Saturday, December 27, 1997

USDA credit guarantees to South Korea will boost cotton exports

By J.T. Smith / Abilene Reporter-News

The good news has been the bumper cotton crop in the Abilene region.

But the bad news has been the dip in cotton prices after the financial problems in Asia.

With that part of the world being an enormous customer of U.S. cotton -- especially the short staple cotton grown in our area -- economic woes there were bound to depress the cotton market.

But some extremely positive news early this week came just in time for Christmas.

U.S. raw cotton exports likely will receive a big boost by USDA's $1 billion offering of GSM-102 export credits to South Korea.

USDA noted that the short-term credit guarantee is one of the larger credit offerings the Agriculture Department has ever made.

The request also was processed in record time after South Korea's actual request for $1.6 billion in export credit guarantees.

The National Cotton Council had asked USDA to take this step in a letter earlier this month to August Schumacher, USDA under secretary for Farm & Foreign Agriculture Services.

The Council, along with the American Cotton Shippers Association and AMCOT, an export marketing cooperative, asked USDA to allocate $500 million in export credit guarantees for U.S. cotton exports to South Korea.

These organizations pointed out that South Korea traditionally has been one of the best customers of cotton from the United States.

Cotton is likely to get good slice of pie

USDA only announced the $1.6 billion in export credits; the department didn't say what specific commodities would be covered.

Nevertheless, the NCC was assured by James Schroeder, deputy under secretary for Farm & Foreign Agriculture Services, that "Cotton will be included at a substantial level."

Meanwhile, cotton trade sources in Seoul were quoted as saying the breakdown likely will be a split in four lots:

-- $600 million for soybeans, wheat and feed grain purchases.

-- $200 million for cotton purchases.

-- $100 million for livestock product purchases.

-- $100 million for oranges and other farm products.

Accepting that this is going to be pretty close to the way it shakes out, that's good news for two other key commodities of our Abilene region.

While cotton is the No. 1 crop of this area and Texas, cattle represent the No. 1 overall ag commodity of both the state and our region.

Also the credit for grains should be good news for our wheat growers.

While cotton is king for the region, wheat is the top crop in Taylor County and has a double significance here for providing winter grazing.

"We applaud USDA's quick reponse to South Korea's request," said NCC President William Lovelady. "Financial problems in Korea's textile manufacturing sector threatened significant disruption to U.S. cotton exports."

Indeed, industry sources report that South Korean level of cotton stocks was down to a four- or six-week supply there. (Shipment schedules generally average three to four weeks).

Fred Starrh, president of Cotton Council International, hopes even more GSM-102 credits can be made to South Korea with the full 36-month repayment period. This could be crucial in recapturing the $700 million cotton market there.

The 580,000 bales that went to South Korea for the previous 1996-97 season, would appear healthy at $222 million. However, that was down from several recent cotton seasons by 50 to 70 percent.

Administered by USDA's Commodity Credit Corporation, GSM-102 gurantees leverage private export financing to suppor U.S. agricultural product exports.

The guaranteed programs -- authorized under the farm law -- underwrite credit extended by tghe private sector in the United States to approved foreign banks using dollar-denominated letters of credit to pay for food and fiber products sold to foreign buyers on credit terms. The terms are up to three years.

Because payment of the U.S. bank is guaranteed, U.S. banks can offer competitive credit to the foreign banks.

The program cost virtually nothing because forfeitures have been almost non-existent throughout the program's existence. South Korea especially took pride in maintaining a perfect record of repayment for many years.