By Odyll Santos
SAN ANTONIO, TX (B)--Government payments will persuade many farmers to plant even more cotton in the 2000-01 season, though current market movements signal that less acreage is needed, said a U.S. Department of Agriculture cotton official in Jan. 7 remarks prepared for the Beltwide Cotton Conference's economics and marketing session.
With payments under farm law and additional government assistance approved by Congress last autumn, growers have been given a safety net.
Wayne Bjorlie, director of USDA's fibers analysis division, said the safety net worked so well that gross income for many farmers held up fairly well, despite the lowest cotton prices in years. But the safety net also had some unintended consequences, prompting farmers to eagerly add more cotton acres at a time when supplies are abundant and demand remains limited.
"With the automatic response to low world prices that has been provided for many years by the marketing loan provision, and with a timely assist from Congress in the form of additional payments, it now looks as though we'll make it to next spring with plenty of people still willing and able to plant cotton," Bjorlie said.
The marketing loan program worked successfully as a safety net because it reflects world conditions, not just domestic prices, Bjorlie said.
He noted that at 44 cents per pound, the Cotlook A index, an average of world high-grade quotes, is at its lowest level since 1986, about the same time that the marketing loan program was just beginning.
The marketing loan program benefits for cotton, which includes loan deficiency payments and the reduced loan redemption price, are based on the index. Bjorlie pointed out that the loan gain, at about 22 cents, is at its highest since 1986.
The safety net for cotton and that for grain farmers didn't come cheap. Bjorlie said the $27 billion in projected spending by USDA's Commodity Credit Corp. will exceed all previous records. The old record was $25.8 billion, set in fiscal year 1986, when a huge government program resulted in CCC warehouses dumping grain into the market.
U.S. farmers are expected to receive $9 billion in marketing loan benefits this year. Cotton farmers are projected to receive about $1.1 billion in marketing loan benefits for the 1999 crop, equivalent to roughly 30% of the crop's value. Feed grain producers, who got $1.5 billion last year, are projected to receive almost $4 billion this year in marketing loan benefits, about 22% of the value of their crop.
Flexibility and additional emergency payments contributed to a higher safety net.
"After collecting about $8.5 billion on last year's crop, farmers are looking to get about $10.5 billion this year," Bjorlie said. "Since this payment is tied to historical acreage, feed grain producers will receive the most, almost $5 billion. Cotton producers should get nearly $1.2 billion, an important addition to the safety net."
Farmers actually could get even more. Back in Washington, talk in Congress revolves around maintaining support for farmers.
"Most proposals seem to set as a goal that farm income, or farm gross revenue, should be maintained or guaranteed at some level that the author thinks is reasonable or 'normal,'" he said.
For cotton, the combination of marketing loan benefits resulting from low world prices and the additional emergency payments appear to be considered adequate as a safety net. They allowed farmer income to come as close to normal as possible. Bjorlie noted that projected gross farm receipts for cotton in 1999 reached 97%, compared with an average of receipts over the past five years.
Additional emergency payments for cotton this year will total $616 million. Without these funds, cotton gross revenue would have come to about 89% of the average of the previous five years, he said.
Bjorlie said a proposal to change the cotton marketing loan program, the main component of the safety net, may come this year because of the large outlays. He recalled that in the past, proposed changes have called for the program to be based on domestic or spot prices, like the grain programs, instead of world prices.
Such a change, referred to as "forcing a bale of cotton through a grain auger," would weaken the cotton safety net, he said.
A cotton loan program based on domestic spot prices would provide more than $1 billion less in producer benefits. Gross receipts would have totaled only 83% of the five-year average.