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Clearing up payment limit misconceptions

Long a foe of any limits on farm program payments, the Cotton Council believes that the current ones are restrictive and burdensome enough without adding even more bureaucratic restrictions and red tape, said Mark Lange.

Speaking to members of the Commission on the Application of Payment Limits to Agriculture, Lange asked its members to look beyond some of the misconceptions that have arisen around the payment limit issue because of payment information released by the Environmental Working Group and other organizations.

The Commission, which was created by the Farm Security and Rural Investment Act of 2002, held its only scheduled public workshop at USDA’s Jefferson Auditorium on Tuesday. The Commission will issue a report to Congress in July or August.

“I want to speak directly to the question of regional differences and concerns,” he said. “It has been expressed that southern agriculture, in particular, cotton, rice and peanuts, have greater concerns about payment limits because their commodities somehow have a ‘better deal’ in terms of program support than applies to other commodities.”

Lange said that dividing commodity specific program acres into commodity specific program payments shows substantially different rates of payment for each commodity. But if you compare the payments as a percent of cost of production, the payments are almost equal.

“In relative terms, cotton appears to be no different than corn or wheat,” he said. “This picture of relative coverage and support holds whether we look at payments or policy tools such as loan rates per unit of production or target prices.”

The flip side is that the current limits as applied to cotton production cause many producers to reach their payment limit well before the acres that would be consistent with equipment components, especially high yield producers.

Speaking in generalities about any types of producers can be misleading, he said, noting that irrigated corn growers in Nebraska have farm yields of 250 bushels per acre and counties that average 190 bushels while dryland corn growers in southern Illinois might average 70 bushels.

Dryland cotton producers in Texas average 370 pounds of cotton lint per acre while irrigated growers in Texas and California average 1,700 pounds. Only a small percentage of U.S. cotton producers may harvest the national average of 600 to 700 pounds in a given year.

“In the Mid-South and Southeast cotton regions, equipment manufacturers and lenders expect a basic four-row cotton picker to cover about 1,200 acres of cotton to cash flow,” Lange said. “In other regions, these relationships could likely be quite different.

“A cotton farm of 1,200 acres planted to cotton is a medium-sized operation in today’s mix. Many family farmers in the Mid-South and Southeast farm considerably more than 1,200 acres with three or four families in the operation. A farm of 1,200 cotton acres with the national average program yield is caught by payment limits.”

Cotton and rice producers will generally reach any limit on considerably fewer acres than those devoted to other commodities, Lange said. “A cotton producer with the national average program yield reaches the payment limit at 1,000 acres while a corn producer with the national average corn yield hits the same limit at 1,700 acres and a wheat producer at 3,500 acres.”

Another misconception is that larger farms receive more payments per acre and stricter payment limits will help small family farms. Lange noted a USDA study that revealed that payments per acre rise until about 700 acres, then decline as farm size continues to grow.

The Council’s chief executive officer said payment limits are confounding to the very principles of the latest farm legislation. “When growers need the most protection in times of low prices, the limits deny them the very benefits aimed at precluding damage to the sector,” he noted.

“Payment limits, within the context of prior and current farm programs, reduce efficiencies, are counter-intuitive and can work against U.S. cotton’s international competitiveness. Further restrictions in payment limitations will upset the current structure of U.S. agriculture, likely reduce land values, possibly cause shifts in production of cotton into wheat and feed grains and seriously undermine the Sun Belt agricultural economy.”

Lange and producers who spoke pointed out that a tightening of payment limit rules could have “unintended consequences” not anticipated by the proponents of such changes.

“The shift in cotton acres in the West could be much larger than previously estimated,” he said. “The sudden availability of 600,000 acres of highly productive land in the San Joaquin Valley could bring a disruption of unparalleled magnitude to the planting of high value fruits, vegetables and permanent crops.”

He said the devastation to infrastructure values in the San Joaquin Valley also would be absolutely incredible, as cotton gins have no known alternative use. Another result could be shifts of two to three million cotton acres in the Southeast and Mid-South to other crops, such as corn and soybeans.

Lange also noted that effective reductions in the eligibility for farm program benefits should be expected to impact farmland values, for all holders of farmland.

“Smaller farmers hold a much larger portion of the enterprise’s total assets in land than do larger operations,” he said. “Thus, any reduction in farmland values will fall disproportionately on smaller operations as collateral for financing disappears.”


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