Thank you for that introduction. I appreciate the invitation to participate in this morning's Southern Ginners' Ag Update.

I don't think I have to tell this group that the cotton industry has dealt with its fair share of difficulties this past year and still faces a number of important challenges in the coming months.

In 2001, an already poor cotton business climate got even worse. Cotton prices at the farmgate were negatively impacted by the combination of a sluggish U.S. and world economy, a strong dollar, China's cotton policies, an overabundance of cheap manmade fibers, unused textile capacity, and weak prices for alternative crops.

During the previous twelve months, we saw cotton textile imports rise to record levels, witnessed U.S. textile mill closings at an unprecedented rate, and saw domestic mill consumption drop to the lowest level and carryover stocks rise to the highest level since the mid-1980s.

Our difficult situation in 2001 was made even worse by the events of September 11. As our nation dealt with this tragedy, we also faced new security challenges and a shift in national priorities that diverted attention away from the completion of new farm legislation. September 11 also introduced new variables into trade deliberations, as U.S. policymakers considered appropriate ways to reward certain nations for their help in our war on terrorism.

Throughout 2001, at the top of the Council's priority list was getting new farm legislation that retained the best provisions of the FAIR Act and put into place an improved income safety net. We needed to achieve these objectives while complying with an overall spending cap established by a Congressional budget resolution. At the same time, we had to be mindful of our WTO commitment that puts a limit on so-called "trade distorting" subsidies.

With analytical assistance from Council staff, industry leaders reviewed a number of program options. That review led us to recommend a program that would continue the marketing loan and 3-step competitiveness provisions but would add a benefit delivery system that relies on a combination of fixed and counter-cyclical payments. We felt this approach would enable us to achieve the highest level of total benefits without exceeding the budget limits while maintaining our WTO commitments.

Our recommendations were unveiled by the Council as the lead-off witness before the House Agriculture Committee last February.

To address short-term needs, Congress responded to the Council's push for agricultural assistance by authorizing $5.5 billion in emergency economic assistance for the 2001 crop. Of this, $4.7 billion was dedicated to program commodities, including $85 million in supplemental cottonseed assistance.

As Congress struggled to craft new farm legislation, the industry was determined to get lawmakers to recognize that its foreign counterparts heavily subsidize agriculture and contribute to a supply/demand imbalance. The industry's strong response to the Council's Action Requests helped defeat two amendments that would have weakened a House bill that included most of the Council’s farm policy recommendations. (Of course, this is especially important now - otherwise Farm Bill conferees would be dealing with amendments from both Houses that place severe funding and payment limit restrictions on program commodities.) The House proceeded with its bill despite the events of September 11 and strong opposition from the Administration. The industry is very grateful to Agriculture Committee Chairman Larry Combest, committee members and their staff for the determined and successful effort to craft and pass this important legislation.

Unfortunately, the Senate got a much later start on farm bill deliberations and there was considerable doubt about whether that body would return to farm bill consideration after September 11. However, the Council and a number of other farm groups urged the Senate to move ahead.

Thankfully, the Senate did resume deliberations but their early farm bill proposals were unacceptable to the cotton industry. Through the persistence of Cotton Belt Senators, especially Senators Lincoln and Miller, most of the cotton industry's priorities were eventually included in the bill passed by the Senate Agriculture Committee in November.

Trade issues shared center stage with farm bill activity in 2001. The cotton industry faced surging imports of cotton textiles, sagging textile demand worldwide, challenges to important export assistance programs, new trade agreements with textile producing countries, a new round of multilateral trade negotiations and the long-anticipated entry of China into the WTO.

An effective trading relationship with the Caribbean region has been a primary component of the Council’s strategy to improve the competitiveness of U.S. textiles and we worked for clarification of rules implementing CBI legislation.

We also sought to re-direct the broad move in Washington to expand access to the U.S. textile market.

Despite these initiatives, the House moved aggressively on several trade expansion fronts and before year’s end, they passed Trade Promotion Authority - a key part of President Bush’s trade policy initiatives for 2001.

The Council worked with textile leaders to improve the impact of these bills on the U.S. textile industry. Our combined efforts culminated in a number of concessions offered by the Bush Administration during full House consideration of TPA.

To summarize several other important Council activities from 2001:

• We sought federal assistance to combat the effects of the strong dollar and its impact on the U.S. textile sector, in the form of special loss carryback, loan guarantees, elimination of the alternative minimum tax and elimination of the 1.25 cent Step 2 threshold.

• The Council's Quality Task Force continued to emphasize quality and yield improvement by conducting a thorough review of seed breeding programs and initiating research on fine leaf trash to determine its sources and effects on various textile processes.

• Our Bale Packaging Committee updated educational programs on bale size requirements and has urged the industry to move, where practical, to put recessed ties on all bales.

• The Council's task force on electronic documents worked with USDA to expedite the implementation schedule for the new U.S. Warehouse Act and is providing input on USDA's efforts to develop a procedure to allow centralized electronic loan redemptions.

• We worked with EPA and Monsanto to get a multi-year re-registration of Bt cotton with refugia options intact. This came in a season in which U.S. cotton producers planted transgenic seed on 11.2 million acres or 69 percent of total cotton acreage.

• The Council maintained dialogue with EPA on such products as Bidrin as the agency continued its risk reassessments of organophosphates and re-registration of older products.

• We asked OSHA, during public hearings, to recognize the unique aspects of agriculture and seasonal and temporary jobs and exclude them from any approach that is taken to address ergonomic injuries.

• The Council, in concert with the National Cottonseed Products Association, worked to get less severe solvent extraction rules for cottonseed oil production.

• The Cotton Foundation remains strong and in 2001 it was able to commit more than $900,000 toward 64 cotton research and education projects and nearly $1.2 million toward special projects.

• The Council's overseas arm, Cotton Council International, had a successful year in their aggressive pursuit of finding ways to get more U.S. raw cotton and manufactured cotton goods exported. This goal has never been more important, as U.S. mill use is expected to remain under pressure for the foreseeable future, creating a greater reliance on export sales.

Turning to this year, the challenge to stay on course and restore U.S. cotton’s economic health is formidable. We must reinforce our resolve to educate elected officials on the importance of a commercially viable production agriculture sector and a healthy domestic textile industry because the U.S. cotton industry is facing some of the stiffest international and domestic competition in history.

Most of cotton's farm policy priorities are included in both the House and Senate farm bills. Although we were optimistic about the Senate farm bill in December, the Grassley/Dorgan amendment radically changed our perspective. As it stands now, the Senate bill is worse for the cotton farmer than a continuation of current law.

Of course, with the farm bill conference getting underway this week, there are going to be a number of thorny issues to resolve along with payment limits.

The White House, who recently voiced support for the budget agreement of $73.5 billion in new farm spending, said it prefers the House bill to the Senate bill. The Administration wants to avoid the Senate bill's "front-end loading." They also support plans for creating farm savings accounts.

In addition to addressing the Administration's priorities, the House and Senate conferees will likely be at odds over other Senate amendments, including those for the packer livestock ownership ban, Western water rights, 2001 crop and livestock disaster aid, and lower payment limits for EQIP assistance. In addition, another Grassley amendment that cleared the Senate --requiring Congress to rewrite sections of farm law if they threaten WTO compliance-- will have to be addressed by conferees.

Farm bill conferees were just announced yesterday afternoon. As expected, there will be 21 members: seven from the Senate and 14 from the House, with the Republicans having a slight edge in numbers, at 11 to 10.

Pre-conference discussions have been underway between House and Senate staff members. I cannot tell you how long it will take to complete the process. Chairman Combest has said that his priority is a good farm bill and he does not want to sacrifice that objective to a quick process. The Council shares that view yet certainly understands the urgency of getting a bill so crop financing can be arranged.

As ginners, we need to be very concerned about the potential outcome of the farm bill conference. The Grassley/Dorgan amendment continues to benefit from significant support-- despite the fact that some of the data used by the Environmental Working Group to lobby this effort is misleading. Our industry must continue to educate our policy makers of the folly of this approach to farm policy and the severe ramifications it will have across rural America.

Fundamentally, the Council's central goal for the remainder of 2002 is the same as last year - to do whatever is necessary to restore industry profitability. Obviously, new farm legislation is an extremely high priority in that quest. However, profitability cannot be restored through passage of good farm legislation alone. The economic health of the U.S. cotton industry is inseparably linked to the health of U.S. agriculture as a whole and to the health of the U.S. textile industry. Success with our fundamental mission will depend on our ability to lead a determined and united industry to:

• pass the best possible farm bill in time for the 2002 crop;

• fashion an economic stimulus package that includes provisions specifically aimed at improving capital availability and restoring profitability to the domestic textile industry;

• address a growing list of trade initiatives that are high on the Bush Administration’s agenda and that have major implications for all industry segments;

• deal effectively with a host of regulatory issues; and

• build new export markets for U.S. cotton.

A year ago, there may have been some members of the cotton industry who did not fully understand the implications of trade policy for our industry. I dare say there are none today that don't see that connection, just in viewing almost daily headlines showing another textile mill closing and observing our U.S. mill consumption fall from more than 11 million bales a few years ago to a current rate of around 7.5 million.

The industry’s current economic situation is perhaps as dire as it has been since the Council’s inception during the Great Depression years. The Council must continue to have the kind of broad-based industry support and leadership that have enabled us to deliver against unusual odds for more than 60 years.

Thanks again for the invitation to participate in your meeting.