Cotton's Week: May 13, 2005

The NCC’s board of directors adopted a resolution that urges Congress to endorse the current Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) and recognizes that the “agreement should provide the United States the best opportunity for supplying apparel manufacturers and other end-use manufacturing industries in the western hemisphere” with US cotton fiber and US-produced cotton textile products.

The resolution, agreed on during a special session, also urges the Administration to continue to address the trade priorities of the US cotton industry, including taking appropriate action regarding increased competition for US-produced textiles.

Earlier this year, during its annual meeting, the NCC reaffirmed its conviction that a good CAFTA is beneficial to the US cotton and textile industries. The NCC stated its intent to recommend passage of the current agreement “…if benefits to all segments of the cotton and textile industries are achieved by effectively reducing the adverse effects of 3rd-country participation and the Administration continues to address other Council trade priorities.”

NCC Chairman Woods Eastland said, "Our board reviewed developments over the past several months and concluded that the conditions specified in the late January resolution have been satisfied. The agreement is essential for preserving our current trade with the DR-CAFTA countries, particularly in light of the elimination of all textile quotas effective January 1, 2005.”

US raw cotton exports to DR-CAFTA countries in ’04 totaled more than 200,000 bales, accounting for more than 90% of raw cotton consumption in those countries. US exports of yarn and fabric totaled more than 2.5 million bale equivalents of cotton textile products accounting for more than 50% of total US cotton textile exports in ’04.

American Cotton Producer Chairman John Pucheu noted that, “It has been the longstanding view that a good Western Hemisphere trade agreement is vitally important to the U.S. cotton and textile industries. Already, some 80 percent of the cotton consumed by U.S. mills depends on cut-and-sew operations outside the U.S., primarily in Central America and Mexico, and that dependence will continue to grow. The DR-CAFTA agreement will certainly improve our competitiveness in the textile and apparel arena.”

NCC President/CEO Mark Lange said, “We believe the DR-CAFTA agreement will be approved by Congress in the weeks ahead. We look forward to working with Congress, the Administration and the National Council of Textile Organizations toward its adoption and appropriate implementation and to ensure that the potential benefits to U.S. cotton and textiles are not subsequently diminished as other trade agreements are negotiated.”

The National Council of Textile Organizations’ (NCTO) board voted to support the DR-CAFTA. NCTO Chairman Allen Gant said on behalf of the NCTO Board that,

"NCTO recognizes the strong and important ties between the domestic industry and the DR-CAFTA countries. The DR-CAFTA region is a very important part of the domestic industry's supply chain and we need this DR-CAFTA to ensure that the U.S. textile industry can remain competitive against China. The U.S. textile industry exported more than $5 billion in yarns, fabric and component parts to the region last year.”

The statement also noted the NCTO Board was pleased with the Administration's recent efforts to clarify its intent with respect to certain provisions of the DR-CAFTA that are problematic for the industry, especially regarding pocketings and linings, cumulation, and TPLs. The DR-CAFTA currently provides that non-visible pocketings and linings can be sourced from anywhere in the world, while visible linings must be sourced from the region. The new US Trade Representative Rob Portman, in response to a recent inquiry from Sen. Dole (R-NC), committed that upon ratification of DR-CAFTA by the Congress, USTR will utilize the DR-CAFTA amendment mechanism to pursue a rule of origin change for non-visible pocketings and linings. This will ensure that $100 million in existing US pocketing and lining exports to the region is not lost, and NCTO looks forward to working with Ambassador Portman to ensure this change occurs.

The NCTO statement said the DR-CAFTA also dictates that a Customs Enforcement Agreement must be in effect between the US and Mexico prior to the cumulation provisions of the Agreement being utilized.

“We are very pleased the Administration has reaffirmed its commitment to negotiate a substantive and aggressive Customs Enforcement Agreement with Mexico before cumulation is implemented,” it said. Additionally, the recent commitment by Nicaragua to allocate its trade preference levels (TPLs) to its current non-qualifying US trade will ensure that existing US business is not impacted by this provision. This is a significant commitment on behalf of Nicaragua because the TPL potentially could displace nearly $100 million in existing US business to that country.

The Chinese government has announced an additional quota of 6.4 million bales for imported cotton. The new quota applies to imports between May 1-Dec. 31, ’05. The latest announcement is in addition to the original quota agreed to under the World Trade Organization (WTO) accession of 4.1 million bales for calendar ’05. Industry sources indicate that about one-half, or 3.2 million bales, of the new quota was allocated on April 30. The timing of future allocations is unknown at this time.

Along with the new quota allocation, it also was announced that the Tariff Commission of the State Council would impose price-based tariffs on the new quota allocation. For import prices above 10,290 yuan/ton (56.4 cents/lb), a tariff of 5% will apply. If prices are below this level, a formula will determine the tariff rate with lower-priced imports receiving a higher tariff. The maximum tariff is 40%. For imports within the original WTO quota, a tariff of 1% remains in effect.

House Agriculture Committee Chairman Goodlatte (R-VA) met representatives of farm, conservation and nutrition organizations to advise them that he expects his committee to meet its obligations under the budget resolution. He also explained that the committee has until Sept. 16, ’05 to formulate a plan to reduce spending in programs under its jurisdiction by $173 million in FY06 (Oct. 1, ’05– Sept. 30, ’06) and by a total of $3 billion through FY10. He said the Committee will seek input from interested parties and that every program will be reviewed under a process “without any preconceived determinations.”

In a statement released following the meetings, Chairman Goodlatte said, “Let me also emphasize the importance of maintaining the current farm bill policies so that the nation’s farmers and ranchers can make decisions with assurance that the policies of the 2002 Farm Bill will remain effectively intact throughout the duration of the act. I see the Committee’s role in reconciliation as analogous to the manner in which the 2002 Farm Bill was written. By working together in an inclusive and bipartisan manner, weighing the diverse interests of production agriculture, trade, conservation, nutrition, research, and rural economic development, we were able to develop a farm bill that passed both Houses of Congress and secured a presidential signature. It is my intention to approach reconciliation in the same manner. Furthermore, I think the reconciliation process may prove to be a good indication of what we can expect to see during the drafting and deliberations of the next farm bill.”

In its final estimate of the ’04-05 US cotton crop, USDA increased total production to 23.25 million bales, up from the previous estimate of 23.01 million. The upland crop estimate was increased 235,100 bales to 22.51 million and the ELS estimate was increased 9,600 bales to 745,600 bales.

Final planted area is estimated to be 13.66 million acres, while final harvested area is estimated to be 13.06 million acres. The ’04-05 national average upland yield is an estimated 843 pounds per harvested acre, 186 pounds above the 5-year average of 657 pounds. The estimated national average ELS yield of 1,443 pounds per harvested acre represents a 237-pound increase from the 5-year average. State-by-state data are available at http://risk.cotton.org/ayp03.htm.

In its May report, USDA gauged US ’04-05 cotton production at 23.25 million bales. Exports were increased 200,000 bales to 13.40 million bales while mill use was unchanged at 6.30 million bales. The estimated total offtake now stands at 19.70 million bales, generating ending stocks of 7.10 million bales. The estimated ending stocks-to-use ratio is 36.0%.

For ’05-06, US production is estimated to be 19.50 million bales. Mill use is set at 5.80 million bales and exports are expected to reach 14.50 million bales. The estimated total offtake stands at 20.30 million bales, resulting in ending stocks of 6.30 million bales.

A change in spraying rules is necessary due to a heavy egg-lay of cabbage loopers in parts of southeast Texas and Louisiana on young cotton. All Bt cottons should control the cabbage loopers very well, however, the looper populations were considered heavy enough that the 5% refuge option non-Bt cotton was at risk of losing a stand if the loopers were not controlled. 

The EPA approved changes, effective immediately, to refuge requirements for Bollgard, Bollgard II and WideStrike cotton. These changes will allow insecticidal sprays on the 5% refuge in both the embedded and external 95/5 cotton refuge options for control of lepidopteron pests, but only through the pre-squaring stage of development.

All other practices in these ’05 guides must be followed as indicated, including the guidelines for the 20% sprayed refuge option, which remains unchanged. Producers should consult their crop advisors for specific recommendations and implementation plans for their individual cotton operations.

Due to reporting errors for sales to China and Turkey, net export sales for the week ending May 5 were 75,100 bales (480-lb). This brings total ’04-05 sales to slightly more than 13.7 million. Total sales at the same point in the ’03-04 marketing year were about 13.5 million. Total new crop (’05-06) sales are 827,400 bales.

Shipments for the week were 299,400 bales, bringing total exports to date to 9.6 million bales, compared with the 10.1 million at the comparable point in the ’03-04 marketing year.