Cotton's Week: September 9, 2005

Members returned to Washington following the traditional August recess and quickly approved 2 supplemental appropriations measures totaling $62.3 billion to provide relief to hurricane victims. Additional supplemental measures are expected, and total assistance could exceed $200 billion.

Congressional leaders also announced that they are postponing action on budget reconciliation. The budget resolution passed earlier this year required committees to develop legislation by Sept. 16 to achieve savings itemized in the resolution. Agriculture Committees were instructed to send legislation to the Budget Committees by Sept. 16 that would modify laws under the Committee’s jurisdiction and achieve savings, as scored by the Congressional Budget Office, of $173 million in FY06 and $3.0 billion over FY06-10.  The budget also provided the Finance and Ways and Means Committees authority to propose up to $70 billion in tax cuts.

Senate Agriculture Committee Chairman Chambliss (R-GA) announced that he was indefinitely postponing a scheduled committee mark-up of a reconciliation bill. In statements to the press, Chairman Chambliss explained that the Committee now would assess carefully the impact of Katrina on demand for food assistance programs and address those needs before making modifications in the programs necessary to achieve savings. He also indicated that the Committee is carefully monitoring information from the affected areas and will be prepared to develop a comprehensive disaster assistance package, which also would include drought damage, when sufficient information is available.

USDA has taken a number of actions to provide relief to the hurricane victims.  The department has provided more than $170 million in emergency assistance to agricultural producers suffering from Hurricane related damage. USDA also has modified on-farm grain storage rules, authorized Emergency Conservation Program funds and provided 12 million pounds of food.

Rep. Berry (D-AR) introduced disaster assistance legislation which allows producers in disaster areas to choose to receive either a payment equivalent to 50% of the applicable direct payment for the crop or apply for assistance under a traditional program, which provides payments for yield losses in excess of 35% and for quality losses. The legislation also includes assistance for livestock, specialty crops and cottonseed.

Sens. Talent (R-MO) and Durbin (D-IL) have introduced disaster assistance legislation, and other members are known to be drafting legislation.

In related developments, Senate Majority Leader Frist (R-TN) delayed a vote on repeal of the estate tax and Chinese President Hu postponed a scheduled visit to Washington.

As part of their continuing series of farm bill forums being held around the United States, USDA has scheduled 2 in Cotton Belt states. On Sept. 12, Ag Secretary Mike Johanns will host a forum at the Kansas State Fair in Hutchinson, KS, from 10 am until 1 pm. On Sept. 22, the Secretary will be in Oklahoma City at the Oklahoma State Fair from 2-5 pm.

The public is invited to attend and comment on current and future farm bill policy.

Net export sales for the week ending Sept. 1, ’05 were 432,000 bales (480-lb). This brings total ’05-06 sales to about 5.8 million bales. Total sales at the same point in the ’04-05 marketing year were slightly more than 5.3 million. Total new crop (’06-07) sales are 130,800 bales.

Shipments for the week were 276,200 bales, bringing total exports to date to 1.4 million bales, compared with the 866,400 bales at the comparable point in the ’04-05 marketing year.

In an address to the Cotton Board’s annual meeting in Charleston, SC, NCC Chairman Woods Eastland said the primary cotton-producing areas of Mississippi, Louisiana and Alabama missed the brunt of Hurricane Katrina but the industry still will be affected.

He said preliminary crop loss estimates range between 100,000-200,000 bales with no significant damage to gins and warehouses. Losses to rice, sugar and poultry could be more significant.

“Going beyond the immediate loss of production,” Eastland said, “we must also realize that all of agriculture will face higher costs for harvest and transportation, due to the higher fuel costs and also due to increased demand for overland transportation with the port of New Orleans expected to be operating below normal capacity.”

Eastland said these are time-sensitive issues and could require assistance from Congress to ease the financial burden, but “only after all evacuation and humanitarian needs have been fully addressed.”

He said other key cotton issues that Congress and the Administration will be addressing in the very near future – concerns that have required the NCC to maintain a strong presence in Washington and Geneva - are budget reconciliation, the future of the Step 2 program, payment limits and promoting US cotton’s interests within the agriculture negotiations of the WTO’s Doha Round. The latter is to “ensure that the U.S. cotton program is not singled out in the negotiations from other commodities for separate treatment.”

Regarding Step 2, Eastland said the NCC has asked Congress to make a decision on that cotton program component in the context of a new farm bill, “or at the very least to consider other options rather than immediately eliminating the program.”

He said the NCC also is making preparations for the development of a new farm bill. Included is NCC participation in this year’s USDA listening sessions and at individual Congressional members’ forums seeking producers’ input on farm legislation. In all of these, he said, industry leaders consistently have voiced “strong support for maintaining many of the current farm bill’s provisions.”

“Of course, this process is just beginning and we expect that Congressional farm bill hearings will not occur until later in 2006 and on into early 2007,” he said.

Eastland said the NCC remains active on trade issues, particularly regarding China. That includes testimony before Congress on China, which has grown to become the largest US cotton importer but has been unwilling to fully comply with all of its trade obligations, including quota allocations. Other concerns with China are contract sanctity and the country’s variable duty on imports in excess of their WTO commitment – a duty that places the price of imported cotton above that of Chinese domestic polyester. The NCC also has been working closely with the US textile industry and the Administration to ensure appropriate safeguards are imposed against surging China textile and apparel imports.

“While the Council is continuing to work with the U.S. textile industry on the filing of petitions for textile safeguards,” he said, “we are very supportive of efforts to reach an agreement similar to the one between China and the EU for limiting growth on China’s textile exports.”

He said even though the fourth round of US-China negotiations recently concluded without an agreement, “we are urging continued negotiations and have reminded our negotiators a comprehensive agreement is critical for the textile and apparel industries of both China and the U.S.”

Eastland told attendees that the Cotton Research and Promotion program is crucial to maintaining growth in cotton demand, and he is pleased with the industry’s direct role in its defense to current legal challenges. He also thanked the Cotton Board for supporting Cotton Incorporated’s funding commitment to the NCC’s export promotion arm, Cotton Council International.

Among exciting developments in the CCI/Cotton Incorporated partnership is the potential for registering CCI’s COTTON USA trademark for use in the United States. He said that would enable US retailers to license and use that mark on qualified products that are 100% cotton and containing at least 50% US cotton.

US Trade Representative Rob Portmansaid WTO Doha round trade negotiations have “lagged significantly over the last year or so” and it is time to “jump start” talks to meet the substantial progress objective by year’s end.

Ambassador Portman explained that the US would like to see a Doha round agreement completed by the end of ’06 because Trade Promotion Authority, also known as fast-track, expires in mid-’07.

In related developments, Ambassador Portman said the US-Bahrain Free Trade Agreement signed Sept. 14, ’04, is ready to be considered by Congress. There has been a delay related to the Arab League’s boycott of Israel. He also indicated the US is considering initiating negotiations leading to the development of free trade agreements with four new countries: South Korea, Malaysia, Egypt and Switzerland. No final decisions have been made.

Ambassador Portman expressed optimism about the potential to reach a comprehensive agreement with China on trade in textiles and apparel. A deal that produces a predictable level of Chinese apparel and textile imports is broadly desired as it would simplify business plans for all parties and therefore help profitability. 

Portman said that he is prepared to walk away from a bad deal and that the US intends to retain its right to use the textile safeguard mechanism. So far, the Bush Administration has acted on 9 safeguard petitions, restricting growth in Chinese imports to 7.5% in the safeguard categories for the rest of this year.

The US and China met twice in August and press reports out of China indicate that another session could be held as early as next week.

European Union member states endorsed the outcome of the negotiations with China held earlier this month in Beijing.

The agreement will allow the issuance of the necessary import licenses and the release into free circulation of the blocked textiles from China, which totals approximately 87 million pieces.

In the agreement, half of the goods are simply unblocked and allowed to enter outside the limit imposed in '05. The remaining half will be allowed to enter but will count against the '06 quotas. The agreement also provides for new flexibility in quota administration, such as allowing 5% of advance use, 7% of carry over, and 4% of inter-category transfers among certain product categories, in order to avoid similar problems in the future.