Cotton's Week: July 21, 2006

NCC Chairman Allen Helms told the Senate Committee on Agriculture, Nutrition & Forestry Committee that US cotton is prepared to keep working with all interests to develop and support continuation of a balanced and effective policy for all of US agriculture.

During the hearing in Cape Girardeau, MO, that panel’s second this year on current and future farm policy, Helms told Chairman Chambliss (R-GA) that most cotton farmers and a majority of the industry would be satisfied with an extension of current law, as envisioned in the legislation authored by Sens. Talent (R-MO) and Lincoln (D-AR).

“We are increasingly concerned that the Doha Negotiations are turning against U.S. agriculture in general and against U.S. cotton in particular,” Helms stated. “They want more U.S. concessions while refusing to provide adequate market access. Worse, China, the largest cotton market in the world, wants to be exempt from any further market access commitments. If other countries cannot match the U.S. level of ambition for market access, we should either withdraw or reduce our offer on domestic support. I also want to emphasize that an agreement that singles out U.S. cotton for additional inequitable treatment will not be accepted by U.S. cotton producers.”

Helms also testified that the industry believes the current farm law “continues to provide a stable and effective national farm policy for our country. The combination of direct and counter-cyclical payments provide an effective means of income support, especially when prices are low, without distorting planting decisions. The direct payment provides financial stability required by our lenders and suppliers.”

Helms also reiterated the industry’s strong support for continuation of the marketing loan.

“The marketing loan responds to low prices, it does not cause low prices,” he stated. “It is effective because it triggers – when necessary – regardless of the cause of low prices. It ensures that U.S. cotton farmers are not residual suppliers in world markets because they are unable to compete with the treasuries of foreign governments. It is also critical that all production remain eligible for the marketing loan. Arbitrary limits signal our competitors that we are willing to be competitive on only a portion of our production.”

Helms thanked Sens. Chambliss, Talent and Lincoln for their efforts to resist efforts to dramatically reduce current payment limitations to levels which would be intolerable for cotton and rice farmers.

“Sound farm policy is of little value to the cotton industry if arbitrary, unworkable limitations are placed on benefits,” he said. “We believe limitations should be eliminated but at the very least any limitations in future law should not be more restrictive or disruptive than those in current law.” He also noted that conservation programs are an important component of effective farm policy and should be operated on a voluntary, cost-share basis.

Included in his testimony was: 1) the industry’s concern with increased ethanol production’s depressing the value of cottonseed and meal in feed markets and 2) a reminder of the value/benefits of effective promotion -- and the industry’s financing of a very successful promotion effort through a self-assessment (check-off) program.

Net export sales for the week ending July 13 were 68,900 bales (480-lb). This brings total ’05-06 sales to about 18.4 million bales. Total sales at the same point in the ’04-05 marketing year were about 16.1 million. Total new crop (’06-07) sales are 793,100 bales.

Shipments for the week were 460,600 bales, bringing total exports to date to 16.0 million bales, compared with the 12.5 million bales at the comparable point in the ’04-05 marketing year. With less than one month remaining in the marketing year, weekly shipments must average roughly 400,000 bales to reach the USDA projection of 17.0 million bales.

The G-8 leadership meeting in St. Petersburg, Russia, brought a renewed push to the slow moving Doha round of WTO talks as leaders directed their trade negotiators to meet again in an attempt to reach agreement.

WTO Director General Lamy has scheduled meetings of the G-6 trade ministers for July 23 and 24 and again on July 29 and 30 in Geneva. US negotiators continue to seek ambition in market access that has not been forthcoming from its trading partners. 

US Trade Ambassador Susan Schwab and USDA Secretary Mike Johanns briefed members of Congress regarding the latest efforts to move the Doha negotiations. While WTO Director General Lamy is seeking greater market access provisions from the EU and developing countries, he also has encouraged the Group of 90 developing country coalition to put pressure on the G-6 to reach agreement. Market access issues on tariff reductions and treatment of special and sensitive products continue to dominate the talks but other countries want greater concessions on reductions in domestic agricultural support by the United States.

After the briefing, Rep. Conaway (R-TX) said, “I have consistently stated that I will not support WTO agreements that are not just and fair for U.S. agriculture. The U.S. proposal regarding domestic support put forth this past October was an ambitious offer and to this point has been met by nothing more than inadequate proposals from others. I continue to have concerns regarding efforts by some for isolation and ‘early harvest’ of cotton. In the U.S., cotton has already eliminated the Step 2 program, reformed export credits and has committed to duty free, quota free access. Additional concessions and efforts to isolate cotton are not acceptable and will meet fierce opposition. I applaud Ambassador Schwab and Secretary Johanns for their efforts on behalf of U.S. agriculture and would encourage them to settle for nothing less than an agreement that provides an increase in net income prospects for U.S. farmers and ranchers.”

Will Coley, a Savannah, GA, warehouseman, told members of the Joint Subcommittees of the House Small Business Committee that China maintains barriers to fair trade and engages in practices that provide unfair advantages to its manufacturers. He said the US cotton industry is deeply concerned by China’s use of tax rebates to encourage exports, is troubled by the widespread use of subsidized or forgiven loans provided to China’s domestic textile industry and believes their maintenance of an undervalued currency constitutes an unfair trade practice.

Coley, who is a member of the ’05-06 cotton leadership class, testified that because China is the dominant factor in the world cotton and textile markets, it is imperative that the US cotton industry continue to cultivate that country as a US cotton fiber customer.

“It is also critical that we work with Congress and the Administration to insist that China honor her WTO commitments,” he stated. “We believe it is important that as China’s economy grows and merges into the world economy, the U.S. manufacturing base not become a casualty. That is why we are actively supporting efforts to convince China to move to allow her currency to be valued by the market. We believe support for HR 3004 creates an incentive for China to allow her currency to be valued by the market, not by artificial means.”

Coley said the US cotton industry supports the use of textile safeguards, as authorized under the WTO accession agreement, to allow the US industry to adjust to the elimination of quotas.

“We urge USTR to favorably respond to Turkey’s proposal to conduct sectoral negotiations in textiles and apparel as part of the Doha round to ensure that the textile and apparel industries in truly less developed countries are not totally displaced by China,” he stated. “We have heard criticism that the U.S. industry has had ample opportunity to adjust. As a business operator, I contend that the adjustment can’t be accomplished as long as Chinese manufacturers have the competitive advantages provided by an undervalued currency; tariff rebates; non-performing loans; and unchecked piracy of valuable designs and brands.”

The warehouseman noted that the US cotton industry has worked closely with USDA and USTR to attempt to convince China to modify its administration of tariff rate quotas so mills producing for the domestic market have equal access to imported cotton as do those who produce for export markets. The industry also has worked with USDA, USTR and the Chinese government and industry to resolve contractual issues, arbitration practices and quality standards.

Coley added that US cotton welcomed China to the WTO and “we value her as a trading partner, but she must be held accountable to the rules and commitments of WTO membership.”

The House Ways and Means Committee approved a draft bill implementing a Peru Free Trade Agreement (FTA) in a “mock mark-up” session. The procedure allows the Committee to review implementing legislation and make recommendations to the Administration before formal legislation is submitted to the Congress under fast track procedures.

Chairman Thomas (R-CA) said the legislation would not be approved prior to August recess but could be considered before the November elections. The Senate Finance Committee is expected to conduct its “mock mark-up” prior to August.

The Peru FTA would remove 80% of tariffs on consumer and industrial goods and 66% of agricultural tariffs immediately. The agreement generally is acknowledged to have a yarn forward rule of origin, which meets US cotton industry recommendations more completely than any previously negotiated FTA.

The House approved a Free Trade Agreement with Omanon 221-205 mainly party line vote. The Senate is expected to take-up the measure soon.

The agreement is viewed as having “diplomatic” as well as economic benefits. Ways and Means Committee Chairman Thomas (R-CA) said, “The agreement has importance far beyond its economic benefits.” Opponents cited insufficient labor laws and concerns about a previous port security arrangement as basis for their opposition.

The agreement removes 100% of duties on consumer and industrial goods and 87% of tariffs on agricultural products upon implementation. (US-Oman trade totaled $748 million in ’05, with US exports totaling $330 million.) The agreement, the fifth between the US and a Middle Eastern country, is part of the Administration’s announced goal of creating a US-Middle East Free Trade Area.

The US textile industry (National Council of Textile Organizations) opposed the agreement because it includes exceptions to the yarn forward rule of origin.

The EPA Office of Pesticide Programs is reviewing the benefits of FMC’s Furadan 4L, an early season insecticide for thrips control in cotton and used historically as a foliar application for aphids in cotton under Section 18 Emergency Exemptions.

The agency also is responding to a Section 18 application from Mississippi for aphid control problems. Louisiana recently issued a crisis exemption for Furadan for a similar situation.

Carbofuran, the active ingredient in Furadan, is one of the thousands of chemicals to be re-assessed by EPA since the since the Food Quality Protection Act (FQPA) was signed into law in ’96. Congress designed this legislation to ensure that all pesticides are periodically re-evaluated for adherence to current safety standards and are supported by up-to-date scientific data. August marks EPA’s deadline to complete the Congressionally-mandated review of pesticide residues and tolerances in food.

Throughout FQPA implementation, NCC continues to communicate its scientifically-grounded support for crop protection products used by cotton growers.

In NCC Chairman Allen Helms’ recent letter to EPA, he: 1) emphasized the benefits of Furadan to cotton, especially for aphid control, and 2) asked the agency to consider the low dietary risk and minimal ecological impact of Furadan used in cotton. Helms added that Louisiana’s and Mississippi’s recent petitions to EPA for Section 18 emergency exemptions to control aphid pressure in certain counties exemplify the need for Furadan to remain on the market.

Adjusted World Price, SLM 11/16	43.05 cents	*
Coarse Count Adjustment	0.00 cents
Current Step 2 Certificate Value	2.38 cents
Marketing Loan Gain Value	8.95 cents
Import Quotas Open	0
Step 3 Quotas (480-lb. bales)	0
ELS Payment Rate	0.00 cents
*No Adjustment Made Under Step I
Five-Day Average
Current 3135 c.i.f. Northern Europe	56.77 cents
Forward 3135 c.i.f. Northern Europe	58.61 cents
Coarse Count c.i.f. Northern Europe	55.35 cents
Current US c.i.f. Northern Europe	59.15 cents
Forward US c.i.f. Northern Europe	62.65 cents
2005-06 Weighted Marketing-Year Average Farm Price
Year-to-Date (August-May)	47.77 cents	**
**August-July average price used in determination of counter-cyclical payment