Designating cottonseed as an "other oilseed" under USDA's farm safety net could approach $1 billion in annual payments, a group of university ag economists highlighted in an analysis of the proposal on the farmdocdaily website.
Carl Zulauf of Ohio State wrote the piece along with Gary Schnitkey, Jonathan Coppess and Nick Paulson of the University of Illinois.
The farmdoc economists point out the secretary was given the authority in the 1990 farm bill to designate a crop as an "other oilseed" if the secretary has received such a request. Since at least last fall, the cotton industry has been aggressively pushing for the secretary to make such a change, retroactive to the 2015 harvest. Various agricultural groups, including the American Farm Bureau Federation and American Soybean Association, have also lent their support to the proposal.
Agriculture Secretary Tom Vilsack has repeatedly said his department is going over the various scenarios and seeing what the impacts would be.
The farmdoc economists pointed out that "other oilseeds" account for about 3.5 million base acres. Of those other oilseed base acres, nearly 75% are enrolled in Price Loss Coverage. The other oilseeds have a reference price of 20.15 cents a pound, ($20.15 per cwt.)
With cotton eliminated as a program crop, nearly 17.6 million base acres originally used for cotton became designated as "generic" base.
Canola, safflower, sunflower, flaxseed, rapeseed, sesame, mustard and crambe are already classified as other oilseeds. Going back to 2009, the farmdoc analysis notes that cottonseed prices have been significantly lower than the average market-year price for other oilseeds. Cottonseed from 2009-13 averaged just 55% of the 20.15 cents reference price while those other oilseeds have ranged from 106% of the reference price to 179% of the reference price.
In other words, those other oilseeds were far less likely to collect on a PLC payment while cottonseed most definitely would translate into large payouts.
According to farmdocdaily, cottonseed averaged 9.7 cents a pound ($9.70 per cwt) in 2014. Taking the difference between the reference price and market price, that would translate into a 10.45 payment price multiplied by 85% of those 17.6 million generic acres with a yield of 824 pounds per acre.
Farmdocdaily also raises the question of how payments should be made. Should all generic base be reverted back to cotton base acres, which decouples payments from current planting? Or should payments be made simply on cotton planted on those generic base acres? Depending on the way that is dealt with, farmers using generic base for peanuts may find that USDA redesignating those acres for cotton base could dramatically lower the farm payments they are collecting now under the peanut program.
Further compounding the challenges are questions about how cottonseed as an oilseed would affect the STAX program. STAX works like the Supplemental Coverage Option, but STAX has an 80% subsidy rate compared to 65% for SCO.
© Copyright 2016 DTN/The Progressive Farmer. All rights reserved.