2001 preview: Risks, rewards of cotton

Although the FAIR Act was initially billed as "budget-cutting" legislation, it instead has resulted in expenditures far exceeding the budget numbers estimated at the time of its inception. This increase in spending, according to one expert economist, has not escaped the notice of those in Washington, D.C., with other spending priorities.

"Despite the best intentions of those who conceived the so-called Freedom to Farm Act in 1995, and though we might wish otherwise, government support has assumed a larger role in farming in the last couple of years than it has ever played before. The promise of government support, I am afraid, is coming to be regarded as one of the indispensable inputs in the spring, along with seed and fuel," says Wayne Bjorlie, with USDA's Farm Service Agency in Washington, D.C.

Over the last three years, the Commodity Credit Corporation has spent almost $72 billion subsidizing farming, with about $52 billion going to support major row crops and the rest going to conservation payments, disaster payments and other smaller crops. Of the $52 billion total spent on row crops, the government has paid out approximately $22.5 billion for feed grains, $11 billion for wheat, $7 billion for soybeans, $3.5 billion for rice, and $7 billion for cotton.

The current farm program, according to Bjorlie, has given farmers the flexibility to plant whatever they want; contract payments that aren't linked to anything; and more of these payments on stand-by in case they are needed. The only thing missing from the farm program, he says, is higher loan rates. "It's not difficult to see why the program has become so popular, or why it has been so expensive," he says.

The problem, he says, is that government farm supports have become "very costly" since the enactment of Freedom to Farm and those in Congress with other ideas for these funds are taking notice. Taking this into account, just what can growers expect from the government in 2001? Bjorlie's one word answer is "less."

"Cotton growers' flex payment of about $480 million, about 6 cents per pound, for the 2001 crop is bankable. Will there be another market loss adjustment payment to supplement it? I suppose one way to get at an answer to that would be to ask if we've had a market loss," Bjorlie says. "It is much too early to gauge the political likelihood of another supplemental payment. It will probably still be too early at planting time."

There are a number of factors that are expected to play a role in what cotton growers can expect from the government in terms of financial support in 2001. Among them, Bjorlie says, is an expected tightening of world stocks despite increased cotton production. If world stocks do tighten under this scenario, Bjorlie expects the A Index to average higher than it is averaging this marketing year, taking away most or all of the marketing loan gain. "If the expectation of an average A Index turns out to be close to about 72 or 73 cents, it is not unreasonable to suggest that marketing loan gains will be very minimal or even zero.

"The average A Index is up 12 cents from two years ago, and there is no reason to think world cotton acreage won't increase as a result. Maybe production rises 2 million bales, about 2 percent. The tightening of world stocks, then, would happen on the premise that consumption continues to outstrip production, as it has in each of the last three years," he says. "World consumption can even decline in 2001, but as long as it is larger than production, stocks will decline, and the likelihood of a significant marketing loan benefit will remain small.

"The driving force in world consumption over the last two years has been the U.S. economy. Imports of textiles poured in from virtually everywhere at record rates. We know that engine is starting to misfire," Bjorlie says. "Whether the U.S. economy will enter a recession and affect foreign textile manufacturers to the extent the world cotton consumption fails to reach the level of cotton production, I wouldn't want to guess. But, that is a variable growers should be watching between now and planting time."

Despite his expectation for less government support of farming, Bjorlie says there are a few legislative changes being proposed in an attempt to improve the cotton program.

The first, he says, is an increase in the loan rate. In addition to propping up cotton prices, increasing the loan rate would also increase the size of any marketing loan benefit that might be obtained for the 2001 and 2002 crops. "I estimate that removing the cap from the upland cotton loan rate formula would have resulted in a loan rate for the 2001 crop of 52.25 cents per pound, some 33 points above the level that was announced.

Other ideas that have surfaced, according to Bjorlie, include making flex payments based on more up-to-date base acreage and payment yields. "If that were done, they would no longer be flex payments since they would be based on current planted acreage. It would be more difficult to argue that the payments are decoupled from production, with all of the international trade implications that would entail."

THE U.S. SENATE has confirmed President Bush's nominees for the lead administration positions dealing with environmental issues.

Although environmentalist groups had promised to make the Interior post a battleground, neither New Jersey Gov. Christie Whitman (EPA administrator) nor Gale Norton (Interior Secretary) faced the intense Senate debate other nominees have drawn.

At her confirmation hearing, Gov. Whitman promised "a strong federal role" on environmental protection, but she also said she review several regulations issued by EPA in the final days of the Clinton administration.

Norton, the former Colorado attorney general, drew a firestorm of opposition from environmental groups, primarily because of her stated support for drilling in the coastal area of the Arctic National Wildlife Refuge. One group, Friends of the Earth, called her nomination " declaration of war on the environment."

But, Norton easily captured enough Senate support to make approval almost a formality. That opposition from environmentalists is not likely to go away, however. Several groups have put the secretary on notice that they will be monitoring the administration's environmental moves closely in the coming months.

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