WASHINGTON, July 1, 2015 – The fiscal 2016 agriculture appropriations bill that the House Appropriations Committee will take up after this week’s recess would provide a way around the $125,000-per-producer limit on marketing loan gains imposed by the 2014 farm bill.

The bill would bring back the use of commodity certificates, which were abolished in 2009 after being approved by the Clinton administration following the collapse in commodity prices in the late 1990s. Commodity certificates provided a way to avoid the payment limit on marketing loan gains.

For most commodities, marketing loan benefits are a moot issue because market prices remain well above the loan rates. Not so with cotton growers, who have seen prices plummet since China stopped propping up prices by stockpiling cotton. The adjusted world price of cotton has fallen as low as 45 to 46 cents per pound in recent months, well below the loan rate of 52 cents,  and currently is still at 50.2 cents per pound.

When producers put their cotton under USDA loans, they can repay it at the lower world price and pocket the difference between that and the loan rate.

The National Sustainable Agriculture Coalition calls the policy rider on payment limits, Section 739 in the bill, an “end run” around payments and “yet another step away from the bipartisan, bicameral consensus that we need to end the constant creation of new loopholes that allow mega farms to collect millions from taxpayers annually.”

But the cotton industry has told lawmakers that the $125,000 limit ($250,000 per married couple) has created problems for individual growers while threatening to disrupt cotton marketing.

House Agriculture Chairman Mike Conaway, who encouraged the appropriators to include the provision, tells Agri-Pulse the payment limit “is unworkable the way cotton is marketed. It’s a market disruption. It’s certainly not needed in this time of low prices.” The Republican lawmaker hails from Texas, the nation’s biggest cotton producing state. 

A Georgia grower representing the National Cotton Council told the Senate Agriculture Committee in February that some growers had likely already reached the $125,000 limit for 2014 under the new Agriculture Risk Coverage or Price Loss Coverage programs for corn, soybeans and other crops before they knew whether they were also entitled to marketing loan gains on cotton. USDA officials worked with the industry to ensure growers knew on a timely basis how much their marketing loan gains were going to be for the 2014 crop. The issue would be moot for 2015 if the payment limit is lifted.

Another concern of NCC’s is that the $125,000 limit may encourage some growers to keep cotton off the market and under USDA loan for the full nine months that is allowed. 

There’s concern that the payment limit will discourage a common industry practice in which cotton growers put their crop under loan and then sell an equity stake to a merchant. The buyer can then benefit in two ways – there’s no storage fee on the cotton for the first 60 days it’s under loan, and then the merchant can make a profit if the price of the cotton rises. (The merchant keeps the marketing loan gains, but the amount must be calculated against the producer’s $125,000 payment limit.)

Theoretically, growers of other commodities could benefit from the lifting of the payment limit on loan benefits, but it would take a complete collapse in markets for that happen. Prices for corn, wheat and soybeans are expected to average $3.50, $4.90 and $9 per bushel, respectively, on this year’s crops, far above their loan rates of $1.95, $2.94 and $5.

(This post was revised on July 7, 2015) 


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