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Maximum CC payment sought for cotton

They also requested that the secretary make the announcement for the advance payment, which is authorized in the Farm Security and Rural Investment Act of 2002, as quickly as possible so that producers and lenders can make plans for 2003.

“U.S. domestic and international prices for upland cotton remain mired at historically low levels, and US producers are facing a fourth consecutive year with market prices well below the average cost of production,” the letter from Council Chairman Kenneth Hood noted.

“Therefore, the counter-cyclical payments for 2002 will provide an important financial safety net for producers and the rural economy as Congress intended.”

Under the new farm bill, USDA may make an advance payment – if a payment is projected based on the expected season-average market price – in October of the year of harvest.

A second advance payment can be made in February of the next calendar year or 2003. For cotton, the final payment would be made in October 2003. NCC economists have said that it appears the maximum 13.87-cent counter-cyclical payment will be made for cotton for 2002.

Hood pointed out that, despite the fact that U.S. producers reduced acreage in response to low prices, domestic supplies for the 2002 marketing year will remain more than adequate due to an abundance of old-crop cotton.

“In addition, surging imports of cotton textile and apparel products, over-production of synthetic fibers and the failure of Asian economies and currencies to fully recover all result in projections for slow price recovery for US cotton,” he noted. “Export markets will be expected to absorb more than half of the US crop. This will be achieved only if China opens its markets in a manner consistent with her WTO accession agreement."

The results of NCC analysis imply a likely range for the season average farm price for cotton of 38 to 48 cents per pound. Futures prices would have to increase 12 cents from current levels before farm prices would average above the cotton loan rate of 52 cents.

In an alternative forecasting approach, the Cotton Outlook “A” Index has shown a strong relationship with stocks-to-use (world less China) and China’s net trade position. USDA’s September projections of slightly tighter global stocks and increased Chinese imports give an estimate between 55 and 56 cents for the average “A” Index for the 2002 crop. Historical price relationships would suggest a season-average farm price of 47 to 48 cents per pound. With the current “A” between 48 and 50 cents, an 11-cent recovery in the “A” would be required before the season-average farm price moves above the loan rate.

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