Cotton Growers Have Decisions to Make for the New Seed Cotton Program
Decisions must be made for the 2018 cotton crop being planted now, according to a Texas A&M AgriLife Extension Service farm bill expert.
The Bipartisan Budget Act of 2018 established seed cotton as a covered commodity enabling cotton farmers to receive assistance when prices are low. Seed cotton refers to unginned upland cotton including both lint and cottonseed.
Dr. Joe Outlaw, AgriLife Extension economist and co-director of the Agricultural and Food Policy Center at Texas A&M University in College Station, provided an update on what that means to cotton producers, bankers, crop insurance agents and crop advisors at five different meetings recently in the High Plains and South Plains.
Beginning with the crop planted this year, seed cotton is a covered commodity just as other crops and eligible for either Price Loss Coverage, or PLC, or Agricultural Risk Coverage, or ARC. Failure to act results in PLC selected for an operation, Outlaw said.
“This is not about lint prices anymore, but rather a weighted average of lint and cottonseed prices,” he said.
Outlaw explained how the seed cotton prices were established. The prices are reported by the U.S. Department of Agriculture-National Agricultural Statistics Service as the U.S. marketing year average for cotton lint and cottonseed. Pounds of production used are also reported as U.S. upland cotton lint and cottonseed production in pounds.
A producer wanting to figure the marketing year average price for seed cotton can take the upland cotton lint price multiplied by the upland lint production and add it to the cottonseed price multiplied by cottonseed production in pounds, Outlaw said. That figure is divided by the lint production plus the cottonseed production.
“The price would have been about 34-35 cents per pound for the 2016-17 marketing year,” he said. “So assuming a producer had chosen PLC coverage with a 750-pound lint yield, the seed cotton payment per acre for the 2016-2017 crop would have been $32.70 per base acre.”
Producers can update their old counter-cyclical payments, or CCP, lint yields using the same method as other crops used in the 2014 farm bill, then multiply by 2.4 to establish seed cotton program yields, Outlaw said.
“Beginning with the 2018 crop, generic base will be converted to seed cotton or other crop bases on the farm using specific rules,” he said.
If a farm has no recent history, 2009-2016 were the years identified, of planting a covered commodity, the owner will allocate generic base acres on the farm to unassigned crop base for which no payments may be made for ARC or PLC.
If a farm has recent history of planting seed cotton, the producer has these two options:
– Option 1: Allocate generic base equal to the greater of 80 percent of the generic base acres on the farm or the average number of seed cotton acres planted or prevented-planted during the 2009-2012 crops years, not to exceed total generic base acres on the farm.
– Option 2: Allocate generic base proportional to the planted and prevented-planted acres during the 2009-2012 crop years of seed cotton and other covered commodities.
“Any unconverted generic base becomes unassigned crop base and ineligible for ARC and PLC,” Outlaw said. “Also, anyone who does not make a selection will automatically get option 1.”
“We know producers are just now planting, and they need to really make three decisions in the coming months,” he said. “The first decision is what are they going to do with their generic base acres; they need to allocate them to another crop they planted between the years 2009-2012.
“It’s a little bit complicated and there are some specific rules they are going to have to follow, but we have developed a decision aide to help them work through that process.”
The second decision is more of an opportunity, Outlaw said.
“If you have yields that will give you a higher payment yield, you have the opportunity to update or increase your payment yield, which will increase your payments down the road if you ever have them trigger.”
The third decision is picking between ARC or PLC on the acres assigned to seed cotton.
“This decision is a life-of-the-farm bill decision, so theoretically they could be picking between ARC and PLC after the 2014 farm bill comes to an end after the 2018 crop,” Outlaw said.
While he said he gets asked a lot about which is better – ARC or PLC – Outlaw said it will depend on the yields the FSA uses for ARC.
“Because ARC is a revenue plan, the big yields you have gotten the past few years would have reduced your payments resulting from low prices,” he said. “PLC is only price protection, so if you don’t make a crop and prices are high, you will only have protection from crop insurance. With that said, most producers are going to be happy with PLC.”
Outlaw said across the state, many producers are asking how to get more help. He said economists at the AgriLife Extension centers will help, or producers can look at the decision aid tool online or call his office.
The Agricultural and Food Policy Center’s decision aid tool can be used to help producers understand the decisions they will need to make to sign up for the new seed cotton program. For more information or to get help with the decision aid, call 979-845-5913. Outlaw said his office is staffed with people who can answer questions on the tool and help walk producers through the process.