WASHINGTON, Dec. 9, 2015 - Cotton growers are stepping up their push for new subsidies that could cost as much as $1 billion annually, according to the Agriculture Department’s internal estimates. The industry, which is struggling to deal with a sharp decline in cotton prices, is asking USDA to allow cottonseed to qualify for an oilseed under the new Price Loss Coverage and Agriculture Risk Coverage programs.
USDA officials are saying little about the proposal. But sources familiar with USDA’s review say it has raised a series of concerns, including the potential cost, which might have to be offset by cuts in other spending. Under the 2014 farm bill, USDA has the discretion to cover additional oilseeds under PLC at a price trigger, or “reference price,” of $20.15 per hundredweight. Cottonseed has been recently selling for well under $15.
Given the substantial base acreage that could qualify for coverage, the cost for covering cottonseed under PLC would approach $10 billion over 10 years or about $100 per acre. That’s in the range of what’s expected for PLC payments for rice and about half what’s projected for peanuts, but more than three times what is projected for corn, sorghum and wheat. Outside estimates have put the cost closer to $500 million.
House Agriculture Chairman Mike Conaway, who comes from Texas, the biggest cotton-growing state, has asked Agriculture Secretary Tom Vilsack directly to consider the proposal. “Cotton prices are in the tank, and the STAX (Stacked Income Protection Plan) program is not working as well as we thought it might, and so the cotton guys need some help,” Conaway says, referring to the revenue insurance plan that was created for cotton in lieu of making the fiber eligible for PLC and ARC.
Conaway can also point to savings from the STAX program. For 2015-16, the STAX program has come in about 60 percent under budgeted estimates and over the 2015-2019 period, the Congressional Budget Office (CBO) now estimates STAX will cost 41 percent less than they estimated at passage.
Cotton growers have some key bipartisan support for their request. The ranking Democrat on the House Agriculture Committee, Collin Peterson, and the top Democrat on the General Commodities and Risk Management Subcommittee, Tim Walz, are signing onto a letter that Conaway and the subcommittee chairman, Rick Crawford, R-Ark., are sending to USDA later this week in support of the proposal.
The industry’s proposal will be a key issue in a hearing that the subcommittee is holding Wednesday on the sector’s economic health.
Cotton growers say they’re getting hammered for reasons beyond their control -- primarily China’s manipulation of the global cotton market. China first drove up global prices to nearly double the average level by stockpiling cotton, and then abruptly switched its strategy in 2014 and is now dumping some of that fiber on the market. China is the world’s largest consumer, importer and stockholder of cotton and the second largest producer, after India. For U.S. farmers, the average net return on cotton has plunged from $254 per acre in 2013 to $74 per acre, according to the University of Missouri’s Food and Agriculture Policy Research Institute.
Growers are separately lobbying Congress to allow the industry to resume the use of commodity certificates as a way for producers to avoid the $125,000 per-person payment limit on commodity subsidies. The use of certificates ended in 2009 when Congress eliminated a limit on marketing loan gains.
Conaway has expressed optimism that a certificate provision will be in the fiscal 2016 omnibus spending bill that congressional leaders are negotiating. The provision, which was in the House version of the USDA appropriations measure, has recently drawn the ire of Sen. Chuck Grassley, R-Iowa. Grassley says the provision would be “very expensive to the taxpayers and costly to the credibility of the agricultural community,” but there may be little he can do about it, given that it’s supported by Senate Appropriations Chairman Thad Cochran, R-Miss.
The 2014 farm bill restored a limit on marketing loan gains by including them in the $125,000 limit and didn't restore certificates. Cotton growers say the $125,000 limit ($250,000 per married couple) has created problems for individual growers while threatening to disrupt cotton marketing.
The cottonseed issue, meanwhile, is an administrative decision for the Farm Service Agency, although the Office of Management and Budget is expected to weigh in, if it hasn’t already.
The proposal has run into a number of concerns within USDA in addition to the cost, including the fact that no other crop is covered under the commodity programs for two different parts of the plant -- in this case, the fiber and the seed, which is widely used for feed. There is precedence for double coverage, however, in crop insurance, where coverage is available for both the cotton and the seed.
Another, big issue USDA has to address is whether the cost of the payments will have to be offset by cuts elsewhere. Some officials think it does, since the change would be discretionary. One source of money that has been looked at is to forego a sign-up for the Conservative Reserve Program, an idea that would almost certainly be strenuously opposed by conservation groups.
Defenders of the proposal said some of the estimated cost of adding cottonseed to PLC would be reduced by savings in other commodities for which cotton growers are currently getting payments.
Questions also have been raised as to whether Brazil could renew its challenge to U.S. cotton programs if farmers qualify for payments for cottonseed. The whole point of switching to STAX was to settle a WTO case that Brazil had won.
Darren Hudson, an economist at Texas Tech University, doesn’t believe Brazil has that much of a case and that it probably wouldn’t concern enough money to be worth mounting a new WTO case. “The potential of cottonseed being part of the PLC program was included in the law,” Hudson said, referring to the 2014 farm bill.
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