Cotton Farmers Seek PLC Option

OMAHA (DTN) -- Shawn Holladay doesn't want to be in the position of asking USDA to re-establish a farm program safety net for cotton growers, but as president of Plains Cotton Council Inc., Holladay doesn't see another choice.

"It's not a situation where if it doesn't get better we could be in trouble. It's already past that point for some people," Holladay said in a phone interview. "We're in trouble already. We're having cash-flow problems."

Cotton farmers have seen prices decline and planted acreage scaled back since the industry opted to give up commodity program payments in the 2014 farm bill. Low insurance guarantees are hitting farmers as they are harvesting in the region around Lubbock, Texas, where cotton dominates. Cotton is generally bringing in about 55 cents a pound, though the price could be higher based on quality.

"It's putting a hurt on a lot of people right now," said Holladay, who is in the middle of harvest near Lamesa, Texas, about 60 miles south of Lubbock. He added, "We're growing above-average crops at below-average prices, and you can't keep doing that."

To deal with low prices facing cotton farmers, the cotton industry wants U.S. Agriculture Secretary Tom Vilsack to re-establish cotton as a commodity crop. Rather than support the price of the lint, producer groups want USDA to declare cottonseed as an "other oilseed" eligible for enrollment in the Agricultural Risk Coverage or Price Loss Coverage programs.

Under PLC, other oilseeds, also called minor oilseeds, include sunflower seed, canola, rapeseed, safflower, mustard seed, flaxseed, crambe, and sesame seed, according to USDA. These oilseeds have a PLC reference price of $20.15 per cwt.

Producers are certainly turned off by cotton for now. Planted acreage for 2015 was 8.55 million, a 23% decline from 2014 and the lowest planted acreage since 1983 when only 7.9 million acres of cotton were planted.

That drop in acreage didn't spark any kind of rally. Cotton prices fell throughout 2014 and have failed to bounce back. Upland cotton's daily prices on cash sales last week were 56.35 cents a pound to 61.31 a pound, according to DTN's Weekly Cotton Comments by DTN Contributing Cotton Analyst Duane Howell. That compares to a March 2014 price of 97 cents a pound.

"I think growers are already seeing with current prices and current cost of production, that it's just a real challenge," said Gary Adams, president and chief executive officer of the National Cotton Council. "Producers looking ahead are seeing the futures markets for 2016, and they see this pressure continuing as they try to secure production financing for 2016."

Adams said discussions began last spring about the idea of approaching USDA about defining cottonseed as an oilseed for program payments. The issue carried over into talks over the summer before the National Cotton Council's board met in late August.

Adams said a lot of factors have played into the decline in cotton prices and correlating acreage decline. Chinese imports are projected to fall in 2015-16 for the fifth straight year, according to a recent USDA report. Cotton exports overall, though, are up compared to a year ago. Prices are lower as global stocks remain high. The strength of the dollar has played a role.

"Cotton demand has continued to struggle, and we're seeing strong competition from man-made fiber, so that has been a factor that weighs on the cotton market as well," Adams said. Lower polyester prices, tied somewhat to lower petroleum prices, have been a factor.

U.S. cotton also has been stung by countries such as India and China increasing support in recent years for their own cotton producers. That's boosted India as an exporter and led to lower exports to China as the country now has a high cotton reserve. Turkey, another major export market for the U.S., has an anti-dumping investigation going against the U.S.

All of those factors cut into the farm price. Holladay said the PLC designation would add some value to the crop. Without some support, cotton farmers would likely plant more acres of other commodities such as peanuts on those generic base acres -- a designation granted to old cotton base.

"All we're trying to do is get a support level where we can show bankers we can cash flow a crop," Holladay said.

Holladay recalled at least one local farmer sold his equity in some farm ground to get an operating loan for this year's crop. A lot more farmers could be faced with similar decisions with land and equipment next spring, he said.

"There could be a whole lot more equity next year in play than there has been in a long time," he said.

A USDA spokesman acknowledged USDA officials have received the request to consider cottonseed as an oilseed. A USDA spokesman stated department officials are in the early stages of examining the issue. USDA did not give any indication whether Ag Secretary Vilsack supports the request.

Lenders around Lubbock are writing letters to USDA and members of Congress calling on them to support the move to get a cottonseed program.

Holladay was planning on Tuesday to meet with House Agriculture Committee Chairman Michael Conaway, R-Texas, who has said in other meetings that he supports the industry's push. Holladay said he expects more activity to ramp up regarding the proposal over the next couple of weeks.

The Cotton Council's Adams said his group is having discussions with other congressmen and senators as well.

"I certainly think Chairman Conaway believes there is support needed in the sector," Adams said. "I believe he will be supportive of this effort as well.

Holladay said a cottonseed PLC reference price wouldn't be a silver bullet, but it would go a long way to helping farmers work with lenders on operating loans.

"It's a pretty good hedge for what you are going to be getting for your cotton," Holladay said. "We're trying to get some kind of added value to the crop. We're losing infrastructure, and we're losing farmers down here."

Holladay said a lot of younger farmers in the area have lost all of their liquidity over the past year to 18 months. "If they don't have enough equity to put up for the operating loan, there are going to be a lot more out this next year," he said.

Given the acreage decline in cotton, re-establishing a commodity safety net could take some acreage pressures off other crops that have seen acreage increase at the expense of cotton in recent years.

"People could be planting a whole lot more peanuts down here if we don't get this done," Holladay said.

USDA would like to see some congressional support behind the change, Holladay said. Cotton growers and others will be looking to get a letter circulated among congressmen calling on Vilsack to make the change.

Holladay noted the financial bleeding has come quickly with this price collapse, partly because crop input prices don't seem to decline along with the commodity price. Moreover, banks have tighter rules and requirements to get operating loans.

"We just bleed a lot quicker," Holladay said, "and banking isn't what it used to be, either."

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

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