Cotton's Week: April 5, 2007

Cotton's Week: April 5, 2007

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Storage Credit Action Urged

An NCC Action Alert from NCC Chairman John Pucheu to NCC leaders, interest organizations and agricultural lenders, asked that contacts be made with their respective Congressmen or Congressional delegation to urge opposition to any attempt by USDA to stop the implementation of warehouse storage credits for the cotton marketing loan program for the ’08 fiscal year. In its budget submission, the Administration has proposed that appropriated funds be withheld for implementing cotton warehouse storage credits.

CCC pays interest and storage charges on cotton loan redemptions when the adjusted world price is below the loan rate. This provision greatly enhances the effectiveness of the cotton marketing loan and allows US cotton to be competitively priced on a global basis. The Action Alert noted that if this provision is revoked, it is likely that producers would be required to pre-pay storage as part of their loan proceeds.

Based on average storage tariffs, this would effectively lower the proceeds of the cotton marketing loan by as much as $23/bale or 4.5 cents/lb. It also would tend to tie up cotton in the loan during the later stages of maturity as cumulative charges increase.

The Alert also urged industry leaders to personally contact their bankers and request their assistance in this effort -- as this issue could seriously jeopardize the production loan collateral value of the cotton.

There is also a possibility that USDA may attempt to eliminate the cotton warehouse storage credit through regulatory changes. If that is this case, NCC will be asking industry leadership to bring that to the attention of Congress and to communicate opposition directly to the Agriculture Secretary.

Congressional contact information can be obtained at the NCC’s web site – www.cotton.org - under “Congressional Contacts.” Members also can be reached by calling the Capital Switchboard (202/224-3121).



N. Europe “A” Index Discontinuing

Cotlook Limited has formally announced their intention to discontinue the Northern Europe “A” Index effective Aug. 1, ’08.

In ’04, Cotlook began publishing an “A” Index for the Far Eastern markets along side the Northern Europe index, and will continue to publish the Far East “A” Index. The index is considered to be an objective and representative measure of offering prices in the international cotton market.  

“Cotlook’s decision is justified given the dramatic shift in cotton mill use and trade,” NCC Chairman John Pucheu said. “The decline of the textile sector in Europe has sharply reduced trade to key European markets.”

The loss of the Northern Europe index has ramifications on the marketing loan program as several aspects of the program reference the Northern Europe quotes. These include the determination of the adjusted world price and price triggers for Steps 1 and 3.

Cotton industry leaders, in anticipation of the formal announcement, began exploring the impacts of the change in the index and will examine options that allow the program to continue to work effectively. In addition, the industry will work with USDA officials and key Congressional committees to ensure an appropriate transition to the Far East index as part of development and implementation of the next farm bill.


Cottonseed Payments Distributed

USDA distributed Cottonseed Program payments on quantities of cottonseed under the ’06 Emergency Agricultural Disaster Assistance Act. The final payment rate per ton of cottonseed was $7.94.

Congress provided $15 million in assistance to producers and first-handlers of the ’05 crop of cottonseed in designated disaster counties resulting from the ’05 hurricanes Katrina, Ophelia, Rita and Wilma or counties directly adjoining primary disaster counties.



US-Korea Conclude FTA

The United States and Korea concluded a free trade agreement on April 1, virtually hours before the deadline for Congressional notification under current Trade Promotion Authority. The agreement (referred to as the KORUS FTA) should have the largest economic impact on the United States of any free trade agreement since NAFTA.

Korea’s agricultural sector is heavily protected from imports and will open significantly under the agreement. However, rice was excluded from coverage and high beef tariffs will phase out over a 15-year period.

The US Trade Representative’s office reported that more than $1 billion worth of US farm exports to Korea will become duty-free immediately. USTR Susan Schwab stated that the KORUS FTA “will provide U.S. farmers, ranchers, manufacturers, and service providers exciting new market opportunities in a growing dynamic country.”

Although many details about the agreement have not yet been made public, trade in cotton fiber is slated to be liberalized quickly under the agreement. While it appears that the agreement maintained the use of a “yarn-forward” rule of origin for textiles, many tariffs on textiles and apparel from Korea will be eliminated upon implementation of the agreement. Early reports indicate there are no tariff preference level loopholes and that a safeguard mechanism for textiles is contained in the agreement.

NCC Chairman John Pucheu stated that “this free trade agreement is more significant for U.S. agriculture than any free trade agreement negotiated since NAFTA. The NCC will be carefully evaluating both the cotton fiber and textile implications of this agreement.”


Countervailing Duties Imposed on Chinese Glossy Paper

The United States has made a preliminary decision to impose countervailing duties on China's producers and exporters of glossy paper. The decision alters a 23-year-old policy of not applying countervailing duties (punitive tariffs designed to counter subsidies) to non-market economy countries and reflects China's increasing economic development, according to a Commerce Dept. press release. The subsidies identified included tax breaks, debt forgiveness and low-cost loans.

"China's economy has developed to the point that we can add another trade remedy tool, such as the countervailing duty law,” Commerce Secretary Carlos Gutierrez said. “The China of today is not the China of years ago. The Bush administration will continue to vigorously enforce U.S. trade law with respect to China."

The US action "provides an additional incentive for China to move away from subsidies and continue pursuing market economics," Commerce Under Secretary Franklin Lavin told the National Assoc. of Manufacturers.

Lavin said this case’s implications on US-China trade could lead to petitions from other "aggrieved" US companies and industries for investigations of China's subsidies. China now represents 25% of all US anti-dumping cases, the Commerce official said. The ruling reverses existing Commerce policy not to apply countervailing duties (designed to counter subsidies) to non-market economies. That position was based on the opinion that it is often impossible to document subsidization in economies that are not market-based and that are tightly controlled by the government. Instead, anti-dumping petitions (duties designed to counter exports priced below the cost of production) had been the only remedy available to combat Chinese imports. 

A countervailing duty case requires two findings: 1) the exports are subsidized and 2) the exports are harming a US industry. The International Trade Commission now must make final decisions on whether the US paper industry has been harmed by the Chinese subsidies.


NRCS Offers Online Tools

The Natural Resources Conservation Service (NRCS) promoted numerous web-based resources for producers and landowners at the recent USDA Agricultural Outlook Forum. More than 70 years ago, NRCS began designing for farmers/ranchers conservation technology programs -- which have evolved into cutting-edge, user-friendly, online tools.

NRCS technology includes Global Positioning systems to gather site-specific information, computer models for predicting soil erosion and water pollution, and a Geographic Information System to analyze natural resource data. The agency also has launched “Energy Estimators” for irrigation, nitrogen and tillage, which can be found at its web site at www.nrcs.usda.gov/energy.

At a time when many farm input prices are the highest in history, these web management tools offer producers an interactive four-step process to compare options for better water and nitrogen management, as well as more efficient soil preservation.



Keenum Supportive of Export Programs

US Agricultural Export Development Council (USAEDC) leadership, including NCC Vice President Allen Terhaar, met with USDA Under Secretary for Farm and Foreign Agricultural Services Mark Keenum to discuss foreign market development programs and to emphasize more than 50 years of the unique partnership between USDA and export market development cooperator organizations, such as CCI.

Undersecretary Keenum was clearly supportive and stressed the key role that exports play in the US agricultural economy. He also praised the mutually supportive roles that the private and public sectors play in promoting trade through the 70-plus organizations in the USAEDC.


Sales, Shipments Continue Strong

Net export sales for the week ending March 29 were 406,500 bales (480-lb). This brings total ’06-07 sales to approximately 9.9 million. Total sales at the same point in the ’05-06 marketing year were approximately 15.2 million bales. Total new crop (’07-08) sales are 481,200 bales.

Shipments for the week were 327,200 bales, bringing total exports to date to 5.9 million bales, compared with the 9.6 million bales at the comparable point in the ’05-06 marketing year.


Step 3 Import Quota Announced

As of press time, it was expected that competitiveness provisions would trigger a Step 3 quota based on price conditions for the week ending April 5. 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 will be 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 April 12 and applies to upland cotton purchased no later than July 10 and entered into the United States no later than Oct. 8.

Currently, there are 13 import quotas opened in the total amount of 1.27 million bales.


Prices Effective April 6-12, '07*

Adjusted World Price, SLM 11/16

43.38 cents

**

Coarse Count Adjustment

0.00 cents

Marketing Loan Gain Value

8.62 cents

Import Quotas Open

 13

Step 3 Quotas (480-lb. bales)

 1,269,004

ELS Payment Rate

0.00 cents

*Unofficial Quotes at Time of Printing
**No Adjustment Made Under Step I
Five-Day Average
 
Current 3135 c.i.f. Northern Europe

59.79 cents

Forward 3135 c.i.f. Northern Europe

NA

Coarse Count c.i.f. Northern Europe

 NA

Current US c.i.f. Northern Europe

61.15 cents

Forward US c.i.f. Northern Europe

 NA

 
2006-07 Weighted Marketing-Year Average Farm Price  
 
Year-to-date (August-February)

47.84 cents

***

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

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