Cotton's Week: May 27, 2005

In anticipation that the Finance and Ways & Means committees may review implementing legislation shortly after the Memorial Day recess, the Administration and Congress stepped up efforts to build support for the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA).

US Trade Representative (USTR) Portman joined Agriculture Committee Chairman Goodlatte (R-VA) for a press conference in the agriculture committee. Goodlatte announced his intention to support CAFTA.

NCC President/CEO Mark Lange joined agriculture representatives in a meeting with USTR Portman and Chief Agriculture Negotiator Johnson.  Johnson stressed the important role US agriculture has played in successfully urging Congress to approve previous trade agreements and urged the groups to redouble their efforts in support of CAFTA.

NCC also conducted a series of regional conference call briefings to discuss CAFTA with producer and ginner leaders and regional organizations. Industry leaders will contact Congressional members during the Memorial Day recess to express support for CAFTA. State fact sheets outlining the benefits of CAFTA for cotton are available at www.cotton.org/issues/2005/stateecon.cfm where there also is a link to USDA’s CAFTA fact sheets for all commodities.

In response to a recent proposal by a group of African countries to treat cotton differently than other agricultural commodities within the ongoing WTO negotiations, NCC President/CEO Mark Lange stated, “A move away from the single-undertaking approach to the WTO agricultural negotiations would be a serious mistake for the Doha Round. The proposal of several African countries calling for an early harvest of the US cotton program is a rehash of earlier proposals and is out of place in the WTO cotton subcommittee.” 

Lange noted the proposal is based on a faulty assumption that their current economic troubles are due to the presence of the US cotton program, even though a number of independent analyses have attributed only marginal price impacts of 2% or less to the US program. The proposal does nothing to address serious distortions that exist in international trade in textiles and apparel which are at the center of the low prices faced by the world’s cotton producers.

Lange said the NCC supports the US position that cotton should only be addressed as part of a broad-based single-undertaking approach that is critical to success in the Doha Round. He reiterated that, “The U.S. cotton program is not the source of economic hardship for farmers in African countries; rather their continued reliance on a monopolistic, parastatal ginning and marketing system. African farmers need assistance in improving agronomic practices, establishing a reliable classing system, improving infrastructure and ginning, privatization of marketing and distribution, and assistance in building expanded markets in order to improve farm income. The U.S. cotton industry, working cooperatively with USDA and US AID, has initiated several development programs designed to assist African farmers in achieving these goals.”

Net export sales for the week ending May 19 were 393,000 bales (480-lb). This brings total ’04-05 sales to almost 14.5 million. Total sales at the same point in the ’03-04 marketing year were about 13.7 million. Total new crop (’05-06) sales are 977,200 bales.

Shipments for the week were 288,000 bales, bringing total exports to date to 10.1 million bales, compared with the 10.5 million at the comparable point in the ’03-04 marketing year.

The House Appropriations Committee approved the FY06 agriculture spending measure, which provides $16.8 billion in discretionary spending for FY06.

The committee debated a number of amendments related to FDA and food aid but made no substantive changes to the bill reported by the subcommittee, chaired by Rep. Bonilla (R-TX), on May 16 (see CW May 19).

The legislation provides discretionary funding for programs administered by USDA, the Food & Drug Administration and the Commodities Futures Trading Commission. The bill would require USDA’s Agricultural Research Service to continue aflatoxin research at Phoenix, AZ; cotton genetics at Florence, SC; ginning research at Las Cruces, NM; cotton pathology research at Shafter, CA; cotton quality and fiber tagging research at Clemson, SC; and ginning and harvesting research at the same funding level as in FY05.

The Animal Plant and Health Inspection Service would receive $38.634 million to support the Boll Weevil Eradication Program and $6.28 million to support Pink Bollworm Eradication. USDA’s Farm Services Agency (FSA) is authorized to make up to $100 million in loans for boll weevil and pink bollworm eradication activities.

For conservation programs, the committee placed limits on acreage enrollment and funding for EQIP, WRP, WHIP and CSP. The committee instructed Natural Resources Conservation Service to ensure that no producer group be “systematically disadvantaged by the process and ranking system” used to determine eligibility for EQIP.

The Foreign Agricultural Service would receive $151.832 million for salaries and expenses, an increase of $10.6 million over FY05 and $568,000 below the budget request. As authorized by the farm law, MAP would provide $200 million for export promotion activities and FMD would receive $34.5 million.

The committee provided $7 million for new block grant programs for specialty crops. In ’04, Congress approved legislation authorizing up to $50 million annually for block grants to promote production and marketing of specialty crops. The legislation is seen as forerunner to efforts by specialty crops to gain more significant funding in the next farm bill.

The FY06 appropriations measure next will be considered by the House following the return from the Memorial Day recess. The Senate likely will consider its version in committee shortly after returning from the recess. The appropriations measure must be signed into law by Sept. 30 to ensure programs continue to operate uninterrupted.

The recent US Supreme Court ruling in the beef marketing campaign was seen as a favorable development for the Cotton Research and Promotion Program.

The Supreme Court rejected a First Amendment challenge to the constitutionality of the Beef Promotion and Research Act. In its decision in Johanns v. Livestock Marketing Ass’n., No. 03-1164, and Nebraska Cattlemen, Inc. v. Livestock Marketing Ass’n, No. 03-1165, the Court reversed the Court of Appeals and held that the beef program is “exempt” from First Amendment scrutiny because it constitutes “government speech.”

The decision recognizes that commodity promotion programs do not infringe the First Amendment rights of the industry participants required to fund them where the government defines the central message to be communicated and oversees the program operation. Justice Antonin Scalia delivered the court’s opinion, and 6 justices voted to uphold the beef program.

NCC Chairman Woods Eastland said, “The decision by the Supreme Court in the beef promotion cases is great news for beef producers and cotton farmers alike. This decision should clarify the law regarding the constitutionality of agricultural research and promotion programs like the Cotton Research and Promotion Program. The cotton research and promotion program spurred a remarkable turn-around in the retail use of cotton textiles in the United States. U.S. cotton farmers want to promote the product they produce.”

Eastland said the 40 year-old Cotton Research and Promotion Program has helped the bottom line of every cotton producer in the United States, and it also generates positive returns for the entire cotton-apparel production chain.

The program generates about $60 million per year that is used for research and promotion of cotton and cotton textiles and apparel. That program also is facing legal challenge - a lawsuit filed in the US Court of International Trade and an administrative challenge filed with USDA.

Eastland noted that while the cotton industry is pleased with the beef decision, “each of these legal challenges will be determined on their own merits.”

The House Ways & Means Committee rejected a resolution (HJ Res 27) calling for the US to withdraw from the WTO.

The committee rejected the resolution, but under rules governing a requirement that Congress review US membership every 5 years, the resolution is privileged and must be considered by the House – probably in June. A provision of the Uruguay Round Agreements Act allows any member of Congress to introduce a resolution every 5 years from the date the US joined the WTO (1/1/95) to withdraw Congressional approval of the agreement establishing the organization. The House defeated a resolution 5 years ago by a vote of 363-56.

During the Ways and Means discussion, Chairman Thomas (R-CA) urged members to pay careful attention to the ongoing Doha negotiations. He indicated he would be reluctant to open US agriculture markets further in return for “premises” that other countries will eventually open their markets to US industrial products and financial services. He also criticized the new European Union chief negotiator – Peter Mandelson – for a tendency to make “flamboyant” statements that make it difficult for the US and EU negotiators to work together.

Mandelson recently spoke in Mali where he appeared to abandon the single-undertaking approach to the agriculture negotiations by calling for early action to eliminate the US cotton program.

According to the Commerce Dept., April (4-week month) total cotton consumption in domestic mills was 230.1 million pounds for a seasonally adjusted annualized rate of 6.14 million bales (480-lb). Last year’s April annualized rate was 6.08 million bales. The March (5-week month) estimate of domestic mill use of cotton was lowered by 750,000 pounds to 299.5 million. The revised seasonally adjusted annualized rate of consumption for March is 6.17 million bales. This is lower than last year’s March annualized rate of 6.21 million bales.

Based on Commerce estimates from Aug. 1, ’04, through April 30, ’05, projected total pounds consumed during crop year ’04-05 would be 3.0 billion pounds or 6.3 million bales. USDA’s latest estimate of ’04-05 crop year mill use is 6.3 million bales.

Preliminary May domestic mill use of cotton and revised April figures will be released by Commerce on June 23, ’05.