In addition to worries that cotton prices will remain stagnant throughout the 2016 production and marketing season, farmers have other out-of-the-field issues they need to think about as they prepare to plant this year’s crop.
Marketing certificates, actively engaged, STAX and SCO, “other oilseed” status, and the yield exclusion option are among concerns the National Cotton Council is keeping up with, says Jody Campiche, the organization’s vice president of economics and policy analysis who spoke at the recent Red River Crops Conference at Altus, Okla.
Cotton growers have a lot of issues and challenges to face in 2016, she says, starting with marketing certificates. “These were reinstated for 2015 and subsequent crop years,” and offer a few advantages to growers. “By redeeming a loan with commodity certificates, the marketing loan gain is not subject to adjusted gross income limits or the $125,000 payment limitation.”
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She adds that a commodity certificate is not considered a “program benefit,” but an exchange in loan collateral. “The Farm Service Agency will operate the marketing certificate program similar to the previous farm bill. Rules and fact sheets will be provided by FSA.”
The USDA changed the designation “actively engaged” Dec. 15, 2015, with changes applicable to the 2016 and subsequent crop years. “Operations seeking to qualify two or three farm managers as providing active management or management/labor must maintain and provide records or logs of specific contributions,” she says.
FARM SIZE MATTERS
Size matters, Campiche says. “Operations must be deemed large for two qualified farm managers to be actively engaged. Operations must be deemed large and complex for three farm managers to be actively engaged.
“The new requirements apply only to “farming operations conducted by general partnerships and joint ventures comprised of non-family members,” she explains, and do not apply to “persons or entities comprised entirely of lineal family members or non-family farming operations seeking to have no more than one person (referred to as Farm Manager) qualifying as actively engaged by providing a significant contribution of active personal management or a combination of management and labor.”
She also discussed the basic safety net program farmers have left after cotton was eliminated from the farm bill as a covered crop. The stacked income protection plan (STAX) has a new coverage option, a 70-70 percent policy. The lowest coverage level in 2015 was 75-70 percent. “Having the upper and lower coverage levels the same would technically mean that all acres are insured, but there would be no indemnity associated with the 70-70 percent policy,” Campiche says.
“Make separate STAX purchase decisions by production practices by electing the new coverage range. Since all grower acres are insured, growers must report their production from all acres, thus enhancing the accuracy of county estimates.”
She says availability of STAX in counties with written agreements (WA) continue, with “17 counties with WA cotton underlying insurance policies offered by WA. STAX was not available in those counties in 2015, but is available for 2016.”
She says producers may want to look at historical county yields to compare STAX with the supplemental coverage option (SCO) insurance. Risk Management Agency historical yield data will be a good source, she says, but those data are “hard to find.” The Council will put the data online.
Some producers may not be aware of an insurance endorsement option that allows them to cover cottonseed, Campiche says. “Producers should look at the numbers to see if the cottonseed endorsement would be useful on specific operations. The endorsement adds from $5 to $9 per acre to risk protection coverage and about $1 per acre with STAX.”
Using the yield exclusion option also could improve coverage, she says. Excluding lower yields can increase approved average production history (APH). The flip side is higher premiums. “Premiums will go up — the more years excluded, the more they will increase.”
Rate yield will continue to be based on all actual yield, however, even if a producer excludes some yields with the exclusion option. “If yields from only the good years were used, the yield adjustment would not be as accurate.”
She says producers have a lot of options with insurance coverage. “No one option is necessarily the best. Look at specific numbers for your county.” In some cases, she says, producers can use the yield exclusion but keep the same coverage level to keep the premium lower. “Get with your insurance agent and look at various options, coverage, and cost.”
One issue producers need to consider with STAX, she says, is that they will not know if they will get an indemnity until long after the season. “It’s not based on individual experience, but on the county average.” Determining county yield is even more complicated in counties with a mix of dryland and irrigated production.
The cotton as an “other oilseed” proposal is being considered by the Secretary of Agriculture, Campiche noted, but Secretary Tom Vilsack is concerned that designating cottonseed another oilseed may not be legal, even though it is a much-needed program for the cotton industry.
“This proposal would establish a price support policy for cottonseed under the 2014 farm bill by USDA designating cottonseed as an ‘other oilseed’ for purposes of the ARC/PLC program,” she says. Other oilseeds are eligible for both of those programs and the marketing loan program; this option is only seeking the establishment of ARC/PLC for cottonseed.
Price would be based on the price of other oilseeds. “Cottonseed price is currently lower than that,” she notes. The proposal has strong support from the cotton industry, as well as other oilseed crop organizations, including soybeans, but Campiche says continued local support would be helpful. “Continue to contact newspapers, legislators, and others, and press the Secretary to provide some support for cotton.”
She says the National Cotton Council is strongly supporting the program, as well as considering other options to support cotton. “We’re not looking at reopening the farm bill, but we are looking at other options, both short- and long-term.”