Saturday, January 24, 1998

Cotton leaders trying to buffer Asian financial woes

By J.T. Smith / Abilene Reporter-News

It's no secret the Asian economic problems eventually could put a whammy on the cotton market. After all -- a big chunk of Texas' cotton crop ends up in Asian countries.

But cotton leaders have been working to hammer out ways for the Asian customers to continue buying U.S. cotton. And they are meeting with success.

Phillip Burnett, vice president of the National Cotton Council, has been traveling to Korea and Hong Kong throughout the week where he joined American Cotton Shippers Association President Gary Taylor and ACSA Vice President Bill May, both of Memphis, Tenn.

Burnett has been on a special mission to encourage textile manufacturers there to utilize USDA's GSM-102 credit guarantee program for the purchases of U.S. cotton.

Under the GSM-102 program, USDA guarantees private export financing for U.S. ag products. The program leverages financing from the private sector to support and encourage U.S. ag exports to major foreign markets.

"Korea is an extremely important market for U.S. cotton," Burnett said. "We want to encourage their textile mills to utilitize the $200 million in GSM-102 credit guarantees that recently were extended to them by USDA."

Burnett added that this allocation not only will help the United States maintain its cotton exports to South Korea, but likely will help increase market share there in both the short and long term.

Textile mills need credit to purchase raw cotton

Without credit guarantees, Burnett said Korea's textile mills will struggle to get enough credit to continue their purchases of raw cotton.

The purpose of this trip is to demonstrate how this program can make U.S. cotton more attractive than other competing foreign growths.

Burnett's trip also included Hong Kong, where he met with USDA Under Secretary Gus Schumacher and other key USDA agricultural attaches in the region.

The Hong Kong visit was to urge continued use of the GSM-102 program to boost U.S. cotton exports in other Asian markets.

Schumacher was key in negotiating the credit guarantee extension to Korea and additional guarantees for five other Asian nations.

Council Economist Kevin Brinkley said the NCC hasn't seen any currency-related disruption in U.S. cotton exports to that region so far.

"As highly dependent as Asian countries are on cotton, we think they will continue to be interested in cotton, and hopefully, U.S. cotton," Brinkley said. "Because the exchange rates have eroded somewhat, their textile products are more attractive in international markets."

Brinkley said U.S. cotton has continued to sell into that market despite the recent financial crisis.

He added that there is a great interest within international organizations -- including the U.S. government -- in stabilizing the Asian economies.

So far, so good

By late week, T. Cotton Nelson of the Council had been in contact with the cotton delegation and told the Reporter-News that the talks with Asian textile leaders had progressed well. The report from Schumacher was positive.

"We have been pleasantly surprised by their reaction to the credit guarantees," Schumacher said. "We expect them to be used very quickly."

GSM-102 credits of $1 billion are available for purchases of U.S. cotton and other agricultural products. The program leverages financing from the private sector to support and encourage U.S. agricultural exports to major foreign markets.

"They (Korean spinners) indicated they are going to use the GSM not only to maintain their cotton supplies, but to increase purchases of cotton," Schumacher said.

What's more -- the Koreans indicated that up to 80 percent of their cotton purchases will be from the United States.

Burnett praised Schumacher and other USDA leaders in working their Christmas holidays to set up these credit allocations from Korea.

He noted that the Korean market was once built largely from GSM-102 credit program for exports. But the country had trended away from the program in recent years and had relied more on foreign growths than U.S. cotton.