Cotton's Week: March 2, 2007

NCC Chairman John Pucheu, speaking to the Southern Cotton Ginners Assoc. Ag Update in Memphis, said new farm legislation should be patterned after the basic provisions of the ’02 farm law.

“Continuation of an effective marketing loan that is applicable to all production is the foundation of such a farm policy,” the Tranquillity, CA, producer said. “A fully functioning marketing loan allows U.S. cotton to remain competitive in domestic and world markets.”

Pucheu told the group that Secretary of Agriculture Mike Johanns often reminds the US cotton industry that we export 80% of our annual production and we need greater market access.

“It is interesting to note that quotas and duties are essential components of current domestic biofuels policy,” Pucheu said. “Had the same protection been extended to our domestic textile industry in the past decade, our cotton export picture would look entirely different than it does today. Imagine what U.S. cotton prices would be like if our mills still used 12 million bales of cotton.”

Reiterating the NCC’s position that market access is a critical component of Doha negotiations, Pucheu asked, “Where is China in the Doha negotiations? What is the U.S. seeking in market access commitments from China? The National Cotton Council has made clear that its support for the ambitious U.S. proposal on reductions in domestic support is predicated on commensurate increases in market access. That means credible clear-cut results on China.

"The Secretary stresses the need for new farm policy to be WTO compliant. All of U.S. agriculture agrees that negotiating from a position of strength in the Doha round is preferable to unilateral disarmament. Writing a weak farm bill today that attempts to meet unknown future disciplines that might arise from negotiations that are currently showing little movement does not seem like a sound strategy.”

Noting the Administration’s recent proposal includes a means test of $200,000 in adjusted gross income limiting program eligibility, Pucheu emphasized, “At a minimum, this proposal introduces significant uncertainty about year-to-year eligibility which undermines the objective of establishing predictable farm policy. Means testing continues to be bad policy. It has no relevance to global competitiveness or WTO compliance and it discriminates against commercial-size operations.”

Pucheu said the first step will be to insure that the agriculture committees have adequate budget authority to write effective farm policy.

“Congress will write the new farm law within the funding guidelines set by the Congressional Budget Office and the Congressional Budget Resolution,” he said. “Without a substantial increase in funding, it will be extremely difficult for Congress to write new legislation that maintains effective commodity programs and responds to calls for enhanced conservation programs, a new specialty crop title, a new renewable energy title, enhanced nutrition programs, additional research, a permanent disaster program, and renewal of the dairy program.”

Chiedu Osakwe, the director of Special Programs for the World Trade Organization, requested discussions with NCC representatives following the NCC teleconference media briefing regarding the upcoming WTO "High Level Session" on cotton.

Several cotton industry leaders recently expressed concern that because thatSession had been scheduled in the middle of the Compliance Panel’s deliberations in the Brazil cotton case, it raised questions about the WTO’s impartiality in this matter and could undermine the compliance process (see 2/23 Cotton's Week).

NCC Vice President Gary Adams and William Gillon, outside Counsel, in Geneva because of the Compliance Panel hearing, met with Mr. Osakwe. They noted that while the US cotton industry supported a Doha Agreement that would be beneficial to all parties, the consistent efforts to single out cotton (and specifically the US cotton program) were creating opposition to the negotiations within the US cotton industry.

Mr. Osakwe stated that Pascal Lamy, the director-general of the WTO, had not purposefully scheduled the session to correspond with the Panel’s deliberations, but that the session was part of his responsibility to consolidate and make further progress on developmental assistance activities to support African cotton producing countries. He stressed that the independence of the dispute settlement process was a critical matter to the  director-general. He believed it to be the foundation of the trading system and would not allow its independence to be compromised.

The NCC representatives stressed that it was unfortunate the cotton issue seemed to have evolved into an attack on the US cotton program specifically and that without devoting similar attention to the need for internal reform within W. Africa and for greater market access by China and other importing countries, the WTO’s efforts would miss the mark for Africa.

Mr. Osakwe conveyed his appreciation for the NCC’s role in assisting the US government in developmental projects in Africa and indicated the WTO Secretariat wished to remain constructively engaged with the US cotton industry as the Doha Round progressed.

The Panel, established to review Brazil’s compliance case against the US cotton program and against export credit guarantees, completed two days of hearings in Geneva.

Brazil insists that despite the termination the US cotton program’s Step 2 component, the cotton program continues to cause serious prejudice to Brazil by significantly suppressing world market prices for cotton.

Brazil asserts that the US cotton marketing loan and the counter-cyclical program were significantly suppressing the world market price of cotton and that the modified export credit guarantee program should still be determined to be an export subsidy.

NCC's Adams and Gillon were in Geneva to assist the US defense team and report their observations, but were not members of the US delegation and could not sit in the hearing.

During the two days of hearings, the NCC representatives observed Andrew McDonald, a former Brazilian textile executive; Daniel Sumner, former USDA assistant secretary for Economics; and members of the law firm Sidley & Austin; accompanying the Brazilian delegation into the hearing. Both sides will have the opportunity to make limited rebuttal submissions to the Panel concerning issues raised during the proceedings and to provide answers to any Panel questions. The Panel's decision is expected in May.

House Agriculture Committee Chairman Peterson (D-MN) has indicated that he and his colleagues are pressing House leaders and appropriators to include funding to provide assistance to farmers and ranchers who have suffered losses in the last two years due to disastrous weather conditions. The funding also is expected to include coverage for losses suffered by ranchers due to winter blizzards and for California specialty crop producers who suffered losses due to the recent frost.

Estimates of funding range from $4.0-4.5 billion, but neither the total funding nor structure of the payments has been determined. Members advocating for inclusion of a disaster program in the supplemental war spending bill, which will be considered by the House Appropriations Committee the week of March 5, have urged that the funding be designated as emergency spending, which does not require an offset. Secretary Johanns, testifying before a Senate committee, indicated the Administration would insist on spending reductions to offset the cost of a disaster package.

The House Agriculture Committee approved the “budget views and estimates” letter to the Budget Committee. The letter summarizes the Ag Committee’s budget recommendations for programs under its jurisdiction.

According to Chairman Peterson (D-MN), the letter is an early step in developing the ’07 farm bill because the budget determines the funding available to write the legislation. The Committee’s letter, according to Chairman Peterson, made three key points:  the ’02 farm bill is fiscally responsible; it is popular in farm country; and it “serves farmers, ranchers, needy citizens, and consumers.”

The letter explains to the Budget Committee that there is a need for additional resources to develop a strong energy title, and provisions for specialty crops, conservation, food stamps and the Milk Income Loss Contract (MILC) program. A copy of the letter is available on the NCC’s web site at http://www.cotton.org/issues/2007/upload/FinalBudgetViewsLetter2008.pdf.

In a related matter, House Budget Committee Chairman Spratt (D-SC) indicated he may mark up the FY08 Budget Resolution as early as the week of March 12.

The Joint Cotton Industry Bale Packaging Committee (JCIBPC), conducting its 40^th annual meeting in Memphis, agreed that increased emphasis should be placed on educating ginners about the need for producing uniform bales. The JCIBPC recognized that bales with sloping heads do not stack as efficiently and can pose a safety concern – one that is exacerbated by the current large supply of cotton bales in US warehouses.

The JCIBPC also recommended that packaging manufacturers begin supplying to the end users of approved packaging products a certificate of analysis (COA) on a voluntary basis for ’07. The aim is to ensure that manufacturers adhere to the industry bale packaging specifications. JCIBPC Chairman Lee Tiller said COA’s will become a mandatory requirement in ’08. The Committee also updated the current specifications with a definition of extruded seam bags – an action resulting from some bag failures on the ’05 crop.

In other action, the JCIBPC approved two new woven polypropylene bags: an extruded seam bag with modified construction and a spiral seam bag with 8x8 yarns per square inch fabric construction.

Test programs approved for ’07 included: 1) two fully-coated, circular woven bags, 2) a lighter weight spiral sewn polypropylene bag and 3) a woven cotton bag. Based on changes made in the ’06 specifications for cotton bale packaging materials, a compatibility test program also was granted for plastic strapping – which saw increased usage in ’06. Tiller said this test is to demonstrate that plastic strapping which meets the approval criteria can be used successfully in currently-approved strapping systems.

EPA approved a request from registrant AmVac for early season use of dicrotophos insecticide (Bidrin).

NCC staff, AmVac representatives, entomologists and crop consultants representing the Mid-South and Southeast met with EPA in December to convey the importance of making an early-season use option available to growers in light of shifting pest pressures on young cotton and changing insecticide use patterns. In subsequent documents to EPA, university entomologists emphasized that Bidrin is a key foliar thrips control product that does not flare spider mites and cotton aphids. 

Upon completion of its product review, EPA stated, “The Agency therefore agrees that allowing a single reduced application of dicrotophos at 0.2 lb ai/A to treat pests in early season cotton will likely reduce the overall number of pesticide applications.”

A new label will be developed by AmVac to reflect the changes and approved applications for new production. Users should use products only as the label in hand specifies.

Net export sales for the week ending Feb. 22 were 169,300 bales (480-lb). This brings total ’06-07 sales to slightly more than 8.2 million. Total sales at the same point in the ’05-06 marketing year were approximately 13.2 million bales. Total new crop (’07-08) sales are 338,500 bales.

Shipments for the week were 215,200 bales, bringing total exports to date to 4.6 million bales, compared with the 7.4 million bales at the comparable point in the ’05-06 marketing year.

Adjusted World Price, SLM 11/16	43.50 cents	*
Coarse Count Adjustment	0.00 cents
Marketing Loan Gain Value	8.50 cents
Import Quotas Open	8
Step 3 Quotas (480-lb. bales)	780,925
ELS Payment Rate	0.00 cents
*No Adjustment Made Under Step I
Five-Day Average
Current 3135 c.i.f. Northern Europe	59.60 cents
Forward 3135 c.i.f. Northern Europe	NA
Coarse Count c.i.f. Northern Europe	NA
Current US c.i.f. Northern Europe	61.45 cents
Forward US c.i.f. Northern Europe	NA
2006-07 Weighted Marketing-Year Average Farm Price
Year-to-Date (August-January)	47.81 cents	**
**August-July average price used in determination of counter-cyclical payment