Cotton's Week: September 4, 2009

Cotton's Week: September 4, 2009

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WTO Arbitration Panel Releases Ruling

The NCC issued a statement in response to the World Trade Organization (WTO) Arbitration Panel decision. In that response, NCC Chairman Hardwick stated that, "We are pleased that the arbitration award is far less than requested by Brazil, that the Panel provided no award with respect to the Step 2 cotton program, and that Brazil is not authorized to cross-retaliate at this time. This award, however, is based almost exclusively on 2005, the peak of U.S. cotton production, and doesn't consider any U.S. policy changes made in the 2008 Farm Bill. The U.S. cotton program and export credit guarantee programs have changed considerably since 2005, with U.S. cotton production down 45 percent and the export credit guarantee program operating at no net cost, today’s programs cannot possibly be determined to be causing injury in the world market."

NCC President Mark Lange stated, "It is time for this ruling to be updated so the WTO can start focusing on the increasing subsidization of cotton by China and India. The difference between the Panel's award and Brazil's original request shows the unrealistic nature of Brazil's claim, but even this amount fails to take into consideration the impact of U.S. cotton program changes made since 2005. U.S. cotton production in 2008 declined 45 percent; Brazil, China and India production increased more than 20 percent. The increased cotton production in Brazil, China and India has ensured that world cotton prices could not rebound."

Expressing his concern over the decision, Senator Saxby Chambliss (R-GA) stated that, “The panel report may make it harder to reach an amicable resolution with Brazil in this case and because of the complexity of the Arbitration Panel's decision will certainly complicate negotiations in the Doha Round.” In a separate statement, Senator Blanche Lincoln (D-AR) said it was “troubling that the decision did not take into account the significant changes made to the cotton program in the Deficit Reduction Act of 2005 and the 2008 Farm Bill.” She further cautioned that demands for further US program changes are “ill-conceived and inappropriate.”

Chairman Hardwick stated, "The U.S. won on many of the critical legal components raised by Brazil during this arbitration process. The Council commends the efforts of the Office of the U.S. Trade Representative and its legal staff on this case as well as the cooperative and central role played by professionals from the U.S. Department of Agriculture. We will work with USTR and others to ensure that the many changes previously made to U.S. commodity programs are better understood by the WTO."

The response also stated that the WTO Arbitration Panel report issued on Aug. 31 established the level of retaliation Brazil may take with respect to the US export credit guarantee program and aspects of the US cotton program. The panel’s report authorized $147 million in retaliation authority for cotton and $147 million in retaliation authority for the export credit guarantee program -- far less than the $2.7 billion in authority requested by Brazil and cross-retaliation is not authorized at this point.

The Panel adopted a formula approach that requires the parties to conduct calculations regarding the level of retaliation for the export credit program and the specific threshold that must be met to determine whether Brazil could cross-retaliate against intellectual property rights of U.S. companies. The level of retaliation related to cotton program provisions remains fixed at $147 million.



Panel Ruling Fails to Recognize Changes to GSM Program

In response to the WTO Arbitration Panel decision on the USDA export credit guarantee (“GSM-102”) program, the National Cotton Council joined the North American Export Grain Association, CoBank, Farm Credit Council, US Rice Producers Association, and National Council of Farmer Cooperatives expressing disappointment that the panel based its decision on the GSM program as it existed in 2005, and failed to recognize the significant changes that have been made to the GSM-102 program since 2005.

The statement also urged the U.S. government to request a new Compliance Panel to update this ruling to reflect the changes in the program made by Congress and the USDA since 2005.

In addition, the groups stated the following:
The extent of the program changes is demonstrated in the President’s budget for fiscal year 2010. According to the U.S. Office of Management and Budget, in 2010 the GSM program will generate a positive return to the federal government of $54 million. In other words, the revenues from guarantee premiums charged to program participants more than offset the cost of program operations, including any credit losses. Under the WTO panel’s obsolete ruling, Brazil would be entitled to place tariffs or other import penalties on an amount of U.S. products based on the use, each year in the future, of a program that is clearly not a subsidy.

The WTO panel also failed to recognize the benefits that have accrued to Brazil’s banks as a result of their significant participation in the GSM-102 program. These benefits far outweigh the costs arrived at by the arbitration panel. Ironically, Brazil’s banks have been by far the largest users of the GSM-102 program since 2002 – the year in which Brazil initiated its WTO case against the United States. Since that time, Brazilian banks have taken more than $5.4 BILLION in loans under the GSM-102 program.

On July 1, 2005, USDA adopted measures to bring its three export credit guarantee programs into compliance with WTO obligations. USDA adopted risk-based guarantee premiums for the GSM-102 Program and the Supplier Credit Guarantee Program and suspended the GSM-103 program.

The U.S. Congress made these changes permanent by enacting them into law as part of the 2008 Farm Bill. As part of that bill, Congress eliminated the GSM-103 program and abolished the statutory one percent “cap” on guarantee premiums that could be charged by USDA. Congress also eliminated the Supplier Credit Guarantee Program, leaving GSM-102 as the sole remaining USDA export credit guarantee program. In addition, Congress included language in the Farm Bill requiring USDA to operate the GSM-102 program at no net cost to the government, thereby ensuring that the program would not be a subsidy and would comply with the WTO obligation that guarantee premiums received under the program would cover its operating costs and losses.

The panel’s award decision seems to punish the U.S. for its compliance efforts. The panel’s decision also is inconsistent with the WTO Doha trade negotiating text which permits export credit guarantee programs that have been subject to appropriate “disciplines.”



Contamination Prevention Tool Available

A link to "Contamination Free Cotton: Keep It Clean and Pure" PowerPoint presentations has been added to the NCC’s Quality Preservation page at http://www.cotton.org/tech/quality/index.cfm. There are both English and Spanish versions.

The online presentation is part of an ongoing effort aimed at informing the industry’s raw cotton sector of the burden that lint contamination imposes on the textile industry. According to the most recent International Textile Manufacturer Federation survey, US cotton continues to rank among the world’s least contaminated growths. However, lint contamination remains a serious challenge for US cotton.

With more ginners, growers and others having high-speed Internet capabilities, the NCC is making several streaming presentations available online.

As preparations are being made for the upcoming harvesting and ginning season, NCC Joint Cotton Industry Bale Packaging Committee (JCIBPC) Chairman Curtis Stewart is emphasizing these NCC educational materials’ role.

A recent letter from Stewart to ginners announced the NCC posting of the video “Bale Packaging: Eliminating Broken Bale Ties” in a streaming format from a link on the NCC Technical Service’s Bale Packaging page.

Stewart acknowledged the NCC Communications Services Dept.’s work that made posting of the broken bale tie video possible. He stated “…the Cotton Foundation deserves our thanks for supporting a web server dedicated to cotton-related educational materials. Without the Foundation’s support, this large video would not be available to stream to your gin.”



NCC Requests CFTC Cotton Market Investigation be Made Public

Following Board approval at the NCC Mid-Year meeting, NCC Chairman Jay Hardwick wrote Commodity Futures Trading Commission Chairman Gary Gensler, asking the Commission to publish the findings of their investigation into the events which occurred in March 2008 in the cotton futures market. The letter reiterated that a transparent and functional futures market is critical to the economic health of its members.

In June 2008, the CFTC announced its intention to conduct an investigation specific to the cotton market. In urging the Commission to publish their findings, Chairman Hardwick stressed that, “The financial ramifications of the events of March 2008 are continuing to be felt throughout the cotton industry. These include several bankruptcies and liquidations, as well as significant financial losses throughout our industry. Unfortunately many growers, cotton merchandisers and textile mills still lack confidence in today’s futures market. A thorough understanding of what actually occurred during that first week of March 2008 is crucial to restoring the industry’s confidence. To begin the process of restoring confidence, we believe it is critically important that the Commission promptly complete the report and make the findings public.”



CSP Sign-Up Continues

USDA began sign-up for the new Conservation Stewardship Program (CSP) on Aug. 10, with the first signup period ending Sept. 30. USDA plans to enroll over 12 million acres during this first sign up period. CSP is a voluntary program that encourages agricultural and forestry producers to maintain existing conservation activities and adopt additional ones on their operations.

The ’08 farm law renamed and revamped the former Conservation Security Program to improve its availability and appeal to producers. Eligible lands include cropland, grassland, prairie, improved pastureland, rangeland and non-industrial private forestland -- a new land use covered by the program. To apply for the newly revamped CSP, potential participants are encouraged to first use a self-screening checklist to determine whether the new program is suitable for them or their operation. It is available on Natural Resources Conservation Service (NRCS) websites and at NRCS field offices. After self-screening, the producer's current and proposed conservation practices are entered in the conservation measurement tool (CMT). This tool estimates the level of environmental performance to be achieved by a producer implementing and maintaining conservation activity. The conservation performance estimated by the CMT will be used to rank applications. States will determine their own priority resource concerns, which is one of the criteria that will be used to rank applications. States will establish ranking pools to rank applications with similar resource concerns.

For information about CSP, including eligibility requirements, producers can visit http://www.nrcs.usda.gov/new_csp or visit their local NRCS field office. A summary of the CSP and the self screening check list are available in the Members Only Issues area of the NCC’s website www.cotton.org.



Export Sales for Week Ending August 27

Net export sales for the week ending August 27, 2009 were 320,300 bales (480-lb.). This brings total ‘09-10 sales to slightly over 3.2 million bales. Total sales at the same point in the ‘08-09 marketing year were approximately 4.7 million bales. Total new crop (‘10-11) sales are 99,500 bales (480-lb.). Shipments for the week were 170,100 bales, bringing total exports to date to 682,300 bales, compared with the 1.0 million bales at the comparable point in the ‘08-09 marketing year.



Prices Effective
Adjusted World Price, SLM 11/16

46.06 cents

*

Fine Count Adjustment ('08 Crop)

 0.00 cents


Fine Count Adjustment ('09 Crop)

  0.00 cents


Coarse Count Adjustment

  0.00 cents


Marketing Loan Gain Value

 5.94 cents


Import Quotas Open

8


Special Import Quota (480-lb bales)

490,192


ELS Payment Rate

  4.23 cents


*No Adjustment Made Under Step I

 

Five-Day Average



Current 5 Lowest 3135 CFR Far East

62.43 cents


Forward 5 Lowest 3135 CFR Far East

NA


Coarse Count CFR Far East

64.23 cents


Current US CFR Far East

66.88 cents


Forward US CFR Far East

NA


 

'08-09 Weighted Marketing-Year Average Farm Price  
 

Year-to-date (Aug.-July)

48.61 cents

**

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



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