager” – must be large and complex operation = diversification, geographic area, agriculture activities conducted (requires USDA/FSA review/approval)

7. Actively Engaged Proposed Rule Adding 2 nd and 3 rd managers triggers additional reporting/documentation requirements 2 nd and 3 rd managers added – all individuals in operation meet new requirements for documenting activities and new definition for “active personal management” Required management time – 500 hours annually or at least 25% of management time necessary for the operation

8. Actively Engaged Issues Focus of industry comments: – Impractical to apply arbitrary limit to # of managers if required to meet new definition of management – Consider flexibility for family operations that lose family exemption due to family member providing the lineal linkage exiting operation – Ensure family operation exemption is fully exercised by USDA – Define “significant contribution” of management based on necessary activities/responsibilities, without requiring specific hours or maintenance of time logs

9. Appropriations FY ‘16 Agricultural Appropriations – Attempt “regular order” – open amendment process – Submitted letters with cotton priorities: APHIS – Boll weevil and pink bollworm eradication - $11.52 M FAS – Market Access Program and Foreign Market Development program ARS – Cotton research and maintain three gin labs Prevent any amendments that harm crop insurance, tighten pay limits/eligibility, or reduce funding

10. Trade Issues TPA and TPP – Trade Promotion Authority (TPA) – Passed out of respective House and Senate committees; lost a procedural vote in Senate as D’s vote against the measure; debate now progressing in the Senate – Trans Pacific Partnership (TPP) – yarn forward rule of origin is priority for industry – agreement by end of 2015?

11. Trade Issues Turkey Antidumping Investigation – Politically motivated case Self-initiated investigation of US cotton on Oct. 18, 2014 – Administration and Congressional actions – Industry actions to date NCC filed industry comments and injury analysis – Status and next steps Developing additional injury analysis submission; 2 nd questionnaire sent to merchandising firms; expect site visits by Turkish authorities; public hearing in Turkey; conclusion by fall 2015 or 6 month extension

12. Trade Issues WTO Cotton Dedicated Discussions – Cotton is still a focal point in WTO – Dedicated discussions on cotton are held twice a year – US’s message to other countries: We have made significant policy changes; We are not the problem with the world markets; Other countries must be held accountable and be transparent

13. China Balance Sheet 12/1313/1414/1515/16Change Production 35.032.830.027.0 -3.0 Mill Use 36.034.535.036.0 1.0 Imports 20.314.17.76.0 -1.7 Stocks 50.462.765.362.3 -3.0 Stocks/Use 140%182%186%173% Million Bales

14. U.S. Balance Sheet 12/1313/1414/1515/16Change Production17.3112.9116.3214.50-1.82 Mill Use3.503.553.653.800.15 Exports13.0310.5310.70 0.00 Stocks3.802.454.40 0.00 Stocks/Use23%17%31%30% Million Bales

15. World Balance Sheet 13/1414/1515/16Change Production120.4119.3111.3-8.0 Mill Use109.0111.5115.33.8 Trade40.033.833.7-0.1 Stocks102.4110.3106.3-4.0 China62.765.362.3-3.0 All Others39.744.944.0-0.9 Million Bales

16. World Cotton Mill Use 200620112015 Total 124.2104.0 -20.2 115.3 +11.3 China 50.038.0 -12.0 36.0 -2.0 All Others 74.266.0 -8.2 79.3 +13.3 Million Bales

17. Cotton Prices

18. Challenges Going Forward Educating large class of new Members of Congress and staff on cotton industry and issues Increasing need to grow PAC resources Rebuilding cotton demand Leveling the playing field Improving cotton’s profitability

19. MerchantsGinnersCottonseed ProducersCooperatives WarehousesManufacturers