Economist lists farm policy shortcomings

Among those are international trade, the value of the U.S. dollar, and the slumping U.S. textile industry, which until this year was the U.S. cotton farmer’s biggest customer, Shurley said in a speech at the 2002 Southern Region Agricultural Outlook Conference in Tunica.

Shurley expects the textile industry to rebound some, but says a decrease in infrastructure and mill capacity will most likely prevent it from going back to the 10-million-bale-plus usage of years past.

“The market simply is very cautious about quick starts and turns because we are so dependent on the export market,” says Shurley. “If we can export 11 million-plus bales, it could increase the price of cotton. Otherwise, even if a hurricane comes on board and cuts the U.S. crop, it will likely not impact prices to a large degree.”

The good news, he says, is that cotton is more competitive in the export market with the elimination of the 1.25-cents per pound differential when calculating Step 2 values, as a result of the 2002 farm bill.

Worldwide, the demand for cotton is strengthening. The U.S. mill industry has suffered from a staggering influx of imports while other countries have really picked up the pace. In fact, world mill use has set new records in each of the last three years, Shurley says.

Traditionally, China produces more milled goods than it can produce in raw cotton. So Shurley believes they will be importing some cotton and should be drawing down on their stocks in 2002. Proposed new tariffs and quality restrictions, however, could put a damper on the United States importing cotton into the China market.

“There’s nothing unhealthy about U.S. consumers’ demand for cotton, but we’re getting less and less of our cotton products from U.S. mills and growers. For all practical purposes, our milling industry has been down the toilet the last few years,” says Shurley.

In addition, the farm bill did not address any potential inflation in land rent due to increased government payments. “It’s very painful for growers not to realize all of the benefits Congress intended for them, because land rent is siphoning it off.”

“We currently have inflation in land rents, and that will continue even more so under this new Farm Bill. Some were hoping the Farm Bill would address that, but it has not and cannot. Increased government payments are going to be capitalized into the value of the land and into the rent, and that's exactly what we're now seeing,” Shurley says.

“Loan deficiency payments are a two-edged sword. We need them and we're glad to have them. But, there's no doubt that LDP's keep land in cotton that perhaps could shift to something else. So, while we need them, their very existence continues this low-price, oversupply cycle that is difficult to dig out of, and the farm bill really didn't address that.”

There are other issues facing agriculture, and the cotton industry specifically, that are beyond the scope and traditional role of "farm bill" type legislation, according to Shurley.

For example, a strong dollar vis-a-vis other currencies makes U.S. exports more expensive overseas and attracts imports to the United States. “The appreciation of the dollar helped contribute to the sharp decline in cotton prices during 2001-2002 and is an issue that greatly impacts cotton producers, yet this is certainly beyond the scope of farm bill legislation,” he says.

Another example given by Shurley is the 30 percent decline in the U.S. textile mill industry since 1997. Plants have closed and jobs have been lost in part because U.S. plants find it tough to compete with cheap foreign labor, lower operating costs, and less regulation.

“The U.S. textile industry is struggling while foreign mill business is at record levels, greatly impacting the demand for U.S. cotton and affecting the price farmers get for their cotton,” he notes. “Yet, it too is beyond the scope of the farm bill.”

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