As directed by Congress, USDA is giving cotton growers the chance to use so-called commodity certificates to retire crop support loans, a step estimated to funnel an additional $40 million to farmers facing the lowest market prices since 2009.
Critics say the certificates allow growers to evade the payment limit of $125,000 per person – double for a married couple – that was written into the 2014 farm law and will mean unlimited payments to large growers. Commodity certificates were eliminated by the 2008 farm law but were revived by a rider in the omnibus spending bill that Congress passed at the end of 2015.
USDA put the certificate program into business at the same time it announced it lacked the legal power to create a $1 billion-a-year subsidy for cottonseed. “USDA estimates that this flexibility will result in about $40 million in additional support for cotton producers over the 2015 and 2016 marketing years,” said Agriculture Secretary Tom Vilsack in a letter.
“The cotton industry is encouraged to see this functionality and effectiveness restored to the MLP (marketing loan program),” said the National Cotton Council, an industry group. Without the certificates, said the council, growers would forfeit cotton to the government when they hit the ceiling for subsidies.
The marketing loan was created during the agricultural recession of the 1980s to prevent price-depressing surpluses from piling up in government warehouses. These loans provide short-term money to growers so they can wait for commodity prices to rise. When market prices fall below the minimum price guaranteed by the USDA in the loan, farmers can sell their crop at market and pocket the difference. Without this measure, the grower could simply forfeit the loan and their crop would end up with the government, swelling surpluses. That’s because growers pledge their crops as collateral for the loans and have the option of repayment or forfeiture.
Under the cotton plan, “producers who have crops pledged as collateral for a marketing assistance loan can now purchase a commodity certificate that may be exchanged for the outstanding loan collateral,” the USDA said.
The Cotton Council said it was disappointed by USDA’s decision on the cottonseed subsidy. “Our industry remains committed to pursuing a cottonseed designation and policy to help provide long-term stability to the industry.”