Cotton's Week: March 21, 2003

Cotton's Week: March 21, 2003

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House Agrees on Budget Resolution

The House completed work on a FY04 Budget Resolution after rejecting alternatives offered by Blue Dogs, the Congressional Black Caucus and a Democratic alternative crafted by Rep. Spratt (D-SC), ranking member of the House Budget Committee.

The resolution provides for the President’s stimulus package and achieves a balanced budget. However, the resolution, if it were to become the final version, would require deep cuts in mandatory spending, including farm programs.

During floor debate, Rep. Osborne (R-NE) expressed serious concern about the impact cuts would have on the effectiveness of new farm law. Budget Committee Chairman Nussle (R-IA) assured Osborne that the Agriculture Committee would be credited with savings achieved by eliminating fraud, waste and abuse from programs under the committee’s jurisdiction.

Further, Rep. Emerson (R-MO) was provided the following assurance in a letter from Chairman Nussle: "You have expressed your deep concern about the amount available for agriculture in the House Budget. In the Conference with the Senate, I will bring the level of mandatory spending for agriculture (Function 350) for the fiscal year ’04, and for the period of fiscal years ’04-08, up to a level which will not require any reductions from the CBO baseline levels." The letter also repeated the assurances provided to Rep. Osborne.

The Senate was expected to complete work on its resolution by March 21.

Earlier in the week, the NCC joined with 11 other farm and commodity organizations in letters to House Speaker Hastert (R-IL) and Minority Leader Pelosi (D-CA) expressing concern with the Budget Resolution.

"We are writing . . . to express deep concern with the FY04 Budget . . . requiring $19.7 billion in reductions for agriculture programs. Our organizations believe strongly that reopening the ’02 Farm Bill, following a very divisive debate and protracted negotiations, will only undermine the sensible and reliable farm safety net provided by the 107th Congress to restore long-term fiscal discipline in agriculture spending."

The letter said that at a time when the nation faces the threat of terrorism, an impending war, and a softening economy, the signing organizations recognize the responsibility of Congress and the Administration to confront rising federal budget deficits.

"However, a change of course this soon into implementation of the new farm bill would put the recovery of our rural economy seriously at risk. It would also undercut efforts to provide new conservation initiatives and enhance the competitiveness of US agriculture in the world marketplace. We urge you and your colleagues to preserve the funding of the ’02 farm bill."



New Payment Limitations Legislation Introduced

A Senate bill (S.667) introduced by Sens. Grassley (R-IA), Hagel (R-NE), Dorgan (D-ND), Johnson (D-SD) and Daschle (D-SD) would amend the ’02 farm law by reducing limits on price support program benefits and modifying certain eligibility requirements.

The legislation, a free-standing bill not tied to the Budget Resolution, would establish limits of $20,000 for direct payments, $30,000 for counter-cyclical payments and $87,500 for marketing loan gains (MLG) and loan deficiency payments (LDP). If a commodity is redeemed by certificate or is forfeited to the Commodity Credit Corp., the difference between the loan and repayment rate is included in the limitation on MLG/LDP.

The 3-entity rule is maintained – subject to the new limit. If an individual participates in only "a single farming operation" and receives benefits through that operation only, the limits are doubled. Therefore, the effective maximum limit on total program support and marketing loan gains is $275,000 for each crop year. If an individual and spouse jointly receive benefits, their total benefits are limited to $275,000. Presumably, a spouse that qualifies separately, as under current law, would still be eligible to receive the maximum benefits.

The proposed legislation also establishes new provisions limiting eligibility for benefits for individuals providing custom farming services or who participate in share-rent arrangements. The Secretary of Agriculture would be required to promulgate regulations necessary to implement the provisions of the new act.



Vigorous WTO Cotton Program Defense Pledged by US

Brazil achieved creation of a World Trade Organization (WTO) panel to investigate government subsidies to cotton producers in the US. Establishment of the 3-member panel by the WTO's Dispute Settlement Body (DSB) was automatic when Brazil tabled its 2nd request despite insistence from the US that its subsidies were in line with WTO accords.

Brazil, which says the subsidies violate a range of WTO pacts, was backed by Argentina, which told the DSB that US domestic support and export subsidies and credits to its 25,000 cotton farmers were seriously distorting global markets.

The US said it would "vigorously defend" its cotton program, which, it argued, conformed to its commitments as a signatory to WTO pacts on agriculture and on subsidies. The US said in a statement that bringing the case to the trade body "will not provide Brazil with the result it desires."

Panels are normally expected to produce rulings within 6 months, but appeals are allowed and it could take up to 18 months before a final decision is rendered.



NCC Pushes for Aflatoxin Biocontrol Product Registration

NCC submitted comments to 2 EPA Federal Register notices in support of an exemption from tolerance and full Section 3 registration for Aspergillus flavus AF36 for use in Arizona and Texas. The NCC said this non-toxigenic (i.e., it does not produce aflatoxin) microbial biopesticide is very important to the reduction of aflatoxin contamination of cottonseed in those states, especially as there are no other suitable control techniques prior to harvest.

The comments noted this contamination causes crop value loss of at least $50 per acre because if concentrations exceed 20 parts per billion, the cottonseed must not be fed to dairy cattle. The technology is being developed in those 2 states through USDA-ARS-industry partnerships under a free, non-exclusive license of the ARS patents of Dr. Peter Cotty that allow the technology’s benefits to go totally to the farmer.

The comments also cited: 1) the success of field testing to date, whereby the AF36 strain displaces the toxic strains in cotton fields with no evidence of environmental or human effects, and 2) the potential for this biopesticide technology to reduce or eliminate contamination in other crops such as corn, peanuts, pistachios, almonds, walnuts and figs.

Several cotton producers and cotton interest organizations in Arizona and Texas also have submitted comments to EPA supporting a tolerance exemption for AF36 and will file comments supporting registration.

Phil Hutton, EPA’s acting deputy director, Biopesticide and Pollution Prevention Division, indicated if full registration was not granted by May 1, the agency would issue a conditional registration so the ’03 Arizona and Texas crops could be treated in a timely manner. The registration is to be granted to the Arizona Cotton Research and Protection Council, and the product will be available to growers in the 2 states at the cost of production. The Cotton Foundation and other groups are providing funds for this research and technology development.



Australia, US Agree on Areas of Free Trade Pact

The US and Australia agreed on the main areas to be included in a free trade pact between the 2 countries following the first week of talks. In a joint briefing, negotiators said about 20 areas, including agriculture, will be covered by the agreement.

President Bush authorized negotiations for an agreement in November following 2 years of intensive lobbying by Australia. The pact is expected to pump an extra 4 billion Australian dollars (US$2.6 billion) a year into Australia's economy.

Fifteen working groups comprising some 100 negotiators from Australia and the US spent the week devising a basic framework for the free trade agreement. Australia wants the US to remove quotas that restrict imports to the US of Australian cotton, beef, dairy products, sugar and peanuts. It also wants the US to end or reduce its subsidies to US farmers, remove laws that ban Australian ferries being sold to the US Navy and to align regulations on manufactured goods.

The US is concerned about Australian quarantine laws that bar a range of US food exports including cooked chicken, fresh salmon and some fruits. It wants Australia to lift restrictions on intellectual property protection, foreign investment and government procurement practices. Washington also wants Australia to end state-sanctioned agricultural export monopolies.

Two-way trade in goods and services between Australia and the US was worth about A$46 billion (US$24.8 billion) in ’01.

The next round of talks will take place in Washington in May.



Transition Period for Calculation of AWP Approaching

Cotton Outlook currently publishes 5 forward quotes for new-crop cotton, suggesting that a forward "A" Index is very likely in the coming weeks. Once the forward "A" is established, the calculation of the Adjusted World Price (AWP) converts to the forward quotes through a 6-week blending process that starts the week of April 15.

During the first 2 weeks, the AWP will reflect a blended index with the current "A" receiving twice the weight of the forward quote. By the 2nd 2 weeks, current and forward quotes receive equal weights, and for the final 2 weeks, forward receives twice the weight of current. At the end of the 6-week period, calculation of the AWP moves entirely to the forward index.

Over the past month, increasing prices have reduced the marketing loan gain from 7 cents to 3.5 cents. If prices simply maintain current levels, the transition to the forward index would eliminate any remaining marketing loan gain.



Export Sales Exceed 10.4 Million Bales

Net export sales for the week ending March 13 were 398,200 bales (480 lbs.), approximately 2% lower than the previous week, resulting in total ’02-03 sales of slightly over 10.4 million bales. Total sales at the same point in the ’01-02 marketing year were approximately 11.0 million bales. Total new crop (’03-04) sales are 700,100 bales.

Shipments for the week were 295,600 bales, bringing total exports to date to 6.0 million bales, down from 6.8 million at the comparable point in the ’01-02 marketing year.



Prices Effective March 21-27, 2003

Adjusted World Price, SLM 1 1/16          48.52 cents*
Coarse Count Adjustment                    0.00 cents
Current Step 2 Certificate Value          6.64 cents
Marketing Loan Gain Value                  3.48 cents
Import Quotas Open                                 4
Step 3 Quotas as of 3/13(480-lb. bales)       437,672
* No Adjustment Made Under Step I

Five-Day Average

Current 3135 c.i.f. Northern Europe       61.56 cents
Forward 3135 c.i.f. Northern Europe          No Quote
Coarse Count c.i.f. Northern Europe       57.57 cents
Current US c.i.f. Northern Europe         68.20 cents
Forward US c.i.f. Northern Europe            No Quote
Weighted Marketing-Year Average Farm Price
Year-to-Date (August-January)           41.43 cents**
**Final marketing-year average price will be used in
determination of counter-cyclical payment

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