Cotton's Week: April 15, 2005

Cotton's Week: April 15, 2005

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NCC Testifies on China Issues

NCC Vice President Robert Weil, II, joined a panel of manufacturing, recording industry, and service industry executives who presented testimony to the members of the House Ways and Means Committee during a hearing on US-China Economic Relations and China’s role in the World Economy.

The business leaders were preceded by a panel of witnesses including officials from the President’s Council of Economic Advisors, USTR and the Congressional Budget Office. Weil, as asked by the Committee, reviewed the industry’s views about the current status of China’s compliance with the World Trade Organization (WTO) accession agreement relative to trade in raw cotton, including market access, contracts, quality standards and evolving terms of trade. He discussed the on-going cooperative efforts between USDA, the US Trade Representative’s Office and the industry to monitor China’s administration of TRQs; consultations with China on quality standards and classing; and discussions about contracts and arbitration practices.

In his written statement, Weil reviewed both the status of trade in raw cotton and the documented rapid expansion of China’s textile industry and surge in exports of certain textile and apparel products to the United States. During the hearing, witnesses and Committee members expressed serious concerns about China’s undervalued currency and China’s failure to adequately enforce patents and copyrights on intellectual property and machinery. Chairman Thomas (R-CA) said that while he generally agrees with the Administration’s strategy of engaging China, he cautioned officials to note the “change in climate” and growing criticism by Democrats and Republicans.

A number of Committee members cited concerns with recent surges in textile and apparel shipments from China and urged Administration witnesses to address the problem as well as expressing support for legislation to impose duties on Chinese products the Chinese currency is not allowed to float. A number of Committee members took the opportunity to express their views on the Central American Free Trade Agreement (CAFTA) and the role of regional trade agreements in assisting US industries remain competitive with China.



ACP Briefed on Key Cotton Issues

At the American Cotton Producers’ (ACP) initial ’05 meeting in Memphis, chaired by Tranquillity, CA, producer John Pucheu, producer leaders discussed Congressional budget reconciliation, the WTO Brazil cotton case and Doha global trade negotiations. This meeting marked the first session with the expanded ACP roster from states which are participating in the NCC’s Membership Incentive Plan.

NCC Chairman Eastland reported to the ACP on recent NCC meetings he led with Secretary of Agriculture Mike Johanns and other Administration officials. He discussed NCC’s position on CAFTA and reviewed progress on the China safeguard initiatives. Eastland also emphasized the importance of the industry’s continued support for the NCC’s Committee for the Advancement of Cotton.

John Maguire, NCC senior vice president, Washington Operations, reported on the Congressional time table for several key pieces of legislation. He discussed Senate and House efforts to reach a consensus on a budget reconciliation, which could include agricultural spending reductions. His report also focused on the FY06 agricultural appropriations process, CAFTA consideration and ongoing efforts to work cooperatively with West African cotton countries. Gary Adams, NCC vice president, Economics and Policy Analysis, provided a detailed cotton economic report and outlined the spending assumptions for agriculture by the Congressional Budget Office.

NCC President/CEO Mark Lange provided a detailed status report on the US government’s process for responding to the WTO Brazil cotton decision and its impact on the Doha trade talks. He reported that the NCC was in direct consultations with the Administration and Congress on these issues.

Darryl Earnest, acting deputy administrator of USDA’s Agricultural Marketing Service Cotton Division, reported that based on the formula for setting classing fees, it would be necessary to propose an increase to the fee to a level of $1.85 per bale for the ’05 crop. He provided details of the formula calculations and discussed the Division’s classing operations, and also reviewed the issues that would come before the Triennial Universal Standards Conference, scheduled June 8-10 in Memphis.

The ACP also was briefed on Monsanto’s cotton business plan by the firm’s officials, who also conducted a question and answer period.



Sales, Shipments Stay Strong

Net export sales for the week ending April 7 were 266,000 bales (480-lb). This brings total ’04-05 sales to about 12.4 million. Total sales at the same point in the ’03-04 marketing year were slightly more than 12.9 million. Total new crop (’05-06) sales are 660,600 bales.

Shipments for the week were 360,800 bales, bringing total exports to date to 8.1 million bales, compared with the 8.8 million at the comparable point in the ’03-04 marketing year.



Budget Deadline Missed, Negotiations Continue

Budget negotiations continue, but they have missed the April 15 completion deadline.

The Senate Budget Committee chairman reportedly has told his House counterpart that the Senate could approve a ’06 budget resolution that includes cuts of up to $43 billion in mandatory spending over 5 years. That figure would split the difference between the House-passed budget which calls for cuts of $69 billion and the Senate budget which calls for $17 billion in mandatory spending cuts.

Negotiations have been complicated by apparent reluctance in both the House and Senate to make substantial cuts to Medicaid, bringing into question whether the House could achieve $69 billion in savings. The Senate budget calls for spending reductions in agriculture of $2.8 billion over 5 years, $2.4 billion less than required in the House budget.

Negotiations are expected to continue during the week of April 18. NCC will continue to work with other agriculture groups in an effort to convince budget negotiators to adopt a savings requirement for agriculture that is not greater than the $2.8 billion in the Senate budget and to leave decisions concerning how to achieve the savings to the respective agriculture committees.



NCC Commends Secretary’s Remarks on Ag Budget

The NCC praised Secretary of Agriculture Mike Johanns for the commitment he made to work with Congress so that the Administration’s budget proposal will not undermine the nation’s agricultural sector.

NCC Chairman Woods Eastland said, “We commend Secretary Johanns for noting in his testimony to the Senate Agriculture Appropriations Subcommittee that he realizes the sensitive nature of some of the Administration budget proposal recommendations, including the tightening of payment limitations, and that he is willing to work with Congress to seek alternative means to meeting the President's fiscal goals.”

Eastland noted that key House and Senate members have been working closely with both their colleagues and the Administration as well as with the agricultural community to help protect agriculture's budget in Congress. He said the NCC also will continue to work with Congress and the Administration as the annual budget process continues.



House Approves Estate Tax Repeal

The House of Representatives passed a repeal of the estate tax by a vote of 272-162. That marked the 4th time since enactment of the ’01 tax cut that House GOP leaders have won passage of permanent estate tax repeal legislation.

The ’01 law began a gradual phase-out of the estate tax, which is levied on inheritances, culminating in a full repeal in ’10. However, the repeal only will last for 1 year because tax writers included a “sunset” provision to limit the cost of the estate tax break.

It is not known what the Senate will do regarding the estate tax but it is expected that if the Senate brought up the bill it would face significant opposition.

Some estate tax repeal supporters are looking to compromise in order to improve the current situation and significantly ease the tax burden. One compromise being discussed would 1) leave the estate tax in place but increase the exemption to $10 million, meaning that the vast majority of small businesses would be able to avoid the tax, and 2) reduce the tax rate to 15%.

Sen. Kyl (R-AZ), who is a leading supporter of eliminating the estate tax, has not discussed whether he would accept a compromise. In addition, President Bush has not yet signaled he will support anything less than a full and permanent repeal of the tax.



EPA Administrator Nomination Delayed

The Senate Environment and Public Works Committee favorably reported the nomination of Steven Johnson to serve as Administrator of EPA by vote of 17-1 after the agency canceled a program that had caused members Boxer (D-CA) and Nelson (D-FL) to announce intentions to block the nominee’s approval. However, Sen. Carper (D-DE) announced his intention to block full Senate consideration until EPA provides an analysis on the White House plan to overhaul the Clean Air Act.

The NCC joined agricultural groups in urging Senate approval of the Johnson nomination.

Johnson is a 24-year veteran who served as assistant administrator of EPA’s Office of Prevention, Pesticide and Toxic Substances, where he earned reputation for balanced, science based decisions on registrations and use of conventional crop production products and genetically enhanced varieties.



Post Eradication Transition Team Meets

The NCC’s Boll Weevil Action Committee (BWAC) established the Post Eradication Transition Subcommittee to develop a framework for the BWAC to transition from coordination of active eradication programs into coordination and oversight of post eradication activities. The subcommittee, chaired by Craig Shook, Corpus Christi, TX, met in Memphis to focus on the development and timely finalization of a federal quarantine for boll weevil. BWAC asked the subcommittee take on this assignment in order to protect industry and government investment in eradication.

BWAC Chairman Charles Parker, Senath, MO, provided an overview of recent events on the development of a proposed rule on boll weevil quarantine.

Michael A. Lidsky, assistant director, Animal & Plant Health Inspection Service, PPQ, Regulatory Coordination, Riverdale, MD, said, “This meeting allowed a valuable exchange of ideas, and it has given me a greater appreciation of the task at hand in protecting the investment that the government and the producers have made in eradication.”

The subcommittee urged that APHIS explore opportunities to revise the current draft to incorporate suggestions made by the subcommittee and ready the revised draft for publication expeditiously. The subcommittee further identified that for the long term, additional authority may be necessary. For the short term, they agreed to provide outreach to non-participating cotton states to engage them in boll weevil protection programs.



AWP Announcement to Change

Beginning April 21, USDA’s Farm Services Agency (FSA) no longer will use news releases to announce the weekly upland cotton adjusted world price, the Step 2 and ELS cotton’s competitiveness payment. Instead, FSA will post the weekly announcements at: www.fsa.usda.gov/reports.asp. The information will continue to be available every Thursday at 5 pm EST.



Prices Effective April 15-21, 2005

Adjusted World Price, SLM 11/16

41.43 cents

*

Coarse Count Adjustment

0.00 cents

Current Step 2 Certificate Value

3.73 cents

Marketing Loan Gain Value

10.57 cents

Import Quotas Open

 2

Step 3 Quotas (480-lb. bales)

 240,286

ELS Payment Rate

 80.29 cents

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

 56.62 cents

Forward 3135 c.i.f. Northern Europe

59.87 cents

Coarse Count c.i.f. Northern Europe

55.03 cents

Current US c.i.f. Northern Europe

60.35 cents

Forward US c.i.f. Northern Europe

64.65 cents

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

42.96 cents

**

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

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