Looking for Help with Cottonseed Program Decisions?08/13/2018
Are you a cotton grower/landowner looking for help in making decisions about what complicated government program options to choose?
A spreadsheet tool developed by Mississippi State University can lend a hand. MSU’s Dr. Larry Falconer, who works out of Stoneville, Miss., recently spoke with Delta Farm Press about the tool and how it can help growers navigate some difficult questions. Among his comments:
“The tool, or spreadsheet, we put together goes back and follows many of the protocols setup in the analysis of the original 2014 farm bill. The reason for that is the cottonseed program was put in as an amendment to the 2014 farm bill. So, we’re looking at much of the same framework for the determination of base acres this time around. It also has the capability to handle the yield update option that is available for the seed cotton program.
“The spreadsheet has limited capability at looking at projected payments for the 2018 crop year. In previous farm bills, under Title I, the program had been for cotton lint. To get cotton back in as a covered commodity probably wasn’t feasible so seed cotton — unginned cotton comprised of upland cotton lint and cottonseed — was designated as being a covered commodity.
“In the amendment there are two options available to landowners for establishment of seed cotton base acres.
“The first option has two alternatives to determine seed cotton base acres. Under the first alternative, landowners could look at their generic base acres — that prior to the 2014 farm bill were cotton base acres — and designate 80 percent of those acres as seed cotton base with 20 percent going to an unassigned base category. That would primarily affect folks who hadn’t planted up to their cotton base during the 2009-2012 timeframe.
“The second option allows for proration of the generic base to the covered commodity that were planted on the farm from 2009 to 2012. So, for example, if from 2009 to 2012, you’d planted peanuts or rice on the farm, you might want to look at that as a viable alternative in the update process. Most folks, during that time, because of strong corn and soybean prices grew a fair amount of those crops. In most cases I’ve looked at so far, most folks would end up with more corn and soybean base acres. If they grew some cotton during that period, they would be assigned a pro rata share to seed cotton base.”
On the PLC program…
“So, the spreadsheet does those calculations and lays out the alternative base acres for landowners to look at.
“Taking it to the next step to put an economic value on it for the Price Loss Coverage (PLC) program, you have to determine a payment yield for the farm.
“The amendment allows the landowner to update that seed cotton payment yield if it works to their advantage. That process includes comparing the counter-cyclical yield, the yield that the farm carried into the 2014 farm bill — which FSA has on file — with any yields of cotton produced on the farm during 2008-2012.
“Now, if cotton wasn’t planted on the farm at all in the 2008-2012 timeframe, the counter-cyclical yield is used. But if cotton was planted, there’s the opportunity to average the yields across all years the cotton was planted, which will then be reduced 10 percent to arrive at an updated lint yield. To convert the updated lint yield to a seed cotton yield, that value will be multiplied times the conversion factor of 2.4. So, you get 90 percent of the total — just like the same protocol for yield updates for other covered crops in the 2014 farm bill. Then, you can compare to your old counter-cyclical yield and take whichever is greater.
On the rarity and importance of updating yields…
“There haven’t been many chances to update yields. As I recall, there was a chance to do it in the mid-1980s. In 2002 there were limited opportunities and those didn’t work for everyone. Then the 2014 farm bill included an opportunity to update payment yields for covered commodities.
“The lint yield update is important because the way the seed cotton program yield will be calculated is FSA will take the lint yield and multiply that by 2.4 to get to the seed cotton yield per acre for program payment purposes. The 2.4 is consistent with what the Risk Management Agency uses for its seed cotton endorsements. Basically, it’s saying for every pound of lint produced we’ll have produced 1.4 pounds of cottonseed. That way we come up with our seed cotton yield.
“So, once we have the farm base and yield established for the PLC, it works more like programs for rice and peanuts. The reference price is set at 36.7 cents per pound — and the LSU AgCenter and the National Cotton Council have nice tools to show this — and you can see in most cases, it’ll start triggering when the national market year average for lint is in around the low 70-cents-per-pound range.
“It depends on what the cottonseed is worth as well, of course. The way the amendment is written, the seed cotton marketing year average prices are calculated at the national level. This is for both the PLC and ARC programs. They weigh the national average upland cotton lint price multiplied by the final estimate for upland lint production. Then, they add that to the estimated gross revenue for cottonseed and divide by the total pounds of estimated seed and lint production. If that number falls below the 36.7 cent-per-pound reference price, it’ll trigger a PLC payment.
“In our spreadsheet, the producers have to key in what their expectations are for the market year average price of seed cotton and other crops, as well. We also try to put together 2018 estimates for what the ARC payments will be.”
How can growers get ahold your spreadsheet?
“If folks want to use our spreadsheet, they can e-mail me (firstname.lastname@example.org) and I’ll be happy to send it to them and help them as much as I can.
I suspect most folks will go with PLC program instead of ARC. It’s true that one may trigger and one may not. The PLC program is designed like the peanut and rice programs — as I’ve mentioned already — and in my mind it’s an effective risk management tool when it comes to price.
The ARC is a shallow-loss program and we’re now down to the point where seed cotton has been below the 36.7-cent level for the past five years. Revenue guarantees are relatively low, resulting from the averaging process used in setting ARC revenue guarantees.”
What are typical questions you’re getting?
“There are some concerns regarding the yield updates. To be able to update program yields, landowners have to prove those yields. There are some situations where the land has changed hands and those farming previously, maybe on a lease basis, are no longer there. So, if you’re going to update yields, you have to go back and try to retrieve that data, which may be difficult.”
Source: David Bennett, Delta Farm Press