Cotton's Week: March 16, 2007

Cotton's Week: March 16, 2007

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Budget Panel Approves Resolution

The Senate Budget Committee approved the Budget Resolution on a 12-11 party-line vote. The Senate is expected to begin debate on the measure March 20.

The blueprint is designed to bring the Federal budget into balance by ’12. The resolution sets spending and revenue targets for FY08-12. The resolution, as approved by the Committee, includes language that creates a $15 billion reserve fund for agriculture.

In order to access the $15 billion reserve, members would have to identify offsets in federal spending in order to use the funds because the Resolution includes language that any legislation utilizing the reserve funds “would not increase the deficit over the total of the period of fiscal years 2007 through 2012.”

The House Budget Committee is expected to consider its version of the budget resolution during the week of March 19.



Supplemental Spending Bill Approved

The House Appropriations Committee approved a supplemental spending measure 36-28 on a largely party-line vote. Republicans expressed opposition to provisions that set dates for withdrawal of US forces from Iraq.

The measure, which provides a total of $124 billion in supplemental funding, includes an extension of the Milk Income Loss Contract (MILC), an additional year of peanut storage payments for the ’07 crop and $3.7 billion for agriculture disaster assistance.

The disaster provision covers ’05, ’06 or ’07 crop losses (which occur prior to the legislation’s enactment). The producer may choose the year to be covered, and the coverage includes quantity and quality weather related losses. The program will be operated the same as for ’01 crop losses except the payment rate will be 50% of the established price.

The legislation is expected to be considered by the House the week of March 19.


Market Access Comments Submitted

The NCC submitted comments to the Office of the US Trade Representative regarding implementation of duty-free, quota-free market access for the least-developed countries (LDCs), as included in the Hong Kong Ministerial Declaration.

The NCC stated it did not support early implementation of the duty-free, quota-free provisions prior to the conclusion of a Doha Agreement, asserting that providing this unilateral benefit should be contingent upon completion of a Doha Agreement.

In the submission letter, NCC Chairman John Pucheu stated, “All countries need to have a significant stake in the conclusion of a Doha Round Agreement or it will not be completed. The promise of duty-free, quota-free access, should a Doha Round Agreement be concluded, could encourage the least-developed countries to have a positive impact on the negotiations as the benefits they would gain would be clear.” 

The NCC expressed concern that the impact of a duty-free, quota-free policy for all LDCs likely would have a negative impact on the US textile industry and its workers.

The NCC urged the United States to:  1) manage implementation of this provision so that trade conducted under existing free trade and preferential trading arrangements is not harmed; 2) maintain the flexibility provided in the Hong Kong Ministerial Declaration; 3) exclude apparel items sensitive to the US textile industry, the CAFTA/NAFTA regions or other countries benefiting from a free trade agreement or preferential trade agreement with the United States; and 4) ensure that individual WTO members would be allowed to make their own determinations regarding product coverage and applicable rules-of-origin.


NCC Priorities: Sound Farm Policy; Positive WTO Outcome

NCC Chairman John Pucheu told attendees at the California Cotton Growers Assoc. annual meeting in Visalia that the NCC will continue to pursue the industry’s priorities on multiple fronts, with a primary focus on the adoption of good farm policy and a positive outcome in the WTO negotiations.

He reiterated the NCC’s position that 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 California producer said. “A fully functioning marketing loan allows U.S. cotton to remain competitive in domestic and world markets. We believe that the combination of direct and counter-cyclical payments provide effective income support when needed most - in times of low prices.  We support maintenance of adequate planting flexibility to allow producers to respond to market signals.”

As Congressional deliberations on the next farm bill continue, Pucheu said the NCC will be undertaking a number of internal initiatives in preparation for the farm bill debate. To assist several NCC task forces with their work, he noted that the NCC recently has asked for USDA to help the industry evaluate virtually all facets of the upland cotton marketing loan.

“It is of critical importance that any proposed changes to the marketing loan program be carefully considered and thoroughly analyzed in order to avoid any unforeseen consequences,” the California producer said. “We will urge Congress to avoid overly-restrictive payment eligibility rules and to avoid lowering payment limitations. It is critical that commercial-size farming operations remain eligible for farm program provisions.”

Regarding USDA’s farm bill proposal, Pucheu noted that while it retains much of the basic structure of current farm law, the NCC is very concerned about several provisions which significantly lower loan rates and impose additional constraints on program benefit eligibility.

“For example, the Administration’s inclusion of a means test for program eligibility of $200,000 in adjusted gross income is difficult to understand,” he said. “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. The Administration’s proposal greatly exceeds the intent of Congress which imposed a $2.5 million AGI means test in the current farm bill aimed primarily at the eligibility of those with substantial non-farm income.” 

Pucheu said the industry also should be mindful of the ongoing WTO Doha trade talks and the attempts to single out cotton for inequitable treatment. That includes Director-General Lamy’s announcement of a “high level session” on cotton to be held in Geneva this month. The timing of the WTO cotton session falls in the middle of the deliberations of the dispute panel for the Brazil cotton case and immediately on the heels of the re-start of the Doha negotiations.

“We are concerned that some will use this meeting as another opportunity to seek additional concessions from U.S. cotton,” Pucheu said.

Pucheu reminded the group of: 1) industry leaders’ recent press conference to voice concerns about this upcoming meeting, and 2) NCC staff conveying these concerns directly to a representative of the WTO Secretariat in Geneva.

“The Council will continue to voice its concerns and remain engaged with the Secretariat on this important subject,” he said.

Pucheu also noted that the NCC has made clear that its support for the ambitious US proposal on reductions in domestic support is predicated on commensurate increases in market access – which means credible, clear-cut results on China. He said that 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.

In pointing out why the US cotton industry has become export oriented, Pucheu said the industry sought a much different agreement for textiles and apparel in the Uruguay Round than was eventually established.

“Our textile industry was left largely unprotected by the language of the agreement,” he said. “No domestic quotas and very low tariffs are now U.S. policy and our domestic textile industry has been decimated. It is interesting to note that quotas and duties are essential components of our domestic biofuels policy. Had the same protection been extended to our domestic textile industry, our cotton export picture would look entirely different than it does today. Imagine what U.S. cotton prices would be like if our domestic mills still used 12 million bales of cotton.”

Pucheu also announced that in June, NCC Vice Chairman Larry McClendon, an Arkansas ginner, will lead a US cotton industry delegation to China to address specific quality issues raised during the first China Cotton Leadership Exchange Program. That ’06 trip, coordinated by NCC and Cotton Council International (CCI), sent 10 industry leaders to meet with Chinese cotton agencies and visit several Chinese textile, ginning, warehouse and farming operations. The exchanges are part of a long-term NCC effort to promote cooperation and goodwill between the two countries’ cotton industries.


ACSA Board Renews CCI Support

The American Cotton Shippers Assoc. (ACSA) voted at its recent Mid-Winter Board meeting to continue their support for CCI in ’07 at the same level ($400,000) as in the previous year.

ACSA’s vote to maintain support at the previous level - with exports at a slower pace than in ’06 - showed a strong continuing commitment to the COTTON USA export promotion program.

ACSA members also contribute indirectly through NCC’s grant to CCI and through member sponsorships of major COTTON USA program events such as the Sourcing USA Summit. All contributions help CCI leverage its matching funds from USDA and other partners, resulting in an enhanced export promotion effort.


Sales, Shipments Steady

Net export sales for the week ending March 8 were 280,100 bales (480-lb). This brings total ’06-07 sales to roughly 8.7 million. Total sales at the same point in the ’05-06 marketing year were approximately 14.0 million bales. Total new crop (‘07-08) sales are 453,800 bales.

Shipments for the week were 223,300 bales, bringing total exports to date to 5.1 million bales, compared with the 8.3 million at the comparable point in the ’05-06 marketing year.



Step 3 Import Quota Announced

Competitiveness provisions triggered a Step 3 quota based on price conditions for the week ending March 15. When the Friday through Thursday weekly average US northern Europe price exceeds the northern Europe price ("A" Index) by more than 1.25 cents per pound for any four consecutive weeks, a special Step 3 import quota is triggered.

The quota is for 97,616 bales (480 lb), equal to one week of upland cotton mill use based on the seasonally adjusted data for the period Aug.-Oct. ’06, the most recent three months for which data are available. The quota will be established as of March 22 and applies to upland cotton purchased no later than June 19 and entered into the United States no later than September 17.

Currently, there are 10 import quotas opened in the total amount of 976,157 bales.


Prices Effective March 16-22, '07

Adjusted World Price, SLM 11/16

44.06 cents

*

Coarse Count Adjustment

0.00 cents

Marketing Loan Gain Value

7.94 cents

Import Quotas Open

 10

Step 3 Quotas (480-lb. bales)

 976,157

ELS Payment Rate

0.00 cents

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

60.16 cents

Forward 3135 c.i.f. Northern Europe

NA

Coarse Count c.i.f. Northern Europe

 NA

Current US c.i.f. Northern Europe

62.10 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

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