September 18, 2002
The Honorable Ann M. Veneman
Secretary of Agriculture
U.S. Department of Agriculture
1400 Independence Avenue, SW
200-A Whitten Building
Washington, DC 20250
Dear Madam Secretary:
This is to urge you to establish the initial advance counter-cyclical payment for the 2002 crop of upland cotton at the maximum allowable rate of 4.81 cents/lb. (35% of 13.73 cents/lb.). We also urge you to make the announcement as soon as possible so producers and their lenders can plan accordingly.
U.S. domestic and international prices for upland cotton remain mired at historically low levels. U.S. producers are facing a fourth consecutive year with market prices well below the average cost of production. Therefore, the counter-cyclical payments for 2002 will provide an important financial safety net for producers and the rural economy as Congress intended.
Despite the fact that U.S. producers reduced acreage in response to low prices, U.S. supplies for the 2002 marketing year will remain more than adequate due to an abundance of old-crop cotton. In addition, surging imports of cotton textile and apparel products, over-production of synthetic fibers, and the failure of Asian economies and currencies to fully recover all result in projections for slow price recovery for U.S. cotton. Export markets will be expected to absorb more than half of the U.S. crop. This will be achieved only if China opens its markets in a manner consistent with her WTO accession agreement.
Since the final CCP rate is dependent on the average price received for the `02 crop, we have carefully analyzed available data before recommending a maximum advance payment. Two separate analytical approaches imply a likely range for the season average farm price for cotton of 38 to 48 cents per pound. There would need to be a 12-cent increase in futures prices before farm prices would average above the loan rate of 52 cents.
In an alternative approach, the “A” Index has shown a strong relationship with stocks-to-use (world less China) and China’s net trade position. USDA’s September projections of slightly tighter global stocks and increased Chinese imports give an estimate between 55 and 56 cents for the average “A” Index for the 2002 crop. Under this methodology, historical price relationships would suggest a season-average farm price of 47 to 48 cents per pound, still well below the 52-cent loan rate. Currently, the “A” is between 48 and 50 cents. There would need to be an 11-cent recovery in the “A” before the season-average farm price moves above the loan rate.
The Council commends you and your colleagues for your diligent efforts in implementing the new farm bill in a timely and “farmer-friendly” manner. Thank you for your consideration of our recommendations.
Sincerely,
Kenneth B. Hood
Chairman
Attachments
cc: The Honorable J.B. Penn, Under Secretary
Secretary Hunt Shipman, Deputy Under Secretary
Jim Little, FSA Administrator