Cotton's Week: July 23, 2004

Cotton's Week: July 23, 2004

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NCC: Draft WTO Framework Unacceptable

A draft WTO framework agricultural agreement circulated in Geneva unfairly singles out cotton, raising further concerns for US negotiators. The document was developed by the WTO General Council's office in an effort to get the stalled Doha Round negotiations back on track. It was circulated to Member countries late last week and is the subject of ongoing negotiations. A July 30 deadline has been set for efforts to reach agreement on a draft framework text.

The draft makes 4 specific references to cotton while no other commodity is specifically mentioned. NCC Chairman Woody Anderson said that, "the draft WTO framework document contains many pitfalls for US agriculture. From a cotton perspective, the draft is unacceptable."

While moving the cotton discussion back into the agriculture negotiating group, the draft document would: 1) potentially subject cotton to unequal reductions in product-specific AMS support; 2) establish a different level of ambition for cotton than other commodities; 3) establish a link between trade policy rules for cotton and developmental objectives; and 4) mandate that work on cotton be measured against a higher standard than work on other commodities. Anderson stated that the draft text "unfairly and unnecessarily singles out the cotton program and opens up US cotton to unequal treatment and unreasonable expectations."

Sen. Cochran (R-MS), chairman of the Senate Agriculture Committee, and other Congressional members have contacted US negotiators, including USTR Ambassador Robert Zoellick, to discuss the negotiation and the singling out of the US cotton program.

The NCC previously has sent letters to the Administration stating it could not support a WTO Agreement that unfairly singled out cotton for special treatment. Ambassador Zoellick, in his statement to the G-90 group of developing countries in Mauritius, also indicated that cotton should be dealt with within the agriculture negotiations and should not be singled out for special treatment.





NCTO Holds Inaugural Annual Meeting

The National Council of Textile Organizations’ (NCTO) first annual meeting in Washington was attended by NCC Chairman Woody Anderson and President/CEO Mark Lange.

NCTO is the successor organization following the consolidation of ATMI and AYSA. The organization honored Sen. Hollings (D-SC) for his service to the industry. Sen. Hollings is retiring at year’s end after 38 years.

Anderson and Lange joined 100 textile and fiber representatives in making calls on 48 Representatives and 25 Senators to outline the textile industry’s legislative and trade policy priorities. The organization is asking the Congress and Administration to fully utilize safeguards included in the WTO rules when imports from China threaten to disrupt US markets.

NCTO also has joined with 90 organizations from 49 countries to urge the WTO to hold a special session to discuss the implications of eliminating all quotas on trade in textile and apparel products effective Jan. 1, ’05. According to NCTO Chairman Gant, “over 75% of the remaining 700,000 US textile and apparel jobs along with 30 million other workers around the world are at risk over the next 2 years.”





FAO Study Finds Minimal Price Impacts

An economic analysis released by the Food and Agriculture Organization (FAO) of the United Nations confirms the findings of several other studies by concluding that the US cotton program has only minimal impacts on world cotton prices. The independent analysis indicates that the impact of the US cotton program on world prices is approximately 2%, and further reports that the elimination of cotton domestic supports and tariffs across a number of countries (excluding China) would result in only a 3.1% increase in world prices.

The FAO study adds to a growing list of analyses that have concluded that world price impacts due to the US cotton program is roughly 2%. Other studies reporting similar results have been published by Texas Tech U., the International Monetary Fund, and Australia’s Cotton Research and Development Corp.

The FAO report also critiques a number of studies regarding the US cotton program, including the analysis done by Professor Dan Sumner for Brazil as part of the WTO case and the estimates of price impacts that have been published by ICAC. The FAO report raises a number of questions and concerns about assumptions in those studies and points out that those assumptions lead to overestimated price impacts.





House Subcommittee Holds Crop Insurance Hearing

Rep. Moran (R-KS), chairman of the House Agriculture Subcommittee on General Farm Commodities and Risk Management, held a hearing this week to review the federal crop insurance program. The hearing follows up on a series of hearings held last year – at which NCC testified - where producers acknowledged progress since the passage of the Agriculture Risk Protection Act of ’00 (ARPA), but raised some areas of ongoing concern. 

The subcommittee heard from Dr. Keith Collins, chairman of the Federal Crop Insurance Corp. and chief economist at USDA, and Ross Davidson, administrator of the Risk Management Agency (RMA). The panel responded directly to the 25 crop insurance related issues collectively raised in previous hearings.

Many Congressional members have been concerned about multi-year losses. Davidson pointed out that USDA agreed to put this issue on a fast track, and in May held a pre-proposal conference to solicit proposals to address decline in producers APH yields due to multi-year drought/loss. RMA will seek proposals for a new or modified approach to establishing approved APH yields that are less subject to decreases during successive years of low yields as compared to current procedures.

RMA also has contracted for a study to determine the best mechanism to offer a good experience discount for those who remain in the program and who have generally good insurance experience relative to producers of the same commodity in the same area.

ARPA required a feasibility study on this issue, which has been completed. The current contract will propose the best method for development and implementation by RMA.





Panel Approves Endangered Species Revisions

The House Resources Committee, chaired by Rep. Pombo (R-CA), marked up 2 separate bills offered by Rep. Cardoza (D-CA) and Rep. Walden (R-OR) amending the Endangered Species Act (ESA).

The Cardoza bill is designed to revise critical habitat designations to reduce litigation against the Fish & Wildlife Services (FWS), and gives the FWS additional time to determine and create a critical habitat. Additionally, it exempts private landowners in local governments from critical habitat designations if a voluntary conservation plan is already in place and .

is designed to give additional weight to information that is generated from field work instead of modeling in the formation of critical habitat.

The Walden bill requires a more stringent application of sound science in the designation of endangered species and critical habitat. The bill requires peer review of data submitted in support of an action by FWS to be carried out by a non-biased 3-member panel.

The NCC discussed these bills with members from cotton producing districts and helped generate support for this effort.





US-Morocco FTA Bill Approved

The House (323-99) and Senate (85-13) overwhelmingly approved legislationimplementing the US-Morocco Free Trade Agreement. The approval makes Morocco the first African nation and the 8th nation with which the US has a free trade agreement.

Last week, Congress approved an FTA with Australia, and the US now has FTAs with Israel, Canada, Mexico, Jordan, Chile and Singapore.

Under the Moroccan FTA, about 95% of trade in industrial and consumer goods will be duty-free immediately. The US and Morocco had 2-way trade totaling about $860 million in ’04 with the US having a $66 million surplus including exports of corn, aircraft and machinery.

The NCC and the National Council of Textile Organizations (NCTO) opposed the agreement because it includes a provision which allows Morocco to utilize yarns and fabrics produced in third countries, including China, as components in apparel assembled in Morocco that could then enter the US duty-free. NCC and NCTO consistently have urged USTR to negotiate FTAs that provide preferential access to products assembled using components manufactured in the US or the partner country.





Egyptians Assess Boll Weevil Risks

An Egyptian Phytosanitary Team concluded a 9-day US tour assessing boll weevil risks. The tour was sponsored by USDA’s Foreign Agriculture Service and Animal & Plant Health Inspection Service (APHIS), the NCC and Cotton Council International.

The Egyptian group was escorted by USDA and NCC representatives to Memphis, TN; Greenville, MS; and to Corpus Christi and Lubbock in Texas to see open cotton bolls and demonstrations of ginning techniques. The Egyptians’ visit followed an earlier one on which they received a briefing from APHIS explaining the US boll weevil eradication program and how US harvesting, ginning and baling procedures eliminate the risk of US exports transporting live boll weevils.

In the past, Egyptian quarantine requirements have made it difficult for Egypt to import US cotton. However, the United States hopes information the Egyptians gathered, coupled with the knowledge derived from APHIS, will enable them to import more US cotton.





Shipments Strong, Sales Down

USDA said net export sales for the week ending July 15 were 152,400 bales (480-lb.), resulting in total ’03-04 sales of almost 15.1 million. Total sales at the same point in the ’02-03 marketing year were about 13.2 million bales. Total new crop (’04-05) sales are 2.7 million bales.

Shipments for the week were 289,500 bales, bringing total exports to date to 13.1 million bales, ahead of the 11.3 million bales at the comparable point in the ’02-03 marketing year.





A Index to Reflect C/F Far East Values

Beginning Aug. 1, the Cotlook A Index, widely regarded as the barometer of world cotton prices, will represent Far Eastern values, rather than CIF North Europe. This action does not mean that calculation of the European values will be discontinued. The 2 previous Indices will, from Aug. 1, be denoted as the A(NE) and the B(NE), and they will continue to be published, in a revised format, in all of Cotlook’s daily and weekly services.

Because both European values will continue to be published, USDA will continue to calculate the cotton marketing loan provisions in the same manner.

Cotlook has published a Far Eastern (FE) Index since ’03 to reflect the change in patterns of world trade since China’s entry into the WTO. The FE Index operates in a similar manner to the A Index apart from its treatment of African Franc Zone components and has, to date, typically shown a modest discount to the established North European A Index. The ‘A Index’ from Aug. 1 will represent an average of the cheapest 5 quotes from a basket (currently 19) of quotations of Middling 1-3/32” or equivalent qualities, except that only 2 African Franc Zone quotations are allowed in the Index on any day. The basis of the A(NE) and B(NE) will remain the same.





Prices Effective July 23-29, 2004

Adjusted World Price, SLM 1 1/16

40.30 cents

*

Coarse Count Adjustment

0.00 cents

Current Step 2 Certificate Value

10.39 cents

Marketing Loan Gain Value

11.70 cents

Import Quotas Open

 3

Step 3 Quotas (480-lb. bales)

 356,008

ELS Payment Rate

 32.69 cents

*No Adjustment Made Under Step I
 
Five-Day Average
 
Current 3135 c.i.f. Northern Europe

56.86 cents

Forward 3135 c.i.f. Northern Europe

54.98 cents

Coarse Count c.i.f. Northern Europe

52.98 cents

Current US c.i.f. Northern Europe

67.25 cents

Forward US c.i.f. Northern Europe

54.25 cents

 
2003-04 Weighted Marketing-Year Average Farm Price  
 
Year-to-Date (August-May)

62.60 cents

**

**August-July average price used in determination of counter-cyclical payment



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