Cotton's Week: October 31, 2003

NCC Vice Chairman Woody Anderson says the US cotton industry’s survival hinges on having both farm policy and trade policy that provide fair and equitable provisions for competing in the international arena. The US cotton industry also is committed to continue its efforts to promote increased consumption of cotton textile and apparel products, which will benefit growers and manufacturers.

Anderson represented the NCC at a Washington, DC, news briefing held by a textile/fiber coalition aimed at curbing textile and apparel imports from China. The Colorado City, TX, cotton producer said, “I want to join with others in expressing our sincere appreciation to members of Congress for their broad, bipartisan support for our initiative to make our international trading partners play by the rules and, thereby, help in our efforts to preserve American jobs. This is not about protectionism, this is about insisting that the Administration utilize and enforce the provisions of international trade agreements.”

The coalition said 139 Representatives and 26 Senators signed letters - and a number of Senators and Representatives sent separate letters - urging the Administration to invoke the special textile China safeguard provision included in China’s World Trade Organization (WTO) accession agreement and to not include Tariff Preference Levels in future free trade agreements that would allow non-participating countries to benefit from agreements designed to promote trade and investment between signatory countries. The letters also call for retention of textile tariffs under the WTO Doha Round.

The House approved a non-binding resolution (H. Con. Res 414) on Oct. 29, urging the Administration to continue discussions with China on the establishment of a more flexible exchange rate. The Resolution, approved 411-1, also expresses support for the Administration’s efforts to ensure that China complies with its World Trade Organization (WTO) commitments and removes unfair trade barriers.

The National Assn. of Manufacturers (NAM) and the Sound Dollar Coalition, of which the NCC is a member, expressed support for the measure because it puts Congress on record as expecting action. However, NAM and others clearly indicated the non-binding measure should not be considered acceptable as an alternative to other action.

In a related matter, many members of the Senate Banking Committee expressed disappointment during an Oct. 30 hearing that a Treasury Department report concluded that China and other nations intervene in currency markets but their actions do not meet the statutory definition of “constituting effort to gain unfair advantage on trade.” Senators from both parties expressed disappointment that Treasury failed to acknowledge the serious damage inflicted on US industries by China’s currency peg.

Treasury Secretary Snow presented the report as required by the Trade Act of ’88. Snow told the committee that China’s use of the peg does not of itself meet the statutory test and that the International Monetary Fund reviewed and agreed with the report. Snow said the Administration would continue to “encourage China and other trading partners to let their exchange rates reflect market fundamentals.”

While most of the focus was on China, some Senators also expressed disappointment that Treasury did not find Japan guilty of unfair manipulation even though it spent $59 billion in the first half of ’03 in currency market interventions.

China’s purchase of almost 1.3 million bales of US cotton in the week of Oct. 23 was its largest ever and pushed net export sales for the week beyond 1.5 million bales (480-lb.). China’s largest previous purchase in the US market was approximately 580,000 bales during the week of Nov. 9, ’95.

Total ’03-04 US sales are approximately 6.4 million bales compared to almost 5.3 million bales at the same point of the ’02-03 year. Total new crop (’04-05) sales are 172,600 bales (480-lb.). Shipments for the week were 108,400 bales, bringing total exports to date to 1.7 million bales, ahead of the 1.6 million bales at the comparable point in the ’02-03 marketing year.

Further increases in cotton prices raise the possibility that Step 2 payments will be temporarily suspended. Step 2 payments, authorized under the upland cotton marketing loan provisions, are made when the following conditions are met for 4 consecutive weeks: the US Northern Europe (USNE) price exceeds the average Northern Europe (NE) quote for competing growths, and the Adjusted World Price (AWP) has not exceeded 134% of the loan rate.

The recent rally in cotton prices has raised the AWP to 65.89 cents, or 127% of the base loan rate of 52 cents, as of Oct. 31. If the AWP were to exceed 69.68 cents, which is the 134% threshold, then Step 2 payments would be suspended for a minimum of 4 weeks.

The current AWP is at its highest level since September ’97, and June ’96 was the last time that the AWP actually reached 134% of the loan rate.

Cotton consumption in domestic mills for the 5 week of September was 397.3 million pounds for a seasonally adjusted annualized rate of 6.17 million 480-lb. Bales, according to the Commerce Department. Last year’s September annualized rate was 7.62 million bales.

The Commerce Department also revised the August (4 weeks) estimate downward by 1.7 million pounds to 237.2 million, resulting in a seasonally adjusted annualized rate of consumption of 6.23 million bales.

Preliminary October and revised September figures will be released Nov. 26.

 In response to a recommendation by the NCC and the Supima Assn., USDA on Oct. 30 announced modifications to the calculation of the ELS competitiveness program to better reflect actual crop production.

Effective Oct. 30, USDA changed the base grade to grade 2, staple 46 from grade 3, staple 44, and to reflect concentration of production in California, the US spot market average will be calculated giving 90% weight to the San Joaquin Valley quote and 10% to the Desert Southwest quote. USDA also will utilize new quality differentials to compare competitive foreign growths to the updated base quality.

The NCC, in consultation with Supima, recommended changes to better reflect current US production and international competition. The NCC also urged USDA to make a timely decision to avoid market disruption. USDA-Foreign Agriculture Service analysts acted quickly, and Under Secretary Penn made a timely and affirmative decision. Further information is available from Scott Sanford, scott_sanford@wdc.usda.gov.

NCC’s Pink Bollworm Action Committee (PBAC), chaired by Tornillo, TX, producer Bill Lovelady, met Oct 29-30 in El Paso, TX. Progress reports from ’03 activities documented excellent progress in population reduction in the first phase of the eradication program now underway in Trans Pecos/El Paso TX, South Central New Mexico and the state of Chihuahua, Mexico. Reductions are the result of normal producer use of Bt Cotton and pheromones for mating disruption for ’02 and ’03.

The Technical Advisory Committee, chaired by Dr. Bob Staten, USDA-Animal and Plant Health Inspection Service-Phoenix, stated the technology is working according to expectations. He also said the program could not move to the next level of eradication technology until funds are available for sterile insect releases.

The PBAC, faced with the absence of federal funds for sterile insect releases, examined options for the future course of the program. Options reviewed ranged from program shutdown to proceeding with the current plan. Committee members unanimously agreed to stay the current course with a renewed commitment and new strategy to obtain the required funding.

Sen. Hollings (D-SC) introduced legislation entitled “The American Home Fire Safety Act” that would require the Consumer Product Safety Commission (CPSC) to promulgate mandatory flammability regulations for upholstered furniture, filled top-of-the-bed textiles (such as mattress pads, comforters and pillows) and mattresses within 90 days of enactment, without following the normal notice and comment rulemaking and the Administrative Procedures Act. CPSC would not have to show “unreasonable risk,” consider less burdensome alternatives or complete a cost/benefit analysis.

The bill was developed in consultation with and at the behest of the National Assn. of State Fire Marshals (NASFM). The flammability regulations specified in the bill are California standards that are either in draft form or being modified: 1) For upholstered furniture, the February ’02 draft revision of California Technical Bulletin 117, which is being modified; 2) for filled bedding textiles, an Oct. 17 draft just released to the industry by the California Bureau of Home Furnishings and Thermal Insulation (CBHFTI); and 3) for mattresses, the February ’03 standard proposed by the CBHFTI, which has since been modified during California's rulemaking process.

The bill is introduced at a time when CPSC has rulemakings underway for mattresses and upholstered furniture and is considering including flammability requirements for bedding textiles. The CBHFTI finalizes its rulemaking for mattresses in December, is expected to begin the formal rulemaking process for filled bedding textiles in early December and has begun efforts to modify its mandatory standard for upholstered furniture issued in February ’02.

Two new interim final standards, pursuant to the Bioterrorism Act of ’02, were published by the Food and Drug Administration (FDA) (68 FR 58894 and 58974). They require registration with FDA of all domestic and foreign facilities that manufacture/process, pack, store, handle and/or hold food/feed ingredients in the US and food importers to provide advance notice of human and animal food shipments imported or offered for import to the US.

The new regulations are intended to provide FDA with new authority to protect the nation’s food supply against terrorist acts and other food and feed-related emergencies. The FDA registration requirement impacts all US cottonseed oil mills and whole cottonseed storage facilities as well as most, if not all, cotton gins, due to the use of whole seed and byproducts as feeds in animal rations. The registration period opened Oct. 16 and continues to Dec. 12. There is no fee for registration or for updates of any registration. Facilities can register online at www.fda.gov/furls or call FDA at 800-216-7331 or 301-575-0156 for registration forms. More information on the regulation, including a FDA fact sheet, is available at www.cfsan.fda.gov.

NCC will provide more details on the registration requirements for those covered by the regulation.