Your attention is invited to the attached paper by the Department of
Agriculture concerning the sales policies for CCC owned cotton. This paper is distributed in connection with
the briefing that Mr. James A.
McConnell, Assistant Secretary of Agriculture, made to the
Council on subject matter on May 31, 1955.
[Enclosure]
SUBJECT
- Review of alternative sales policies for CCC owned cotton
Facts bearing on the problem
1. Cotton is in serious surplus in the U.S. and 1955 production is
limited to the minimum acreage permitted by law. Marketing quotas and
acreage allotments, approximately 15 percent less than in 1954, are in
effect for the 1955 crop. It now appears that the August 1, 1955,
carryover will be about 10.7 million bales, the highest since 1946. Of
that total about 6.5 million bales will be owned by CCC and 1.7 million bales will be under
loan. The 1955 acreage is expected to be the lowest in 70 years. The
objective of the Department of Agriculture in its over-all cotton
production and distribution program is to reduce carryover stocks so
that on August 1, 1956, they will be reduced to about 7 million bales.
This would require the export of about 5 million bales. Failure to
export 5 million bales would necessitate a further reduction of acreage
below the extremely low 1955 acreage and would create a considerable
degree of additional hardship among cotton producers.
2. Export of 5 million bales of cotton would be approximately equal to
the 1948–51 average and would be substantially less than our pre-war
share of world trade in cotton.
| Cotton Exports |
— |
Million Bales |
| 1948 |
— |
4.7 |
| 1949 |
— |
5.8 |
| 1950 |
— |
4.1 |
| 1951 |
— |
5.5 |
| 1952 |
— |
3.0 |
| 1953 |
— |
3.8 |
| 1954 |
— |
4.0 |
3. The President has enunciated the following as export sales policy:
“The United States cannot be satisfied with the position of holding its
own supplies off the market and accumulating surpluses while other
countries dispose of their entire production. Accordingly, the United
States will offer its products at competitive prices. At the same time
the United States will not use its agricultural surpluses to impair the
traditional competitive position of friendly countries by disrupting
world prices of agricultural commodities.”
[Page 122]
Discussion
1. It is essential that there be established an export sales policy for
cotton for the 1955–56 marketing year. Current uncertainties are
resulting in virtual world wide stoppage in the export movement in
cotton. The Department of Agriculture has been subjected to pressures
from all sides (producer, Congressional, trade, and foreign governments)
for a policy announcement.
2. The 90% support price program of the United States has largely fixed
the price level of world cotton. It has guaranteed that there will be no
drastic declines in world cotton prices. Behind this price umbrella
cotton production expanded greatly in the old cotton-producing countries
and in many new producing areas of the world. While foreign acreage
expanded, the acreage allotted to the United States producers was cut
from 1953 plantings by 21 percent for 1954, and an additional 15 percent
for 1955. In fact the United States producer has virtually borne the
entire acreage reduction for the world. His sacrifice has maintained the
world price at a high level, and encouraged foreign producers to expand
acreage, and capture historical American markets in which he has been
denied full participation because of his curtailed acreage.
- (a)
- The result is that markets we have been generations in
creating have been surrendered to foreign producers who have
priced their cotton just under ours, with a resultant loss in
grave proportions of the markets for American-grown
cotton.
- (b)
- A further incentive to expanded foreign production has been
our technical and financial assistance programs to provide
know-how, equipment, and irrigation projects to remove the
production risks and create new production areas.
- (c)
- The following table shows how the present U.S. policy is
resulting in decreased production and increased stocks in the
U.S.:
[Page 123]
| Free World Supply
Statistics |
|
1951–52 |
1952–53 |
1953–54 |
1954–55 |
1955–562
|
|
Million Bales |
| Beginning carryover, August
1 |
|
|
|
|
|
| United States |
2.3 |
2.8 |
5.6 |
9.7 |
10.7 |
| Other net exporting countries |
2.7 |
4.4 |
4.8 |
3.5 |
3.5 |
| Net importing countries |
5.7 |
6.0 |
5.1 |
5.2 |
5.0 |
| Total |
10.7 |
13.2 |
15.5 |
18.4 |
19.2 |
| Production |
|
|
|
|
|
| United States |
15.2 |
15.2 |
16.4 |
13.6 |
|
| Other |
13.4 |
13.7 |
13.9 |
15.1 |
|
| Total |
28.6 |
28.9 |
30.3 |
28.7 |
|
| Supply, free world total |
39.5 |
42.1 |
45.8 |
47.1 |
|
3. The 90 percent support price program, and our withholding policy, have
not only protected the domestic and foreign cotton prices, but the
system has also protected the American and foreign synthetic industries,
particularly the rayon industry, which by pricing their commodity just
under the price of cotton, have made great inroads into cotton
consumption both in the United States and abroad. 1954 world consumption
of synthetics in cotton equivalents amounted to about 10 million bales.
(U.S. portion of this was about 3.5 million bales.) The result has been
to further decrease the consumption of American cotton, which has made
additional contributions to the present low cotton-acreage allotments.
Unless it is changed the present program will in the future cause
further decreases in the consumption of American cotton. Under existing
law, with continued increases in production per acre in the United
States, this would necessitate additional cuts in acreage allotments
that would be still more disastrous to individual producers and areas of
the Cotton Belt.
4. Even under the Agricultural Act of 1954, there is not much chance to
obtain a significant cut in the price support level. Various provisions
of legislation serve to maintain the support price level at 90 percent
of parity.
5. World trade in cotton has been running about 12.5 million bales per
year. Pre-World War II we exported from 5 to 7 million bales per year.
If we export 5.0 million bales this would be only about 40 percent of
the world trade in cotton. This is less than our
[Page 124]
average during any representative pre-war period
and could be well defended against any criticism from other exporting
countries.
6. If U.S. cotton stocks were to be withheld from the market to satisfy
foreign policy objectives, the burden should be borne, not by the U.S.
cotton producers, but as a foreign policy expenditure of the U.S. To
withhold these supplies would enable all other exporting countries to
dispose of their entire output at maximized selling prices, while the
U.S. producers would be required to cut production further and sacrifice
additional costly investments. We do not believe that the U.S. could be
satisfied to be a residual supplier.
Alternative disposal programs
- 1.
- Continuation of present policy of selling cotton at no less than
the higher of (1) 105 percent of current support price plus
reasonable carrying charges, or (2) the market price as determined
by CCC.
- 2.
- Subsidizing exports of cotton or some other form of two-price
system.
Legislative changes in support program
deemed essential
- 1.
- Changes the standard quality of Upland cotton for purposes of
parity and price support from Middling 7/8’s inch to Middling 1
inch.
- 2.
- Eliminate Section 101(b) of the Agricultural Adjustment Act of
1949, as amended, and add the words “cotton and peanuts” to Section
101(a) of this Act. This would permit adjustments in the support
level as a percentage of parity below 90 percent when the supply
percentage is above 102 percent rather than 108 percent as is now
permitted.
