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Merchants balk at supporting loan hike

The merchant segment of the National Cotton Council was not as accommodating as some had hoped when it came to considering farm policy recommendations at the Council's annual meeting.

Instead, merchants appeared to be "playing hard ball," as one observer described it, demanding changes in the Step 2 program for supporting an American Cotton Producers' proposal to seek an increase in the CCC loan rate for base grade and staple to 55 cents per pound.

Merchants asked that the Cotton Council work to eliminate the 1.25-cent trigger for Step 2 payments and for a return to the former policy of issuing Step 2 payments when sales are registered rather than when cotton is actually shipped.

They also sought a guarantee that the Council would work equally as hard to obtain full funding for the Step 2 program as it would for increasing the loan rate.

The irony is that for all their demands, events may be overtaking the merchants. At its annual meeting, the American Farm Bureau Federation adopted a policy calling for a "re-balancing" of CCC loan rates that would realign other commodities with soybeans.

Under the proposal, a major shift from previous Farm Bureau policy, the minimum loan rate for cotton would rise from the current 51.92 cents per pound to 58.21 cents. For rice, the loan would increase from $6.50 to $8.50 per hundredweight.

"In the past, the Midwest has been staunchly opposed to higher loan rates," said a Farm Bureau staff member. "But, we were able to get an agreement that gave us the latitude to support any movement to increase them."

The Farm Bureau resolution was quickly incorporated into legislation introduced by Sen. Byron Dorgan, D-N.D., calling for Congress to boost loan rate levels for the 2001 and 2002 crop years.

Producers had compromised on a lower loan rate increase to try to avoid a veto by the merchants. Within the American Cotton Producers, groups such as the Lubbock, Texas-based Plains Cotton Growers Inc., support a 60-cent minimum loan and may yet go outside the Council to obtain it.

Others say they would prefer a more modest increase in the next farm bill and focus on a 1999-level supplemental Agricultural Market Transition Act or AMTA payment for 2001 and possibly 2002.

"A 58-cent loan rate gets you to a higher loan deficiency payment that much faster," said a Mid-South producer. (At 58 cents, farmers would have received a six-cent LDP rather than the one to two cents when they popped their cotton last fall.)

Merchants continue to say they oppose higher loan rates out of concerns that higher plantings would exacerbate the oversupply of cotton. To producers, those arguments sound specious since more cotton means lower prices and potentially more sales for merchants.

For the latter, the issues of higher loan rates and/or double AMTA payments have become survival issues - ones that could determine whether they continue farming in future years.

The Council left San Diego without a resolution of the issue. Merchants promised to take up the proposals at an American Cotton Shippers Association board meeting and report their decision the week of Feb. 5.

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