Arkansas’ row crop farmers are expected to add cotton acreage in 2014 as they sort out how the new farm bill will affect their overall operations over the next five years.
But growers and analysts said planting decisions are going to be dictated by prices for commodity crops such as soybeans, rice and corn, rather than the terms of the bill, which ends direct payments in favor of insurance-style programs that will either protect growers from prices that drop below production costs, or cover loss from growing conditions that damage yields.
“Ultimately, the farm bill isn’t going to dictate how many acres are planted. You’re going to see people make decisions on what they’re going to plant based on market conditions and what the various commodities are commanding by price,” said Andrew Grobmyer, executive vice president of the Agricultural Council of Arkansas.
Matt King, an economist with the Arkansas Farm Bureau, agreed that commodity prices will drive planting decisions.
“We had a pretty good run on the price over the last few weeks; between 77 and 80 cents [per pound] is what the futures price has been trading at,” King said. “That’s a pretty good price, especially given that corn prices are down to $4 to $4.50 [per bushel] and soybeans are down to around $11 [per bushel]. They’re both down $3 to $4 from where they were last year. So, cotton is a little bit more competitive last year.
“And, the acreage that’s left out there is some of our best cotton ground,” that, he said, provided “phenomenal” yields in 2013.
President Barack Obama signed the farm bill into law on Friday.
Arkansas’ harvested cotton acreage hit a record low in 2013, but the state’s cotton yields hit a record high, according to the U.S. Department of Agriculture’s National Agricultural Statistics Service.
Harvested cotton acreage dropped 48 percent to 305,000 acres, compared with 585,000 acres in 2012. However, growers harvested on average 1,149 pounds per acre, up 8 percent compared with the 1,064 pounds per acre harvested a year earlier. The state produced 730,000 480-pound bales, compared with 1.3 million bales in 2012 - a 44 percent decline.
Rick Bransford, a Lonoke farmer who, with his father, farms cotton, rice, soybeans and wheat on about 2,000 acres, said growers knew that direct payments would end under the new farm bill.
Bransford, president of the Agricultural Council of Arkansas and a delegate to the National Cotton Council, said 2014 planting decisions will be made on crop price projections, which should result in a slight rise in Arkansas’ cotton acreage and a drop in corn.
“We were fortunate last year to have the best cotton crop we’ve ever had,” Bransford said.
Corn has always had an impact on cotton, he said. But, with corn prices dropping, Bransford expects that growers who kept the equipment needed to work cotton will add acreage in 2014,predicting that acreage in the state’s southeast could jump 10 percent to 15 percent.
But in Lonoke County, acreage will jump only slightly, given that only three growers plant cotton among their other crops. For example, Bransford said he’d likely devote about 350 acres to cotton - a slight increase over his 2013 acreage.
Largely because of the aftermath of a trade dispute with Brazil, the new farm bill treats cotton differently than other row crops by creating a “stacked income protection plan” that provides for a payment when cotton prices fall below production costs. Cotton growers will still be eligible for a form of reduced direct payments in 2014 and possibly 2015 to give the USDA time to draft rules to implement the stacked income protection plan.
Scott Stiles, agricultural economist at UA Cooperative Extension Service, said farmers are still digesting the details of the farm bill and have until the end of the month before they must begin firming up planting decisions.
“The direct payments were eliminated for all crops except for cotton,” Stiles said. While cotton growers will get what’s called a “transitional direct payment” for 2014 and maybe 2015, he said cotton growers will have to look at that and what it provides for them.
And, the end of direct payments - which guaranteed a certain level of payment that landowners, growers and lenders could plan on - changes financing arrangements needed to get row crops into the ground, said Harrison Pittman, director of the National Agricultural Law Center at the University of Arkansas in Fayetteville.
“Overall, how much is this going to change the relationship between producers, landlords and lenders?” Pittman said, adding that the new farm bill likely will result in landlords and lenders requiring growers to help manage risk by purchasing insurance. That cost - and who pays the premium - will factor into planting decisions, he said.
Another factor to be considered by cotton growers, Stiles said, is China, which he said is likely going to try to use more cotton out of its domestic reserves and import less cotton. Traditionally, China has been the biggest customer for U.S. cotton. “And, of course, as far as demand goes, 75 to 80 percent of our cotton goes for exports.”
Concerns about China’s cotton stockpiling program has growers worried about the possibility of when the country will begin selling the surplus, which would push down cotton prices globally.
The Chinese government has been buying surplus cotton produced by its farmers at prices roughly double that in the U.S. according to Bloomberg News.
China - the world’s largest producer and user of cotton - is projected to import 11 million bales over 2013-14 - a 45.9 percent drop over the 20.3 million bales it imported in 2012-13, according to the Agriculture Department’s January 2014 World Agricultural Supply and Demand Estimates report. China, which started the year with 50.3 million bales on hand, is expected to finish the year with 58.3 million bales in its stockpile - 60 percent of the world’s total stocks.
Stiles said a similar situation occurred in the 1990s when China developed huge reserves and cut imports of cotton - reducing cotton prices around the world.
“I think that’s probably over the next two-to-three year period what’s likely going to happen, then you’ll see reduced imports of cotton to China and then cotton prices moving lower,” Stiles said. “Then, at that point in time, the provisions of farm bill might kick in and become something of more interest.”
Beau Bishop, local affairs and rural development coordinator for the Arkansas Farm Bureau, said growers are still waiting to see what the rules will be that are needed to implement the new farm bill in light of a 12-year-old World Trade Organization case.
The National Cotton Council helped draft the farm bill language dealing with cotton. Instead of a direct payment, farmers will be reimbursed for a portion of their insurance premium, which still has to be set. This won’t be considered a direct payment, but will be based on past yields, production costs and other factors.
“Cotton farmers in Arkansas have been dealing with this type of issue for the past few years with the WTO situation,” Bishop said. “If the education process is there, you could very easily see some farmers saying, ‘You know what, it might be best for us to just stay with cotton until we get through 2015 and figure out how some of these programs are going to work.’”
In the WTO case, Brazil’s cotton industry complained that subsidies paid to United States cotton growers violated global trade rules. The WTO upheld Brazil’s position and authorized the country to retaliate with economic sanctions. The sanctions were postponed when the United States agreed in 2010 to pay nearly $150 million per year to the Brazilian cotton industry to avert the sanctions.
However, those payments were halted last fall as a result of federal budget cuts. The new farm bill did not authorize a resumption of the payments.
The Cordova, Tenn.-based National Cotton Council believes the changes adopted in the new farm bill comply with WTO rules, making additional payments unnecessary.
“The upland cotton policies in the new farm bill represent fundamental reform in the support provided to cotton farmers. The legislation addresses the two remaining provisions of cotton policy found to be non-compliant with U.S.-WTO commitments,” the council said in a statement released Wednesday.” “We believe these changes and the new insurance product STAX provide the basis for resolving the case.”
Business, Pages 67 on 02/09/2014