U.S. Loses WTO Cotton Case Appeal; Soy Case A Possibility

The World Trade Organization’s Appellate Body last week upheld a landmark dispute panel ruling condemning U.S. subsidies for cotton producers. The decision is widely considered to have important implications for other support programs both in the United States. In reviewing a U.S. appeal against a panel ruling first made public last September, the Appellate Body maintained the key finding of the earlier decision, namely that the United States had provided subsidies to its cotton farmers in such amounts as to cause serious harm to the trade interests of competing Brazilian producers by depressing global prices for cotton. The United States is now obliged to negotiate with Brazil on a deadline for implementing changes to its cotton subsidy regime.

The finding was broad and highly detailed. In general, it found the U.S. “Step 2” payment and the cotton export programs were illegal, and that other cotton programs provided illegally large amounts of support during specific years. The Appellate Body agreed with the panel that the subsidies resulted in significant price suppression in the world market for cotton, thus causing serious prejudice to the trade interests of Brazil.

In another important finding the Appellate Body that U.S. direct payments to cotton farmers do not, as the United States claimed, constitute “green box” subsidies because did not meet the green box requirement that the amount of such payments in any given year may not be related to the type or volume of production, since U.S. payments contained planting limitations reducing payments to farmers growing fruits, vegetables, and wild rice.

The ruling could set the stage for other WTO challenges to farm subsidy programs. Soy producers in Brazil are lobbying their government to initiate a dispute case against U.S. soybean supports on the grounds that U.S. supports to the sector have prompted a drop in global prices for the commodity. However, the Brazilian government has not yet decided to proceed on the soybean issue.

Brazil Approves Sale And Cultivation Of GM Crops

Brazil’s lower house of Congress last week approved a law regulating the sale and cultivation of genetically-modified crops. The Biosafety Law was passed by a vote of 352-60, and will now go to President Luiz Inacio Lula da Silva to be signed into law.

Despite fierce opposition from environmentalists and consumer groups, the new law strengthens the power of the National Technical Committee on Biotechnology (CTNBio), which will effectively have the final say on approving new GM crop varieties.

The first transgenic crop likely to be authorized for sale is Monsanto’s Roundup Ready soy – which already accounts for up to a third of all Brazilian soy plantings despite being technically illegal.

The law will also give new impetus to Brazil’s own efforts to develop new GM crop varieties. State research agency Embrapa is currently developing its own transgenic varieties of a wide range of crops, including soy, papaya, cotton, beans, lettuce and potatoes.

Drought Continues In Brazil; Abiove Cuts 2004-05 Production Estimate

Southern Brazil continues to be affected by a prolonged period of hot and dry weather, forcing analysts to cut their forecasts for the 2004-05 soy crop. Worst hit has been the southern state of Rio Grande do Sul, where over half the soy crop is estimated to have been lost because of a lack of soil moisture. To date, 380 districts from a total of 496 in the state have declared a state of emergency due to the drought, according to the daily drought report issued by the state. Local weather service Somar Meteorologia said that hot, dry weather will continue across southern Brazil’s soy-producing states for the upcoming week.

Meanwhile, Brazil’s main soybean crushing association, Abiove, lowered its estimate for the 2004-05 soybean crop (October-September) to 58.3 million tonnes. The estimate was lowered because of the drought in southern Brazil. Output is still seen 16.4% higher than the 50.1 million tons produced in 2003-04.

However, soybean and soymeal export estimates were reduced slightly as producers and crushers will opt to work through stocks. Soybean exports are pegged at 22.3 million tonnes compared with 22.5 million tones in the January report and 19.3 million tonnes last year. Meanwhile, soymeal exports are pegged at 15.4 million tonnes, down from the last estimate of 16 million tonnes and last year’s production of 14.1 million tonnes. Total soybean crushing is now estimated to reach 31.7 million tons in 2005-06. Year-end stocks are now seen totaling 1 million tons, the same as last year. Soyoil output is now pegged at 6 million tonnes, up from 5.58 million tonnes last year. The soyoil export view was cut by Abiove to 2.8 million tonnes from the previous estimate of 2.9 million tonnes.

India’s Soyoil Base Import Price Cut

India’s soy oil millers are upset that the federal government cut the base price on which the import duty of soyoil is calculated. “The change in tariff value at this time…may send (the wrong) signal to oilseed farmers. This may motivate the farmer to shift from oilseeds to other competing crops,” said Rajesh Agrawala, chairman of the Soybean Processors Association of India (SOPA).

Last week, India’s federal government cut the base price on which the import duty of soyoil is calculated to $485 per tonne from $565/tonne. Generally, the base price of imported edible oil is cut or hiked by the government to keep the base price as close as possible to the prevailing international price of that edible oil. The current international soy oil price is around $550/tonne-$560/tonne, so there is “no rationale in reducing” the base price, Agrawala said. The federal government doesn’t provide explanations for cuts or hikes in the base price of any imported edible oil.

Soy Complex Mostly Lower As Market Is Believed To Be Overbought

he soy complex closed mostly lower on March 3 reflecting a belief that the market is too overbought. While there is no rain in the forecast for the dry areas of southern Brazil , the crop is close to ready for harvest and traders assume that Chinese demand will shift to Brazil soon. March bean futures closed up $0.46 finishing at $227.81; May was unchanged, closing at $230.47 and July lost $0.83 ending at $231.48. March meal was down $0.77, closing at $206.02; May was $0.22 lower, finishing at $207.67 and July decreased $0.88 to finish at $209.77. March oil closed $3.31 lower to finish at $503.75; May decreased $3.09, closing at $506.40; and July lost $2.87, ending at $508.82.