Cotton's Week: May 14, 2004

House members are supporting commodity and financial groups’ request that USDA abandon a proposal to redefine a “family farm” for purposes of determining eligibility for direct and guaranteed farm loans.

The USDA proposal, published Feb. 9, ’04, would define a “family farm” as an operation that “generates or will generate in a typical year annual gross farm income which does not exceed the greater of $750,000 or 95% of the statistical distribution of the income of farms in the state with gross sales in excess of $10,000 based on the farm data and survey of farm economic factors most recently published by the National Agricultural Statistics Service, USDA or any successor agency.” Currently, USDA uses broad, flexible guidelines in state and local offices to determine what constitutes a “family farm.”

The NCC joined banking, farm credit and agriculture groups on a joint letter in response to the Federal Register notice, strongly urging USDA to withdraw the proposal because it would eliminate loan eligibility for a significant number of integrated farming operations and could establish an unreasonable and unworkable precedent for other programs. A letter circulated by Rep. Stenholm (D-TX) and signed by 21 of his colleagues, including Cotton Belt Reps. Neugebauer (R-TX), Berry (D-AR), Ross (D-AR), Scott (D-GA), Thompson (D-CA), Bishop (D-GA), Etheridge (D-NC), Alexander (D-LA), Marshall (D-GA), John (D-LA), McIntyre (D-NC), Pickering (R-MS) and Emerson (R-MO) expressed similar concerns about the impact of the proposed rules and urged USDA to reconsider the definition. A letter co-authored by Reps. Nunes (R-CA) and Cardoza (D-CA) and signed by a significant number of California delegation members conveyed members’ concerns over the proposed rule. In addition to the co-authors, the California letter was signed by Sens. Feinstein (D) and Boxer (D), as well as Reps. Farr (D), Thomas (R), Pombo (R), Radanovich (R), Thompson (D) and 12 of their colleagues. The comment period has closed and USDA is reviewing the comments.

US Trade Representative Zoellick announced that the US would sign the Central American Free Trade Agreement (CAFTA) on May 28.

Under so-called fast-track or trade promotion authority (TPA) procedures, the Administration had to wait at least 90 days to sign the agreement after formally notifying Congress on February 20 that negotiations were complete. Once the Agreement is signed, the Administration can send implementing legislation to Congress, but there is no deadline for submitting the legislation. Once the legislation is submitted, Congress has 90 days to approve or reject it.

Ambassador Zoellick also indicated that the Administration plans to submit a single package of legislation that includes CAFTA and a separate agreement with the Dominican Republic (DR). If that course of action is followed, the Administration will have to wait an additional 90 days to sign the agreement after advising Congress the DR agreement is completed.

Rep. Brady (R-TX), who has been designated to lead the effort to gain passage of the CAFTA when it is considered by Congress, acknowledged that current high levels of concern among his colleagues about “trade-related job losses” makes passage difficult during an election year. He has said, though, “the votes for passage will be there when a vote is held – whether late this year or early next year.”

The House approved (262-162) legislation (HR 4281) that allows small businesses to purchase healthcare coverage through associations. The legislation is supported by the Administration, but faces an uncertain future in the Senate as attempts to pass similar legislation there have stalled due to divisions on the plan’s merits.

The House-passed Association Health Plan (AHP) bill amends the Employee Retirement Income Security Act (ERISA) to allow the Labor Department to certify AHPs, which then can operate under a uniform, federal framework of rules similar to plans sponsored by large employers and unions.

Under the legislation, an AHP would apply for certification through the Department of Labor; would have to have at least 1,000 participants and beneficiaries; must maintain sufficient reserves; must obtain aggregate and specific stop loss insurance and indemnification coverage for claims in case the plan is terminated; and must contribute at least $5,000 annually to an AHP fund to be made available to provide stop-loss coverage to participants in the event the AHP faces financial problems.

NCC and the National Cotton Ginners Association sent a letter of support for the bill to all House Cotton Belt members.

The Fair Currency Alliance (FCA) announced it will closely monitor the Administration’s consultations with China and is not giving up on efforts to secure revaluation of that country’s currency.

The Alliance – a coalition of manufacturing, agriculture and labor groups - said that “if significant results are not achieved in the near future,” the FCA could still file the petition, which had not yet been formally submitted when the Administration rejected it. Representatives of the FCA, which includes the NCC, said at a news conference that FCA goals include an upward revaluation of China’s currency, the Yuan, by about 40% within the next several months. The group indicated that a planned visit to the United States by Vice Premier Huang Ju in July would be an excellent time to make an announcement of the revaluation.

The FCA contends that the undervalued Yuan constitutes a prohibited export subsidy under WTO rules. It conducted an in-depth economic analysis that determined China’s “real trade surplus” was $190 billion in ’02 – more than 3 times the official Chinese government number.

The Bush administration announced it will trim Vietnam's textile quotas by 4.5% this year because the country was found to be shipping clothing into the United States that had not been made in Vietnam. The action is authorized by a provision in the US-Vietnam bilateral agreement that was added late in the negotiations because of allegations that imports were arriving in the United States with counterfeit Vietnamese certificates of origin. The provision authorizes the United States to reduce the quota if evidence of transshipments is found. The amount of the announced quota reduction is quite small compared with US textile industry estimates of the amount of textile product transshipments from Vietnam. The current quota totaling $1.8 billion will be reduced by $80 million.

Clothing and textile shipments from Vietnam went from $49 million in ’01 to $952 million in ’02 but over the past 12 months have reached $2.4 billion - a figure covering all categories of clothing and textiles, including $600 million of products not covered by the quotas.

USDA notified the NCC of its approval of the Specifications for Cotton Bale Packaging Materials for the ’04 crop. Revised from ’03, the Specifications are on the NCC web site at www.cotton.org/tech/bale/specs.

Through the ’04 Specifications, USDA requires bagging manufacturers to discontinue manufacturing strip-coated and randomly-coated woven polyolefin bagging in favor of fully coated bagging. That requirement stemmed from the Joint Cotton Industry Bale Packaging Committee’s (JCIBPC) recommendation that all woven polypropylene and woven polyethylene bagging materials be fully-coated starting with the ’04 crop.

Gins are allowed to use any strip-coated bagging they may have on hand prior to the start of the ’04 season that was approved for use in ’03, provided the bags were not manufactured after May 11, ’04 – the date the Specifications were published by the NCC.

JCIBPC Chairman Lee Tiller said, “Elimination of strip-coated and randomly-coated bagging was done at the urging of both domestic mills, which are represented on the JCIBPC, and foreign mills, which are not.”

Tiller noted that wrapping or tying bales with materials that do not meet JCIBPC specifications can: 1) make cotton bales ineligible for Commodity Credit Corporation loan and other farm program benefits and 2) violate many US cotton trading rules.

In its final estimate of the ’03-04 US cotton crop, USDA increased total production to 18.26 million bales. The ’03-04 national average upland yield is an estimated 723 pounds per harvested acre, 85 above the 5-year average of 638.

The estimated national average ELS yield of 1,170 pounds per harvested acre represents a 17-pound increase from the 5-year average.

In USDA’s May report, the ’03-04 world cotton production estimate was raised 710,000 bales to 93.49 million. USDA increased the estimate of beginning stocks to 36.49 million bales. This results in a world supply of 129.98 million bales. Estimated world mill use was lowered 80,000 bales to 97.80 million. The projected world ending stocks on July 31, ’04 is now pegged at 32.66 million bales. This has a corresponding stocks-to-use ratio of 33.4%.

In its first world supply and demand projection for the ’04-05 marketing year, USDA put world production at 102.50 million bales and world mill use at 99.00 million bales. Consequently, world ending stocks for ’04-05 are projected to climb to 36.46 million bales for a stocks-to-use ratio of 36.8%.

In its May report, USDA released its first US supply/offtake projection for the ’04-05 marketing year. The US crop is pegged to reach 17.60 million bales. US mill use and exports are estimated to reach 5.80 million bales and 11.50 million bales, respectively, for total ’04-05 offtake of 17.30 million bales. Ending stocks for ’04-05 are a projected 3.90 million bales for an ending stocks-to-use ratio of 22.5%.

USDA said net export sales for the week ending May 6 were 152,800 bales (480-lb.), resulting in total ’03-04 sales of more than 13.5 million. Total sales at the same point in the ’02-03 marketing year were about 12.1 million bales. Total new crop (‘04-05) sales are 1.4 million bales.

Shipments for the week were 307,700 bales, bringing total exports to date to 10.1 million bales, ahead of the 8.6 million at the comparable point in the ’02-03 marketing year.

USDA announced a special import quota for upland cotton that permits importation of a quantity equal to one week’s domestic mill use or about 119,000 bales. The import quota is established under Step 3 of the marketing loan competitiveness provisions and applies to cotton purchased between May 20 and August 17 and entered into the United States no later than November 15. Step 3 provisions require an import quota be established if, for any consecutive 4-week period, the US Northern Europe price, adjusted for the value of any cotton user marketing certificate issued, exceeds the Northern Europe price.

This week’s announcement is the third Step 3 quota established during the ’03/04 marketing year. The first covered imports September 25-December 23. The second quota is still active, covering the period March 18-June 15. Despite the opening of quotas, import data published by USDA indicates that only 2,600 bales of upland cotton have been imported since August ’03.