Cotton's Week: October 3, 2003

The US advised the World Trade Organization (WTO) that it remains concerned about China’s administration of its tariff rate quota (TRQ) system for agricultural imports. In written comments submitted Sept. 30, the US said it was pleased with China’s decision to drop separate allocations for agricultural imports that are to be processed and re-exported but is concerned that China is still applying restrictions related to the processing trade.

The US also expressed concern about allocations of TRQs to importers that are not commercially viable entities and that China is not abiding by an agreement to allow commercial terms to be "at the sole determination of the importer and exporter." The US specifically referenced instances in which cotton purchasers were allocated TRQs only on condition any disputes must be arbitrated before the China International Economic and Trade Arbitration Commission and that Chinese law will be the governing law for any disputes.

The US comments submitted to the WTO’s Committee on Import Licensing is part of a transitional review of China’s compliance with its WTO commitments. The review is the 2nd annual review since China joined the WTO in December ’01. Such reviews will continue for 8 years.

The NCC provided the Office of the US Trade Representative (USTR) with comments used in preparation of the US submission and presented testimony to a USTR review panel on Oct. 3. In addition, the NCC, the American Cotton Shippers Assn., AMCOT and Cotton Council International officials recently met with US government officials in Washington and Beijing to express concern about China’s requirements that arbitration be conducted under Chinese law rather than under internationally accepted rules and forums.

By unanimous consent, the Senate passed a Resolution (S. Res. 219) introduced by Sen. Graham (R-SC) and 8 co-sponsors, including Cotton Belt Senators Chambliss (R-GA) and Kyl (R-AZ), which states that currency manipulation is a violation of both the World Trade Organization and the International Monetary Fund agreement.

The Resolution notes the Chinese currency (yuan) has been pegged to the US dollar at an undervalued rate that is designed to gain an advantage in international trade. It also cites the negative effect on the US manufacturing sector and on other nations, including the European Union, Mexico and Latin America.

The measure also expresses support for US government efforts to engage China in discussions leading to a market-based valuation of the yuan and China to act on commitments to the rules of the international community.

Enrollment for the ’04 Direct and Counter-Cyclical Program (DCP) began Oct. 1, with producers having until June 1, ’04, to enroll. Late-filed applications will be accepted through Sept. 30, ’04, if accompanied by a $100 late fee.

Producers must sign contracts annually under the DCP, which is a change from Production Flexibility Contract requirements under previous farm legislation. Producers can opt out of participating in the program any year if they choose. For both ’02 and ’03, more than 98% of the eligible base acres were enrolled.

The following are the ’04 crop-year direct payment rates and maximum potential counter-cyclical rates:

The schedule of payments for the ’04 DCP - 50% advance direct payment (DP) beginning December ’03; 50% final DP October ’04; 1st advance counter-cyclical payment (CCP) (up to 35% of projected payment) October ’04; 2nd advance CCP (up to 70% of projected payment less first advance) February ’05. Dates vary by crop. In general, the final CCP (100% of the actual payment less any advances received) is made 30 days following the end of the marketing year.

NCC’s Boll Weevil Action Committee recommended that USDA’s Animal and Plant Health Inspection Service (APHIS) allocate $45 million of the proposed $51.7 million appropriation for boll weevil eradication for ’04 during its fall meeting in Little Rock. The exact amount available will be determined upon passage of an appropriations bill and APHIS’ end-of-year closeout of FY03 programs to determine the amount of carryover to be applied toward FY04 programs.

The committee, chaired by Missouri producer Charles Parker, agreed to allocate $300,000 to New Mexico’s Pecos zone to meet Farm Service Agency (FSA) loan payment and to allocate the remaining $44.7 million across all ’04 programs in active eradication. The committee further agreed that beginning this year special funding consideration would be limited to situations relating to possible default on FSA loans.

The committee heard reports of on-target progress toward eradication on the 10 million acres currently under active eradication. Three areas, comprising less that 3% of US acres, have yet to begin eradication programs. One zone, the Northern Blacklands of Texas, will vote in December, leaving the St. Lawrence and Lower Rio Grande Valley areas in Texas as the last remaining areas.

The Subcommittee on Post-Eradication, chaired by Texas producer Craig Shook, held its initial meeting to formulate a protocol to implement a post-eradication strategy that would protect the US against reinfestation with a target date of Jan. 1, ’05 for implementation.

Louisiana producers approved a maintenance program for boll weevil eradication. Ballots, counted on Sept. 30, showed that 98.3% of producers in the Red River area and 87.7% in the Northeast region voted to continue the boll weevil eradication program. Each region had to approve the referendum independently. The assessment for the ’04 crop will now fall to $6/ac. across the state.

USDA began issuing $1.6 billion in annual Conservation Reserve Program (CRP) payments to producers on Oct. 2. The rental payments were earned for fiscal year ’03.

According to USDA, there are 619,493 contracts on 373,033 farms covering 34 million acres. The announcement does not include payments for 2 million acres enrolled in the general signup held from May 5 to June 13. Rental payments for acres enrolled during that signup will be made October ’04.

As a point of interest, while Texas had the most acreage enrolled, Montana with 3.4 million acres, Kansas with 2.7 million, Colorado with 2.2 million, Iowa with 1.8 million and Minnesota with 1.7 million were also large participants.

The American Textile Machinery Association (ATMA) says that its US textile mill customers have suffered more damage in the past 5 years than the industry did during the Depression of the 1930s.

"Let there be no doubt about how much US textile mills and their workers are being hurt by unfair trade imports," said ATMA Chairman Fred Moorhead. "They are facing downturns in business today greater than they did in the darkest days of the Depression."

ATMA’s analysis shows that from ’29, just prior to the Depression, to the low point in US textile performance in ’32, US production of cotton fabric dropped from 8.4 billion square yards to 6.3 billion, a decline of 25.3%. In the current crisis, the peak year for cotton fabric production was ’97, just prior to the Asian financial meltdown and US cotton fabric production was 5.1 billion square yards. By ’02, US production had declined to 3.5 billion, or 30.6% since ’97.

US production of cotton fabric continues to decline steadily from ’97 into ’03 in the face of imports of Asian fabrics and apparel that are subsidized or priced with undervalued currencies. In the first half of ’03, domestic cotton fabric production dropped 9.6% to 1.6 billion square yards, compared to the first half of ’02.

From ’97 through the first half of ’03, the US textile industry lost 200,000 jobs, or 30% of its workforce, and closed over 290 textile mills in the US.

USDA’s Foreign Agriculture Service announced allocations of about $2.8 billion in export credit guarantees for fiscal year ’04, which began Oct. 1, including $328 million for cotton. The initial allocations cover sales to over 20 countries and regions.

Under the export credit guarantee programs, the CCC guarantees repayment by foreign banks or importers for commercial financing of US agricultural exports. During fiscal year ’03, USDA allocated $6.2 billion under 4 export credit programs. For FY04, USDA expects to make allocations totaling more than $6 billion.

Initial allocations announced Oct. 1 included GSM-102 allocations to Mexico ($300 million), South Korea ($450 million), Central America ($300 million) and Vietnam ($20 million).

The EPA issued final tolerances for a pair of new cotton herbicides that can be used for the ’04 growing season. Pesticide manufacturers Syngenta and Bayer CropScience will now have Envoke (Trifloxysulfuron-Sodium) and Ignite (Glufosinate), respectively, to offer growers.

Envoke, a low-use herbicide with a usage rate as low as .1 oz./ac. of formulated product, shows promising effectiveness on many broadleaf weeds such as sicklepod, morning glory and cocklebur and on sedge weeds as well. Envoke will be intended for use ideally at the 5-leaf stages but can be sidedressed later in the growing season as well.

Ignite is the herbicide that is compatible with Bayer’s new LibertyLink cotton, designed to tolerate the product for an over-the-top application. Ignite has shown effectiveness on weed species such as morning glory and pigweed. LibertyLink cotton is bred in 5 different varieties of Fibermax brand cotton, which will be released in all regions of the Cotton Belt.

The Senate Finance Committee approved legislation Oct. 2 to expand tax benefits to manufacturers and extend other tax relief in order to soften the impact of eliminating an export tax subsidy (Extraterritorial Income Exclusion Act) ruled illegal by the World Trade Organization in ’02. Ways and Means Committee Chairman Thomas (R-CA) indicated his committee may schedule a mark-up of House legislation the week of Oct. 6.

The Senate bill would reduce tax rates by 3% for domestic manufacturers and phase in tax reductions for US multinationals by ’10. The measure also provides extensive international tax relief.

Vote to recommend confirmation of Utah Governor Michael O. Leavitt as EPA head was blocked Oct. 1 when Sen. Jeffords (I-VT) and Democrat members of the Senate Environment and Public Works Committee objected, complaining they had not received complete answers to questions. They seek a 2-week delay in the vote.

Committee Chairman Inhofe (R-OK), without the quorum necessary to conduct business, complained that Leavitt is being treated more harshly than previous nominees are. Aides on both sides expressed optimism that the matter would be resolved and Leavitt easily would win confirmation.

Net export sales for the week ending Sept. 25 were 125,900 bales (480-lb.), resulting in total ’03-04 sales of almost 3.8 million bales. Total sales at the same point in the ’02-03 marketing year were slightly over 4.8 million bales. Total new crop (’04-05) sales are 143,300 bales.

Shipments for the week were 103,900 bales, bringing total exports to date to 1.3 million bales, ahead of the 1.2 million bales at the comparable point in the ’02-03 marketing year.