Cotton producers have begun requesting marketing loans or loan deficiency payments or LDPs on their 2014 crop as nearby December cotton futures continue to sink lower.
The cotton marketing loan, a provision that was put into the 2014 farm bill almost as an afterthought, is providing a floor under prices. But the marketing loan gains and LDPs are also creating a situation that could come back to haunt growers in 2015.
That’s because marketing loan gains and loan deficiency payments will count against the $125,000 per-entity payment limit in the new law. When you add potential payments from the PLC or ARC programs, the total may exceed the payment limit.
“We’ve been in discussions with USDA, and they’re working on a methodology to try to track how many payments, how many marketing loan gains or loan deficiency payments are attributing to a producer’s individual limit,” says Gary Adams, vice president for economics and policy analysis at the National Cotton Council.
“But it’s a challenge because this is the first time we’ve had a combination of events occur: It’s the first time where we’ve had a limit apply to the marketing loan gain and LDP at the same time we’ve had direct attribution. So taking all of those payments back to the individual is a real challenge particularly when you have marketing loan gains and LDPs occurring on a real-time basis.”
The change in direct attribution of marketing loan gains and loan deficiency payments was one of a number of topics Dr. Adams covered at a farm bill meeting with producers in Monroe, La. Nov. 18. Council representatives were scheduled to hold 25 STAX/Farm Bill Workshops in November and December.
Dr. Adams said cotton producers have been requesting loan deficiency payments since the Adjusted World Price dropped below the U.S. Commodity Credit Corp. loan rate of 52 cents per pound. The AWP is expected to remain in that area for some time.
“Certainly, USDA is applying some resources to try to figure out how to make this as least disruptive as possible,” Adams said. “But it is an issue for you to be aware of because the thing that can occur as we move through this marketing year and your cotton is being redeemed from the loan those gains or those payments are being attributed to you.
“Be aware of that because if at some point down the road there are overpayments, individual producers or the coops – if you’re marketing through a cooperative – would be responsible for the overpayment.”
As growers get closer to October of 2015, USDA should have a better understanding of where producers stand in regard to the payment limit, Adams said.
“But let’s say a producer has accumulated some marketing loan gains or LDPs to that $125,000 limit. Then that cuts into the allowable limit that remains for any ARC (Agricultural Risk Coverage) or PLC (Price Loss Coverage) payments.”
It’s possible producers’ use of the marketing loan may be relatively limited through the end of this marketing year. “But you could have the case where a few tens of thousands contributed to that limit. And then you look at where markets are today and the potential there could be significant ARC and PLC payments next October, then the producer may not have as much limit left as they thought.”
Growers also need to be aware the Adjusted Gross Income or Means Test figure in the farm bill has changed to $900,000. Some delays were encountered when farmers began requesting marketing loans or LDPs on their cotton while Farm Service Agency offices waited for IRS verification of the farmer’s adjusted gross income amount.
“I think USDA is no longer waiting for the IRS but are making the loans or LDPs and attaching the paperwork – the Form 941 – when the IRS supplies it,” said Adams.
Following the meeting in Monroe, Adams spoke at Farm Bill Crop Insurance Workshops in Stoneville, Miss.; McGehee, Ark.; Jackson, Tenn.; and Blytheville, Ark. The venues varied in size, but the sessions in Monroe and Jackson had no empty seats left when they started.
“I think we have a number of ‘repeat offenders’ at these sessions,” said Adams, jokingly referring to growers who have attended multiple education sessions on the farm bill. “I think it may take hearing some of this information two or three times to really get a handle on it.”
National Cotton Council officials are planning to host a webinar on the new farm bill on Dec. 10. Information about how to participate will be on the NCC website www.cotton.org.