Cotton's Week: March 11, 2005

Cotton's Week: March 11, 2005

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Budget Panels Approve Respective Proposals

The Senate and House Budget committees passed their respective budget proposals out of committee.

Senate Agriculture Committee Chairman Chambliss (R-GA) worked very closely with Senate Budget Committee Chairman Gregg (R-NH) to see that any reconciliation instruction to the Agriculture Committee be as close to zero as possible. The Senate Budget Committee’s bill would require the Agriculture Committee to achieve reductions of $2.8 billion in mandatory spending under the committee’s jurisdiction over 5 years.

Sen. Chambliss briefed agriculture groups on the budget. While he did not want agriculture to face any cuts, it was his belief that the number passed by the Budget Committee would not cause major cuts to any programs and was not disproportionate to cuts other committees will face. During the Committee mark up, however, Sen. Grassley (R-IA) offered a non-binding Sense of the Senate amendment, which passed, supporting the tightening of payment limitations. Cotton Belt Sens. Alexander (R-TN), Cornyn (R-TX), Graham (R-SC) and Sessions (R-AL) opposed the amendment.

The House Budget Committee passed a budget proposal that contained a much larger number. The House plan would require the House Agriculture Committee to achieve reductions of $5.4 billion in mandatory spending under the committee’s jurisdiction over 5 years. Some House Members are concerned that the amount of reductions being asked of the Agriculture Committee was higher than the number passed by the Senate Budget Committee and higher than the President’s budget proposal.

Both of these budget proposals face obstacles from several fronts when floor debate begins next week. If both proposals pass as currently written, the Budget committees would be forced to reconcile the different numbers in each chamber’s respective budget during conference.

The NCC will continue to work with Congressional members as the budget process continues.



NCC Discusses WTO Appellate Finding With DC Officials

NCC organized meetings this week in Washington, DC, focused on the WTO appellate finding in the Brazilian cotton dispute. NCC staff met with officials of USTR, in a joint session of USDA administrators and USTR officials, in separate sessions with House and Senate Ag committee staff and legislative aides, with other cotton related associations, and with representatives of commodity and general farm organizations.

NCC President Mark Lange, accompanied by Senior Vice President John Maguire, Vice President Gary Adams and General Counsel William Gillon, presented a summary of the appellate body’s findings and a discussion of NCC plans for a coordinated response with the Administration, Congress and agricultural interests.

USDA and USTR hosted a meeting of the commodity and farm interest organizations. USDA Secretary J.B. Penn and USTR Ambassador Allen Johnson noted the importance of developing an appropriate US response and maintaining communications. USDA attorney Peter Bonner briefed the group on the findings related to the export credit guarantee program and the Step 2 program. USTR attorney Juan Millan discussed the findings on peace clause, direct payments and serious prejudice. Both Secretary Penn and Ambassador Johnson stressed that the findings were not cause for immediate changes in US farm policy.

Ambassador Johnson and Secretary Penn stated that in constructing its response to the findings, the US would be mindful of many facets of international relations and domestic policy. Secretary Penn indicated he expected consultations to begin in the very near future with the Export Credit Working Group on the implications for the GSM export credit program. He also noted that an excellent working relationship had been established with the NCC, and he had been informed that the NCC already was working on Step 2 considerations.

The group also was informed that other agencies, including the White House and the Security Council, eventually would be involved in formulating official US responses to the findings.



Shipments Strong, Sales Steady

Net export sales for the week ending March 3 were 205,300 bales (480-lb). This brings total ’04-05 sales to more than 11.4 million. Total sales at the same point in the ’03-04 marketing year were approximately 11.8 million. Total new crop (’05-06) sales are 537,300 bales.

Shipments for the week were 399,300 bales, bringing total exports to date to 6.3 million bales, compared with the 6.7 million at the comparable point in the ’03-04 marketing year.



Government Urged to Self-Initiate Safeguards

The US textile industry, fiber producing sector and labor union, UNITE HERE, called on the US government to immediately self-initiate the WTO-sanctioned safeguard mechanism to limit the very real and severe damage being inflicted by China to the US industry. The safeguard would allow China to continue to expand its exports to the US, but would limit growth to 7.5% above their shipments in the first 12 months of the most recent 14 months.

During a Washington, DC, news briefing, the American Manufacturing Trade Action Coalition (AMTAC), the National Council of Textile Organizations (NCTO), the National Textile Assoc. (NTA), UNITE HERE and the NCC pointed to US Office of Textiles and Apparel data showing that in Jan. ’05 (the first month following textile/apparel products quota expiration) imports from China in major apparel products doubled compared to Jan. ’04. Some particularly sensitive products such as cotton trousers saw import increases of as much as 1,001%. In Jan. ’05, China took a 35% share of the US import market for textiles and a 22% share for apparel. Total Chinese share of the US import market was 29% -- the highest share of any single country in history. At the same time, textile and apparel job losses have accelerated sharply with more than 12,000 jobs lost in the combined sector in January. At least 7 US textile plants already have closed this year.

They pointed out that because January import numbers contain a significant amount of goods shipped from China while China was still under quota, the January figures are considered only a portent of what is to come. Chinese Customs figures released earlier this week showed a 546% increase in exports of goods shipped from China in January. These goods will be reflected in Feb. ’05 US import statistics, which are scheduled for release in mid-April. The industry is urging the Administration to release preliminary figures on February imports now.

Also noted was that Chinese prices in January dropped an average of 22% compared to prices one year ago, with the average Chinese price in Jan. ’04 of 1.25 per square meter compared to $1.61 per square meter in Jan. ’04. Furthermore, imports from China in the apparel categories where the US industry filed threat-based safeguard petitions were up dramatically. Overall, imports from China in those categories doubled in January, increasing from 45 million square meters to 89 million square meters.

Total US imports of cotton trousers increased 14.7 million pairs in Jan. ’05 compared to Jan. 04. The increase in imports of cotton trousers from China was 17.4 million pairs for the same time period. The 2.7 million pair difference translates into a loss of US market share for cotton trousers for other countries. Some of the countries experiencing reductions in shipments of cotton trousers to the US include El Salvador (-33.3%), NAFTA (-3.7%), Malawi (-46.7%), Mauritius (-38.8%), South Korea (-35.2%) and Taiwan (-27.2%).

UNITE HERE President Bruce Raynor agreed, saying, “Quotas have expired, imports from China are soaring, and nearly 10,000 apparel and textile workers lost their jobs in the first 60 days of 2005. These job losses highlight the immediate need to implement the China safeguard. The U.S. government has the power to act and it must do so immediately.”

NCC Chairman Woods Eastland noted that Jan. ’05 US cotton mill use's seasonally adjusted annualized rate of 6.18 million bales was down from Dec. ’04's and Jan. ’04's comparable rates of 6.43 million and 6.46 million bales, respectively.

"The flood of Chinese shipments to the U.S. following the January 1 lifting of textile and apparel quotas comes as no surprise," Eastland said. "That surge is evidenced by China Customs data which shows that China shipped almost 26.7 million pairs of cotton trousers to the U.S., a 1,332 percent increase over January 2004. That's larger than total U.S. imports of cotton trousers from China for all of 2004. The use of safeguards is completely consistent with and a part of China’s WTO accession agreement. These data clearly demonstrate the importance of having a system that allows for the early monitoring of U.S. trade data as well as a resolve by the U.S. government to make full and timely use of safeguard provisions."



USDA Sees Lower US, World Cotton Stocks

In its March report, USDA gauged US ’04-05 cotton production at 23.0 million bales. Mill use was unchanged at 6.3 million and exports were raised 200,000 bales to 13.2 million bales. The estimated total offtake now stands at 19.5 million bales, generating ending stocks of 7.1 million bales. The estimated ending stocks-to-use ratio is 36.4%.

USDA released ’05-06 projections during last month’s Agricultural Outlook Forum. US production is estimated to be 18.7 million bales for ’05-06. Mill use is set at 6.0 million bales while exports are reported to reach 14.0 million bales. Thus, the estimated total offtake stands at 20.0 million bales, resulting in ending stocks of 5.9 million bales.

The agency’s March report also noted that world production for the ’04-05 marketing year was estimated to be 117.7 million bales, up 990,000 bales from the February report. World mill use was raised 360,000 bales to 106.2 million. Consequently, world ending stocks are estimated to be 47.6 million bales for a stocks-to-use ratio of 44.8%.

USDA also released ’05-06 world projections during last month’s Agricultural Outlook Forum. World production is estimated to reach 103.0 million bales for ’05-06, and mill use is set at 109.0 million bales. So, world ending stocks are estimated to be 41.6 million bales for a stocks-to-use ratio of 38.1%.



Step 3 Import Quota Opened

Competitiveness provisions triggered a Step 3 quota based on price conditions for the week ending March 10. When the Friday through Thursday weekly average US northern Europe price, adjusted for the value of the cotton market user certificate (Step 2), exceeds the northern Europe price ("A" Index) for 4 consecutive weeks, a special Step 3 import quota is triggered.

The quota is for 120,143 bales (480 lb), equal to one week of upland cotton mill use based on the most recent 3 months’ seasonally adjusted data. The quota will be established as of March 17 and applies to upland cotton purchased no later than June 14 and entered into the US no later than Sept. 12, ’05.



Prices Effective March 11-17, 2005

Adjusted World Price, SLM 11/16

40.95 cents

*

Coarse Count Adjustment

0.00 cents

Current Step 2 Certificate Value

3.37 cents

Marketing Loan Gain Value

11.05 cents

Import Quotas Open

 0

Step 3 Quotas (480-lb. bales)

 0

ELS Payment Rate

79.80 cents

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

56.03 cents

Forward 3135 c.i.f. Northern Europe

No Quote

Coarse Count c.i.f. Northern Europe

 53.97 cents

Current US c.i.f. Northern Europe

 59.40 cents

Forward US c.i.f. Northern Europe

 No Quote

 
2004-05 Weighted Marketing-Year Average Farm Price  
 
Year-to-Date (August-January)

 43.68 cents

**

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

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