Cotton's Week: May 7, 2004

NCC President/CEO Mark Lange, accompanied by Gary Adams, NCC’s vice president of Economics and Policy Analysis, and William Gillon, general counsel, met with US Trade Representative Office (USTR) and USDA officials on the recent Interim Report released by the WTO on the Brazilian dispute. US trade officials reiterated their support of the US cotton program and their intent to pursue appeals on adverse findings from the WTO. The report remains confidential and the briefing centered on the next steps of the United States, which has requested a week’s delay to May 17 for filing the first comments on the Interim Report. US officials expect to then file comments on Brazil’s submissions in early June.

The WTO dispute settlement panel is due to deliver on June 18 the Final Report, which is a public document.  After translation to WTO signatory languages, the Final Report will be posted formally by the WTO. USTR expects the translation to take about 4-5 weeks. Upon formal posting by the WTO, the US and Brazil have 30 days to file any appeal. This would appear to place any appeal filing deadline in late August. The appeal filing starts a 90-day clock for the WTO appellate body to deliver its findings.  The appeal would be heard by a new 3-member panel.

NCC representatives also met with staff of the House Agriculture Committee and Ways and Means Trade Subcommittee. NCC staff expressed appreciation for the Chairman and ranking member’s statement that any immediate changes in US farm policy were not necessary.

Representatives of commodity groups and general farm organizations also met with NCC staff. It was determined that upon public availability of the Final Report from the WTO dispute panel, a working group of representatives will be organized to review any implications regarding the common provisions of US farm policy.

The International Trade Administration of the US Department of Commerce is inviting pre-hearing comments related to structural issues associated with the Chinese economy that could be trade distorting. The invitation for public comments and the subsequent June 3 hearing stem from the establishment of a US-China Joint Commission on Commerce and a Trade Working Group on Structural Issues. The governments of the United States and China have agreed to discuss issues relevant to China’s aspiration to be recognized as a market economy for purposes of the US antidumping law.

Public comments are being sought “for the purpose of identifying relevant topics and trade issues for discussion in the working group.” The Federal Register notice states, “Examples of the types of structural issues envisioned for these discussions include China’s banking sector and state-owned enterprises, as well as central, provincial and regional government policies such as tax incentives and other export promotion instruments.”

Non-market economies are more vulnerable to antidumping actions, hence China’s interest in no longer being treated as a non-market economy. A free-floating currency and rules that allow workers to bargain over their pay level are 2 of the 6 criteria for gaining the market-economy label.

Comments, including any written notification of intent to testify, must be submitted by May 29 to: James J. Jochum, assistant secretary for Import Administration, US Department of Commerce, Central Records Unit, Rm 1870, Pennsylvania Ave and 14^th Street NW, Washington, DC 20230.

The ’02 Farm Bill requires producers who receive a partial counter-cyclical payment (CCP) to repay the amount that exceeds the final payment rate. Under current market prices, many producers who received ’03 crop advance CCPs for various program crops likely will be required to repay all or part of that advance. Under recently announced procedures, producers will be sent a letter early this month providing them with 2 options for repaying USDA for any overpayment.

The first is a default option, and no action is required of the producer. CCC automatically will reduce any direct or counter-cyclical payments (DCP) these producers are scheduled to receive between October ’04 and March ’05 to satisfy any obligation to repay unearned ’03 crop advance CCPs. No interest will accrue on the debt using this repayment method. Payments scheduled during this period include the ’04 crop final direct payments (October ’04), ’04 crop advance CCPs (October ’04/February ’05) and ’05 crop advance direct payments (beginning December ’04). Producers will receive a statement showing the amount of reduction to satisfy the debt. If DCP funds are insufficient to repay unearned advances, CCC will notify producers in April ’05 that refunds will be collected under the procedures for Option 2.

If producers elect not to use Option 1, the second option requires them to notify their Farm Service Agency Service Center by June 15, ’04 that they wish to repay unearned CCPs by following normal repayment procedures. Under these procedures, producers will be sent an initial notification following the end of each crop’s marketing year that will inform them of their debt followed by a first demand letter approximately 30 days later.  Producers may then settle their debt by writing a check. If they have not paid within 30 days, a second demand letter will be sent that will include interest on the debt from the date of the first letter. If necessary, a third demand letter will be sent and the debt will be transferred to another agency for collection.

At this point, it appears likely that producers who received wheat, corn, grain sorghum and rice advance CCPs will have to refund all or part of those payments. Cotton and peanut CCP refunds are not likely at current prices.

USDA announced in a Federal Register notice that it will use watersheds as a basis to determine CSP participation. The $41 million budget for CSP in FY04 will permit NRCS to write 3,000-5,000 contracts. All CSP applications that meet the sign-up criteria will be placed in an enrollment category regardless of available funding. In addition to legal contract requirements, the categories will consider the applicants’ current stewardship (soil condition, tillage intensity, existing practices and activities) and will sort producers based on these factors. Categories also will examine producers’ willingness to perform additional conservation activities during their CSP contract.

Earlier this year, NRCS issued a Proposed Rule regarding CSP. NCC submitted comments on the Proposed Rule and also joined with other national commodity groups to submit joint comments. NRCS is continuing their comments’ review and hopes to have a Final Rule published by mid-June. The first sign up would occur during July and contracts could be enrolled beginning in August. The Federal Register Notice and details regarding the watershed approach and enrollment categories can be found at www.nrcs.usda.gov/programs/csp/

The House Ways and Means Committee approved legislation extending the African Growth and Opportunity Act (AGOA) by voice vote. The bill (HR 4103) would extend AGOA from its current expiration date of ’08 to ’15 and would extend a third-country fabric provision due to expire at the end of September ’04 for 3 years. The third-party provision allows least-developed countries in Africa to use fabrics not produced in the US or Africa in apparel products that can be entered into the US duty-free.

In an unusual display of bi-partisan cooperation, Chairman Thomas (R-CA) and Ranking Member Rangel (D-NY) expressed support for the bill, indicated it has broad support and predicted it would easily pass in the House.

Thomas also indicated that House leaders may decide to bundle a group of trade-related bills, including implementing legislation for Australian and Moroccan free trade agreements, into a package to expedite consideration by the House. In addition, Thomas indicated that the AGOA extension might also be considered during a “trade day” on the House floor. Thomas indicated a House version of legislation replacing the Extraterritorial Income Exclusion Act could be ready whenever the Senate completes its work.

Thomas and numerous other Congressional and Administration officials also indicated the legislation implementing the Central American Free Trade Agreement (CAFTA) is not yet ready although USTR officials did say the CAFTA language is being reviewed by legal experts and the agreement could be signed even though the implementing legislation may not be submitted to Congress until after the election.

Net export sales for the week ending April 29 were 139,700 bales (480-lb.), resulting in total ’03-04 sales of almost 13.4 million. Total sales at the same point in the ’02-03 marketing year were about 11.7 million bales. Total new crop (’04-05) sales are 1.3 million bales (480-lb.).

Shipments for the week were 301,600 bales, bringing total exports to date to 9.8 million, ahead of the 8.2 million at the comparable point in the ’02-03 marketing year.

Because there is no current quote for Memphis/Eastern Territory Middling, the California/Arizona Middling quote is being used to determine the US competitive position. Currently, the California/Arizona Middling quote is 75.25 cents per pound, which is 5.35 cents per pound above the current “A” index.  If current price relationships hold, then the week ending May 13 will represent the fourth consecutive week of conditions necessary for the restoration of Step 2 payments. Step 2 payments would then be available for the week beginning May 14.

The week ending May 13 also marks week 5 of the 6-week transition period from using current price quotations to using forward price quotations in calculating the AWP.  For the weeks ending May 13 and May 20, the formula used to determine the AWP will be the current quote plus 2 times the forward quote divided by 3. For the week ending May 27 and thereafter until the end of the ’03-04 crop year, the forward “A” will be used exclusively in calculating the AWP.

The May 12 World Agricultural Supply and Demand Estimates (WASDE) report will provide USDA’s first assessment of supply, demand and prices for the new marketing year. The report will present projections for ’04/05 for grains, oilseeds, cotton, sugar and milk, as well as calendar year ’05 projections for US meat and poultry products.

Country-level supply and demand projections for ’04/05 will commence with the May issue for world wheat, coarse grains and rice and with the June issue for world oilseeds and cotton. Previously, reporting of country-level projections for world rice, oilseeds and cotton began with the July issue.