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Step 2 helps U.S. cotton industry end 05-06 marketing year on high note

Step 2 went out with a bang.

USDA’s weekly export numbers show that U.S. cotton merchants shipped 629,200 bales of cotton for the week ending July 27. Those shipments were the second highest ever, eclipsed only by the 715,000-plus bales shipped in mid-July, 2005.

As most cotton producers know, Congress terminated Step 2 of the U.S. cotton program’s Three-Step Competitiveness provision, effective July 31, after a WTO panel ruled Step 2 violated WTO trade rules.

“That (the 629,000-bale figure) puts us at 17.2 million bales, and we’ll probably ship, based on that number, another 300,000 to 400,000 in the last few days of July,” said Mark Lange, president and CEO of the National Cotton Council. “So we will probably be closer to 17.5 million bales of exports for this year.”

Speaking at the joint summer meeting of the American Cotton Producers and The Cotton Foundation, Lange said the high export number probably indicates a large amount of cotton was “pre-positioned” for shipment to qualify for the Step 2 payment for July 21-27 of 2.38 cents per pound.

“What that means is that we should also anticipate a rather significant slowdown in shipments will follow,” said Lange.

USDA has been forecasting exports of 17.2 million bales for the 2005-06 marketing year that also ended July 31. Next year’s exports are expected to be lower because of the demise of Step 2 and the potentially smaller crop growers will harvest this fall.

A WTO appeals panel ruled in March 2005 that the U.S. cotton program had caused “serious prejudice” to the economic interests of Brazilian cotton farmers. Among the provisions singled out in the ruling were the Step 2 and some export credit guarantee programs.

The Bush administration asked Congress to terminate Step 2 last fall, but farm-state members heeded cotton industry requests not to end the program in the middle of the marketing year. Last December, Congress passed an amendment to the 2006 Omnibus Budget Reconciliation Act that required USDA to eliminate Step 2 at the end of the 2005-06 marketing year on July 31, 2006.


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