Cotton's Week: June 22, 2007

The House Agriculture General Farm Commodities Subcommittee completed work on Commodities and Crop Insurance titles of the ’07 farm legislation. During consideration, the panel unanimously adopted a proposal by Chairman Etheridge (D-NC) which established a five-year extension of current farm law as the basis for moving forward. The Chairman noted that the vast majority of producers have expressed support for continuing current law. He explained that budget constraints make it difficult for the subcommittee to make major improvements to the current law.

During the session, members rejected three alternatives, including the Administration’s proposal; a buy-out option; and a legislative proposal introduced by Reps. Kind (D-WI) and Flake (R-AZ) which would eliminate marketing loans, target prices and phase out direct payments. The subcommittee approved a five-year extension of current law as a substitute for an earlier proposal which included a number of modifications to commodity programs as well as most of the cotton industry’s recommendations to improve the effectiveness of the marketing loan. To offset the Congressional Budget Office’s (CBO) projected costs for the changes, the cotton loan rate would have been reduced to 50 cents and the target price to 70 cents. The proposal also would have eliminated the three-entity rule, but would have removed all limits on marketing loan gains and loan deficiency payments.

The cotton provisions adopted by the subcommittee as part of the extension include continuation of a 52 cent base loan and direct payment of 6.67 cents. The target price was modified by a subsequent amendment. Payment bases and yields used for direct payments and counter-cyclical payments are unchanged as are payment limitations. The ELS program is extended in its entirety. The subcommittee adopted by voice vote an amendment offered by Rep. Marshall (D-GA) which includes provisions to improve the operation of the cotton program.

Cotton Belt members Conaway (R-TX), Neugebauer (R-TX), McCarthy (R-CA), Lucas (R-OK) and Scott (D-GA) supported the amendment but committed to revisit the budget score and the required offset. The amendment includes a majority of the 13 recommendations adopted by the NCC designed to improve competitiveness, market orientation and flow, while enhancing producers’ income from the market, maintaining an effective safety net and providing assistance to domestic manufacturers.

The amendment requires USDA to calculate premiums and discounts for ’08 and subsequent crops using weighted-average spot market data and to modify the method for calculating the weekly AWP by using the three lowest Far East quotes and making other adjustments to improve accuracy. The legislation provides a 4 cents/lb. assistance payment to domestic mills for all upland cotton consumed. The subcommittee will continue to evaluate a provision to allow producers to assign the rights of redemption to buyers who could then sell and ship cotton and redeem anytime during the period of the loan. It could be added at full committee pending a CBO score.

Just hours before mark-up, CBO significantly increased the estimated cost of the cotton provisions from $702 million to more than $1.1 billion for five years. To offset the cost of the adjustments as estimated by CBO, the subcommittee adjusted the target price to 68.61 cents/lb.

NCC staff subsequently met with CBO officials and will work with Congress in an effort to seek a more accurate score to provide an opportunity to adjust the target price.

During markup, several members indicated they would support the subcommittee’s proposal to extend current law to advance the process but served notice there would be proposals on payment limitations and rebalancing loans and target prices between commodities when the full Committee considers the legislation. The Committee will likely meet to consider all titles of the legislation immediately after the July 4 recess and the House could consider the legislation during the week of July 23.

During the House Agriculture General Farm Commodities (GFC) Subcommittee mark-up, the members approved several amendments in addition to the comprehensive cotton proposal by Rep. Marshall (D-GA).

Rep. Neugebauer (R-TX) proposed an amendment that will allow growers the option to purchase supplemental area-based insurance coverage. The proposal would allow growers to add a partial Group Risk Protection (GRP) to their multi-peril yield or revenue policy. The special GRP would be especially beneficial when there is a county-wide yield loss normally associated with drought or flood because it would supplement the individual coverage afforded by the more traditional multi-peril coverage. The option may be particularly cost effective for growers who have substantially lower APHs due to successive years of drought.

The supplemental GRP coverage would be available to cover the deductible portion of the multi-peril. For example, a farmer with 60% APH coverage could purchase GRP coverage to 40% not covered by multi-peril.

To offset the CBO estimated five-year cost of $224 million, the crop insurance loss ratio target would be reduced to 1.00 from 1.075. The subcommittee also approved a Sense-of-Congress amendment offered by Rep. Moran (R-KS) that provides that no monies for programs under the jurisdiction of the GFC subcommittee should be shifted to other programs.

The subcommittee also approved amendments to “equalize” corn and sorghum loan rates and to authorize a “pilot program” to allow up to 10,000 acres of tomatoes to be produced in Indiana on base acres provided they are contracted in advance for processing and are part of a crop rotation plan.  The base acres on the farm will be reduced by an acre for each acre planted to tomatoes in that year. The prohibition on planting fruits and vegetables on base acres as provided in current law – with certain exceptions for double-cropping history – is extended through ’12.

The NCC joined commodity and farm organizations in voicing opposition to legislation known as FARM 21 (HR 2720) introduced on June 13 by Reps. Kind (D-WI), Flake (R-AZ) and Reichert (R-WA).

The legislation would, if enacted, dramatically alter commodity, conservation, energy and nutrition programs. It is similar to, but more far-reaching than, an amendment offered by Rep. Kind during the ’02 farm bill debate. The amendment attracted more than 200 votes including those of now Speaker Pelosi (D-CA) and Majority Leader Hoyer (D-MD).

The new version would eliminate counter-cyclical payments after ’09; replace the marketing assistance loan with a recourse loan; and create farmer-held stabilization accounts with withdrawals allowed when sales fall below 95% of the five-year average. DPs would be phased-out and eliminated.  During the phase-out period, an increasing percentage of DPs received must be deposited in the stabilization account. Dairy and sugar programs also would be eliminated.

The General Farm Commodities subcommittee considered and unanimously rejected the FARM 21 legislation during mark-up, but Rep. Kind is expected to offer his proposal as an amendment to the farm legislation brought to the floor by the House Agriculture Committee.

The latest round of trade talks between the United States, the European Union, Brazil and India (the so-called G4) collapsed after being unable to narrow differences on key issues. The talks in Potsdam, Germany, were the latest in a series of meetings between the G4 participants designed to serve as an impetus for advancing the multilateral Doha negotiations.

A statement by USTR Ambassador Schwab and USDA Secretary Johanns expressed disappointment with the outcome of the negotiations and indicated that there was an overall lack of ambition by some to offer meaningful market access in manufactured goods.

In reaction to the announcement regarding the current state of trade negotiations, NCC Chairman John Pucheu commended the US negotiators for their continuing efforts to obtain an ambitious and balanced Doha agreement.

“It is encouraging that U.S. negotiators have held to the principles of the U.S. proposal. The U.S. cotton industry expresses its thanks for the leadership shown by the U.S. representatives to obtain international consensus for a completion of the Round.”

The collapse of the G4 meeting creates an additional hurdle for the overall negotiations but does not signal an end to the multilateral trade talks. The focus of the negotiations will shift to Geneva with the anticipated release of negotiating texts later this month. Those texts will serve as the basis for further negotiations.

The US exercised its right to block formation of a WTO panel, sought by Canada, to determine whether the United States has violated its WTO commitments by providing “amber box” subsidies in excess of the $19.1 billion-per-year commitment made during the Uruguay Round. Canada also has challenged the GSM export guarantee program.

In its objection to the WTO panel, the United States said Canada’s claims were without merit and rejected Canada’s claim that nearly all US subsidies are trade-distorting. The United States pointed out that some programs cited by Canada no longer exist and that the GSM program was modified following the Brazil cotton case.

Canada has dropped a previous complaint against the US corn program. Canada can renew the request for a panel during the next scheduled Dispute Settlement Body (DSB) meeting on July 24 and under WTO rules, it automatically will be approved.

The House Ways and Means Committee postponed consideration of a two-year extension of the Andean Trade Preferences Act (ATPA) while Chairman Rangel (D-NY) works to reach agreement with Senate Finance Committee leaders. Finance Committee Ranking Member Grassley has expressed opposition to an extension.

The ATPA provides duty-free, quota-free benefits for eligible products from Colombia, Peru, Ecuador, and Bolivia including apparel products meeting the yarn forward rule of origin.

The law authorizing ATPA expires June 30. Colombia and Peru have concluded free-trade agreements (FTAs) with the United States, but they have not been approved by Congress.

Chairman Rangel indicated he would try to move legislation the week of June 25. If the ATPA is not extended and FTAs are not approved, substantial exports of US-manufactured cotton yarn and fabric would be in jeopardy and could be replaced by Chinese-manufactured products.

The NCC has joined textile and apparel organizations supporting an extension of ATPA and in urging prompt Congressional approval of the FTAs to avoid disruption of the important trade.

Net export sales for the week ending June 14 were 210,700 bales (480-lb). This brings total ’06-07 sales to approximately 14.1 million. Total sales at the same point in the ’05-06 marketing year were approximately 17.7 million bales. Total new crop (’07-08) sales are 915,900 bales.

Shipments for the week were 466,200 bales – a marketing year high, bringing total exports to date to 10.0 million bales, compared with the 14.4 million bales at the comparable point in the ‘05-06 marketing year. With less than two months remaining in the marketing year, weekly shipments must average roughly 457,200 bales to reach the USDA projection of 13.00 million bales.

Adjusted World Price, SLM 11/16	48.97 cents	*
Coarse Count Adjustment	0.00 cents
Marketing Loan Gain Value	3.03 cents
Import Quotas Open	3
Step 3 Quotas (480-lb. bales)	292,847
ELS Payment Rate	0.00 cents
*No Adjustment Made Under Step I
Five-Day Average
Current 3135 c.i.f. Northern Europe	63.43 cents
Forward 3135 c.i.f. Northern Europe	66.35 cents
Coarse Count c.i.f. Northern Europe	NA
Current US c.i.f. Northern Europe	61.90 cents
Forward US c.i.f. Northern Europe	66.70 cents
2006-07 Weighted Marketing-Year Average Farm Price
Year-to-Date (August-April)	47.73 cents	**
**August-July average price used in determination of counter-cyclical payment