Cotton in Senate Farm Bill: More Benefits Than Most Other Crops?

May 31, 2012 04:01 AM
 

via a special arrangement with Informa Economics, Inc.

Cotton's STAX program has bigger premium subsidy, pays on more acres, and has no pay caps

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


FAPRI's review of the Senate farm bill proposal, based on their price projections, signals cotton growers and their lobbyists should not be as forlorn as their public statements seem to suggest. (Link to FAPRI analysis.)

Direct payments would be eliminated under the Senate (and very likely the coming House) farm bill, that would negatively impact cotton, rice and wheat growers the most, as those crop producers' cash flow in the past depended more on those payments than other farm program crops, especially corn and soybeans.

Stacking the cotton benefits. While corn and soybeans growers under the Senate bill would have the controversial "shallow-loss" Agriculture Risk Coverage (ARC) program that would compensate them for annual revenue losses of between 11 and 21 percent, cotton growers, via a program put under crop insurance, would benefit more because they would be allowed to buy even more subsidized (80 percent) STAX insurance policies that would cover an even larger share of their revenue losses (between 10 percent and 30 percent) than ARC would.

But a cotton policy observer notes that the Senate farm bill "has a big hole in STAX. It has zero price protection. It does not even have the price protection in ARC. They took out the 65 cents. If you have watched the cotton market, that cannot be of great comfort. No criticism of STAX as initially conceived. But a huge caveat about how it looks in the Senate bill. I don't think there will be any cheering over this."

However, another farm policy analyst said, "From what I understand, cotton grower lobbyists literally traded off the 65-cent reference price for the removal of the cap on acreage – so they got exactly what they asked for."

But a cotton policy analyst responded, "Crop insurance has never had limited acreage so it was a Sophie’s choice for cotton with implications far beyond cotton. Crop insurance should not have pay limits, acreage limits or other limitations under Title I."


Pay attention to no pay cap for STAX. But what few observes point out regarding the cotton program moving to crop insurance is that there would be no payment limitations on STAX payments and depending on price assumptions, some cotton producers payouts could be huge and will eventually catch Sen. Chuck Grassley (R-Iowa) attention as he has been a longtime proponents of more stringent payment caps. Any big STAX payments ahead could be the impetus for more reform and could help bring payment caps to crop insurance payouts, say some farm policy observers.


 

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


 


 

 

 

 

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