Cotton's Week: July 28, 2006

Cotton's Week: July 28, 2006

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Doha Round Negotiations Suspended

The Doha Round of trade negotiations was suspended as trade ministers from the G-6 group of countries could find no clear signs of progress toward an agreement. The suspension signals that the Round will not be concluded by the end of ’06 and that the United States will need to evaluate whether to extend the President’s trade negotiating authority past its June ’07 deadline.

The failure to meet previous deadlines and the lack of substantive progress in the negotiations since the Hong Kong meeting prompted trade ministers to suspend the formal aspect of the negotiation without giving up on the Round entirely.

Stating the United States “cannot be in a position of negotiating with ourselves,” US Trade Representative Susan Schwab lamented the lack of ambition reflected in the discussions among trade ministers, while stating that the United States was “ready to deal” but had not seen sufficient movement from any other member of the G-6. She said the United States remained committed to a Doha Agreement and, by the end of the week, had scheduled meetings in Brazil, Asia and with the Cairns Group of countries to sustain support for the Doha Round.

While Ambassador Schwab cited an overall failure of ambition, the EU directed virtually all of its criticism at the United States. 

Congress and many commodity groups praised the firm position taken by the Administration in Geneva. Senate Agriculture Chairman Chambliss stated that farmers are willing to reduce domestic support “only if our trading partners lower barriers that ensure new product flows.” He commented that US negotiators “will be coming home knowing that farmers and ranchers across the country stand firmly behind them.” He also noted, “where the European Union desires a deal that only protects their farmers, the United States wants a good deal that lowers barriers to trade.”

NCC Chairman Allen Helms commended Ambassador Schwab and Agriculture Secretary Mike Johanns for continuing to demand an ambitious result in the negotiations.  He stated that US negotiators “have demonstrated they clearly understand that the significant U.S. offer on market access, domestic agricultural support and export subsidies has not been matched. It may take longer than anticipated to bring the Doha Round to a successful conclusion, but the determination of the U.S. negotiating team is a positive sign for U.S. agriculture and for the world’s agricultural producers.”

USDA Issues Proposed Rule on Storage

USDA's Commodity Credit Corp. (CCC) published proposed rules in the July 3, '06 Federal Register for “storage requirements for grain security for marketing assistance loans.”

The rule proposes to no longer require federally-licensed grain warehouse operators or state-licensed grain warehouse operators to execute CCC storage agreements.

The NCC’s draft comments, which convey opposition to the proposal, have been sent to affected industry interest organizations. Industry comments to the proposal are being encouraged. Comments are due on or before Aug. 2, '06. The NCC's comments and the proposed rule are at

Final Rule Issued on CMAs

USDA issued a final rule amending Commodity Credit Corp. (CCC) regulations governing Cooperative Marketing Associations (CMA). The rule provides that a CMA is no longer required to distribute Marketing Assistance Loan (MAL) and Loan Deficiency Payment (LDP) proceeds directly to members within 15 days of receipt of proceeds from CCC.

According to the notice, the modification is being made to “resolve problems and avoid any unnecessary involvement with payment schedules between CMAs and their members…” The regulations are amended to permit delayed payment under a deferred payment agreement between the CMA and its members. The modification also eliminates a potential contradiction between CCC and IRS regulations.

Work Continues on Trade Legislation

The Senate Finance Committee considered, but due to lack of quorum, did not complete work on legislation related to the US-Peru Free Trade Agreement and Permanent Normal Trading Relations (PNTR) for Vietnam.

During a procedure known as mock mark up, which allows the Committee to review and comment on trade implementing legislation before it is formally submitted by the Administration, the Committee adopted a recommendation that would require Peru to fully open its market to US beef before the US-Peru Free Trade Agreement goes into effect. 

During a discussion on labor standards, Chairman Grassley (R-IA) agreed to work with Senator Conrad (D-ND) to enact changes to underlying statutes to address slave labor and human trafficking. Chairman Grassley also suggested that stronger consultation requirements be made part of the next Trade Promotion Authority extension legislation.

During consideration of PNTR for Vietnam (S 3495), members generally expressed support but several expressed concern about religious freedom in Vietnam. Trade relations with Vietnam are currently governed by the Jackson-Vanick provision which requires Normal Trade Relations (NTR) status to be reviewed annually.

The United States usually terminates Jackson-Vanick and extends PNTR to countries that join the WTO. The US and Vietnam completed bilateral negotiations on terms of Vietnam’s accession to the WTO last May. Vietnam’s application now will be considered by the full membership of the WTO. The vote on extending PNTR to Vietnam could be held as early as September. The House Ways and Means Committee has not held hearings on PNTR for Vietnam.

The US textile industry strongly opposes PNTR because the US-Vietnam WTO accession agreement, negotiated in May, does not include an effective safeguard. The industry wants a safeguard which could be triggered if surges in exports to the United States further damage US manufacturers -- because once Vietnam enters the WTO, existing quotas will be removed. Textile interests are concerned that government subsidies paid to Vietnamese textile and apparel companies will continue and allow manufacturers to price products well below US, CAFTA, NAFTA and Andean manufacturers.

Loan Changes Announced

USDA announced changes to the marketing assistance loan and loan deficiency payment programs - confirming changes resulting from a rule issued June 6, ’06.

The changes include: clarification that beneficial interest is lost when the loan-eligible commodity is delivered to a dairy, feed lot, ethanol plant, wool pool or other end-use facility; the world price for rice will be announced on Wednesday at 7:00 am EST; CCC primarily will use lien searches only for marketing assistance loans greater than $25,000 and file financing statements only for farm-stored MAL disbursements of $25,000 or more; and, in an effort to simplify the procedure for requesting an LDP, USDA has issued a new LDP form, CCC-633EZ.

An FSA fact sheet on the MAL and LDP programs is available online at Notice LP-2035 issued July 7, ’06 also includes detailed information about the new policies.

Crop Insurance Proposal Issued

The Federal Crop Insurance Corp. issued a proposed rule regarding changes in the Common Crop Insurance Regulations. The major change is that a producer will be able to elect either yield protection or revenue protection for barley, canola, corn, cotton, grain sorghum, rapeseed, rice, soybeans and wheat.

The revised Common Crop Insurance Regulations will replace the Actual Production History (APH), Crop Revenue Coverage (CRC), Revenue Assurance (RA), Income Protection (IP) and Indexed Income Protection (IIP) plans of insurance. The other crops, not listed above and currently insurable under the Common Crop Insurance Policy, will be insurable with the same yield or dollar protection they currently have available. The regulations are expected to be effective for ’09 fall crops with a June 30, ’08 contract change date. 

The concept is to make risk management decisions simpler for the producer as there will be less duplication of information and paperwork and fewer materials to be studied as well as a reduction of the paperwork required of companies and agents.

Written comments and opinions on this proposed rule will be accepted until the close of business on Sept. 12, ’06 and will be considered when the rule is to be made final. The NCC’s Crop Insurance Task Force will discuss these proposed changes in early August, and NCC will submit comments in consultation with the Task Force and other interested parties.

House Panels Approve POPs Legislation

Both the House Agriculture and Energy and Commerce committees approved legislation that would provide for the implementation of international treaties banning 12 toxic substances known as persistent organic pollutants or POPs. All 12 POPs already are banned in the United States.

Congress must amend the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) and the Toxic Substances Control Act (TSCA) in order to ratify the treaties and for the US to become a voting member of the international conventions. Otherwise, classification of future POPs and the authority to restrict the use of new pesticides could be decided by an international body without input from the US.

NCC joined a number of agricultural groups on a letter expressing support for the legislation.

The legislation amending FIFRA was approved unanimously during a committee mark-up session. The House Energy and Commerce Committee adopted a similar measure earlier this month that amends TSCA, which is under its jurisdiction. The respective bills are expected to be merged for consideration by the full House floor when Congress reconvenes in September.

Mill Consumption Below Year Ago Rates

According to the Commerce Dept., June (5-week month) total cotton consumption in domestic mills was 270.60 million pounds for a seasonally adjusted annualized rate of 5.84 million (480-lb) bales. Last year’s June annualized rate was 6.94 million bales.

The May (4-week month) estimate of domestic mill use of cotton was raised by 71,000 pounds to 210.27 million. The revised seasonally adjusted annualized rate of consumption for May is 5.57 million bales. This is lower than last year’s May annualized rate of 6.43 million bales.

Based on Commerce estimates from Aug. 1, ’05 through July 1, ’06, projected total pounds consumed during crop year ’05-06 would be 2.85 billion pounds or 5.94 million bales. USDA’s latest estimate of ’05-06 crop year mill use is 5.95 million bales.

Preliminary July domestic mill use of cotton and revised June figures will be released by Commerce on Aug. 24.

Shipments, New Crop Sales Strong

Net export sales for the week ending July 20 were 48,700 bales (480-lb.). This brings total ’05-06 sales to slightly more than 18.4 million. Total sales at the same point in the ’04-05 marketing year were about 16.1 million bales. Total new crop (’06-07) sales are 862,500 bales.

Shipments for the week were 487,000 bales, bringing total exports to date to 16.5 million bales, compared with the 13.3 million at the comparable point in the ’04-05 marketing year.

With less than two weeks remaining in the marketing year, weekly shipments must average roughly 333,000 bales to reach the USDA projection of 17.0 million bales.

USDA Announces Final Step 2 Payment

The Step 2 payment in effect for July 28-31 is 2.67 cents. This represents the final payment rate for the Step 2 program, which was ruled a prohibited subsidy by a WTO panel in the case brought by Brazil. The program’s termination was authorized in the Deficit Reduction Act of ’05.

The current payment is available on upland cotton consumed by mills or exported through 11:59 PDT on July 31. All applications for payment submitted by domestic users must be received in the Kansas City Commodity Office by 4:00 pm CDT on Aug. 31. All applications for payment submitted by exporters must be received in the Kansas City Commodity Office by 4:00 pm CDT on Oct. 2.

Prices Effective July 28-31 and Aug. 1-3, 2006

Adjusted World Price, SLM 11/16

44.45 cents


Coarse Count Adjustment

0.00 cents

Current Step 2 Certificate Value

2.67 cents

Marketing Loan Gain Value

7.55 cents

Import Quotas Open


Step 3 Quotas (480-lb. bales)


ELS Payment Rate

 0.00 cents

*No Adjustment Made Under Step I

Effective Aug. 1-3

Adjusted World Price, SLM 11/16 44.10 cents *
Coarse Count Adjustment  0.00  cents
Marketing Loan Gain Value   7.90 cents
Import Quotas Open               0
Step 3 Quotas as of 7/27               0
ELS Payment Rate   0.00 cents
*No Adjustment Made Under Step I
Five-Day Average
Current 3135 c.i.f. Northern Europe

58.28 cents

Forward 3135 c.i.f. Northern Europe

60.01 cents

Coarse Count c.i.f. Northern Europe

56.82 cents

Current US c.i.f. Northern Europe

60.95 cents

Forward US c.i.f. Northern Europe

64.45 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

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