Cotton's Week: March 14, 2003

An amendment offered by Sen. Grassley (R-IA) during consideration of the FY04 Budget Resolution, if included in the final resolution, would require the Agriculture committees to amend the ’02 farm law in a manner that would move $1.398 billion from farm programs to the new, as yet uninitiated, Conservation Security Program.

In explaining his proposal, Grassley, chairman of the Finance Committee and a member of the Agriculture Committee, suggested that the farm program savings be achieved by establishing a limit of $300,000 per individual for total farm program benefits for all crops - $40,000 in direct payments, $60,000 in counter-cyclical payments and $200,000 for marketing loan gains. The 3-entity rule and certificates would be eliminated. In urging his colleagues to support the amendment, Grassley said, "This is an opportunity to support family farmers and conservation."

Grassley has continued to actively promote his proposal to limit benefits in the media, but had not, as of March 13, released written details of his proposal.

NCC Chairman Bobby Greene expressed disappointment with the inclusion of the Grassley amendment. "The amendment will undermine confidence in farm law and negatively impact financing, planting and marketing decisions," Greene stated.

Greene praised the efforts of Sen. Sessions (R-AL) in opposing the amendment. "Senator Sessions argued that the amendment was ill-timed, with the new farm law less than 10 months old and not even fully implemented. The NCC will continue its efforts to persuade Senators not to include damaging farm bill amendments in the final budget resolution during floor debate."

When the Budget Resolution moves to the Senate floor the week of March 17, efforts will be made to persuade members not to include a provision that would require the Agriculture committees to modify the new farm law. Throughout the past few weeks, NCC staff, industry leadership and regional organizations have contacted Cotton Belt members of the House and Senate to urge opposition to efforts to amend the farm law.

Members of the Senate Budget Committee voted as follows: Nays (9) – Chairman Nickles (R-OK), Domenici (R-NM), Allard (R-CO), Burns (R-MT), Enzi (R-WY), Sessions (R-AL), Bunning (R-KY), Crapo (R-ID) and Cornyn (R-TX). Yeas (14) - Grassley, Gregg (R-NH), Ensign (R-WV), Conrad (D-ND), Hollings (D-SC), Sarbanes (D-MD), Murray (D-WA), Wyden (D-OR), Feingold (D-WI), Johnson (D-SD), Bryd (D-WV), Nelson (D-FL), Stabenow (D-MI) and Corzine (D-NJ).

A NCC analysis indicated that earlier versions of the amendment would put such severe limitations on marketing loan gains and fixed and counter-cyclical payments that production financing will be out of the question for many farmers in the Sunbelt. With current commodity prices, the analysis noted, many farms cannot cash flow, even with current restrictions on payments.

Greene said the new farm law contains specific limitations on program benefits and an adjusted gross income means test that makes participants with substantial non-farm income ineligible for benefits. He said farm law participants are required to meet detailed eligibility requirements regarding contributions of management and/or labor requirements and no producer is eligible for more benefits than the farm unit is entitled.

"The addition of more stringent payment limit provisions or more complicated eligibility requirements will negate the benefits contained in the new farm bill for commercial-size producers," Greene said. "Many farmers also would be driven to make cropping decisions based on program benefits rather than market signals."

NCC economists estimate corn and soybean acreage could increase up to 2 million acres and specialty crop production in the West could swell to disrupt fragile markets. Further, changes in the already complicated regulations will increase a producer’s cost of compliance and further stretch the limited resources of USDA.

"The farm law does not need to be amended," Greene said. "It provides an adequate safety net in times of low prices and meets the budget requirements established by Congress."

House and Senate committees completed their work on FY04 Budget resolutions that take significantly different approaches and are expected to be challenged during respective floor debate.

The Senate’s version, with the exception of the Grassley (R-IA) amendment (see related article), would not require the Agriculture Committee to make any changes to the farm law. The House resolution, on the other hand, would require the Agriculture Committee to modify "laws in its jurisdiction" sufficient to reduce spending by $618 million in FY04, $5.696 billion for FY04-08 and $19.171 billion for FY04-13.

A Conference Committee likely will be challenged to develop a compromise that can be approved by each body. Passage of a Budget Resolution is critically important because it would allow Congress to consider the President’s economic stimulus package on a fast-track procedure.

The House committee-passed resolution requires deep cuts in spending to achieve a balanced budget in 7 years, accommodates the President’s entire stimulus package, makes ’01 tax cuts permanent and provides $400 billion for Medicare modernization and a prescription drug package. The Senate committee version provides more generous discretionary spending in ’04, but would not achieve a balanced budget until ’13. Both resolutions were approved on straight party-line votes.

When the Senate takes up the resolution, "centrists" plan to offer an alternative to provide a $350 billion tax cut, roughly half the size of the President’s proposal.

NCC staff working on the World Trade Organization (WTO) case filed by Brazil against the US cotton program met with officials of USDA and the Office of the US Trade Representative to coordinate program defense.

The US blocked the formation of a dispute settlement panel at February’s meeting of the WTO Dispute Settlement Body, but can no longer delay the formation of the panel. During the upcoming March 18 meeting of the Dispute Settlement Body, a dispute settlement panel will be formally established and the panel selection process will begin. The panel will be comprised of 3 experts in international trade policy who will then hear the case.

Brazil also has requested the appointment of a special master to oversee the collection of information for the parties in the case. The appointment of the special master and the expected appointment of a panel within the next 30 days likely will create a demanding schedule of information development and preparation of briefs over the next 60 to 90 days.

In its March report, USDA gauged US ’02-03 cotton production at 17.14 million bales. Both projected mill use and exports were unchanged at 7.60 million and 10.80 million bales, respectively. The projected total offtake of 18.40 million bales generates ending stocks of 6.20 million bales. The estimated ending stock-to-use ratio is 33.7%.

USDA made only marginal changes to its ’02-03 world supply/demand estimates in its March report. World production was raised 350,000 bales to 87.99 million. The increases in expected production were in Brazil (+100,000) and China (+600,000). The world mill use estimate was raised 300,000 bales to 97.07 million, largely due to the expected increase in China’s mill use. With higher production and higher mill use, the estimate of world ending stocks for ’02-03 was lowered 290,000 bales to 37.56 million, for a corresponding ending stock-to-use ratio of 38.7%.

USDA’s Risk Management Agency (RMA) issued a reminder to farmers and ranchers interested in purchasing crop insurance that the closing date for participation and to receive coverage is March 17.

"Last year’s drought in various parts of the country is a vivid reminder why producers should use risk management tools such as crop insurance," said Agriculture Secretary Veneman. "This year’s closing date is fast approaching, and we encourage interested farmers and ranchers who haven't done so yet to take advantage of these important resources."

To mitigate concerns about drought coverage, RMA encourages producers to buy higher levels of crop insurance in ’03. "Many producers have better prevented planting coverage during drought than they realize," said RMA Administrator Davidson. "Crop insurance protection is a vital part of producers’ risk management strategy."

Information regarding current coverage on prevented planting, agent locator assistance and a list of the states and crops with a March 17 deadline is at www.rma.usda.gov. Information also is available at local Farm Service Agency offices.

US cotton export sales hit a marketing-year high 407,100 bales (480 lbs.) in the week of March 6. Sales were almost 23% higher than the previous week and raised ’02-03 sales to slightly over 10 million bales. Total sales at the same point in the ’01-02 marketing year were approximately 10.9 million bales. Total new crop (’03-04) sales are 681,600 bales.

Shipments for the week were 283,900 bales, bringing total exports to date to 5.7 million bales, down from 6.6 million at the comparable point in the ’01-02 marketing year.

Adjusted World Price, SLM 1 1/16         47.76 cents*
Coarse Count Adjustment                   0.00 cents
Current Step 2 Certificate Value          5.95 cents
Marketing Loan Gain Value                 4.24 cents
Import Quotas Open                                 4
Step 3 Quotas as of 3/13(480-lb. bales)      437,672
* No Adjustment Made Under Step I

Five-Day Average

Current 3135 c.i.f. Northern Europe     60.80 cents
Forward 3135 c.i.f. Northern Europe        No Quote
Coarse Count c.i.f. Northern Europe     56.73 cents
Current US c.i.f. Northern Europe       66.75 cents
Forward US c.i.f. Northern Europe          No Quote

Weighted Marketing-Year Average Farm Price

Year-to-Date (August-January)            41.43 cents**
**August-July average price will be used in
determination of counter-cyclical payment