By Jerry Hagstrom
DTN Political Correspondent
WASHINGTON (DTN) -- Declaring their industry to be in "dire straits," cotton leaders told a House Agriculture subcommittee this week that Agriculture Secretary Tom Vilsack should declare cottonseed an oilseed and take other steps to help the industry.
A USDA spokesperson said department lawyers are already looking into the issues.
A panel of cotton industry officials on Wednesday said that their business has been plagued by rains, floods, droughts, a world oversupply and China's policies on cotton. At the current price of 64 cents per pound, "no matter what the yield is, it doesn't come out," said Shane Stephens, a Mississippi cotton leader who is the vice chairman of the National Cotton Council.
Stephens said that the STAX insurance program, which replaced the direct payments and commodity payments cotton farmers used to get, is "revenue insurance based on the county price and it takes a long time to get the payments."
Several cotton leaders urged Vilsack to use his authority as secretary to declare cottonseed an "other oilseed," which would bring cottonseed under the farm program for oilseeds.
"This could be accomplished without reopening the farm bill," said Cannon Michael, a producer from California's San Joaquin Valley.
Michael noted that California produces extra-long staple or pima cotton, which has its own loan program to make sure it stays internationally competitive. But he said USDA's decision to stop including the price quote for Egyptian Giza 86 as part of the basis of the program is hampering the proper operation of the program.
China is now subsidizing pima cotton, Michael added, and he called for USDA to reinstate the Egyptian Giza 86 price quote and to add the Chinese ELS137 price quote.
Several producers said they fear that, as acreage goes down, the gins and other infrastructure vital to the industry will not be maintained.
Asked by House Agriculture Committee Chairman Michael Conaway, R-Texas, if the growers could not plant another crop, Shawn Holladay, a Lubbock, Texas, producer, said cotton had been the traditional crop in that part of the country and "if we switch to something unsuited for our soils, everything comes down."
Holladay also said that switching crops could lead to a deterioration in cotton infrastructure and that "infrastructure is not something you can get back."
"Tractor dealerships would consolidate, gins would consolidate to one or two per county," Holladay said, adding that tire dealerships and hardware stores would also close.
Conaway said that he also fears that "mechanical" underwriting rules for banks may make it harder for farmers to get loans and said that bankers need to understand agriculture.
Mike Wright, the executive vice president for agricultural lending at City Bank in Lubbock, noted that years ago lending could be based on assets, but now it must be based on cash flow.
"We are looking for anything to cash-flow these producers," Wright said.
While the hearing focused on cottonseed and USDA, Sen. Charles Grassley, R-Iowa, criticized language in the House version of the annual spending bill that could bring back commodity certificates for crops, including cotton. Grassley said commodity certificates would effectively eliminate the current $125,000-per-person cap on commodity payments.
Kent Wannamaker, a St. Matthews, South Carolina, producer, also told House members that Risk Management Agency rules that indemnity payments cannot be made until a damaged crop is destroyed should be changed so that producers could promise to destroy their crops at the earliest date possible and get their money.
A USDA spokesperson said, "We recognize that these are tough times for cotton producers, and are thankful that there is a safety net in place that provides the Stacked Income Protection Program and Supplemental Coverage Option, which Congress created in the 2014 farm bill."
"USDA is currently analyzing the complex legal, programmatic and policy issues associated with declaring cotton an oilseed, which would make the crop eligible for additional safety net programs like ARC or PLC," the spokesman said. "USDA also will consider the feasibility of reinstating the price quote for Egyptian and Chinese cotton varieties."
USDA also is working on a memo to help deal with the indemnity payments and destruction of the crop. The Risk Management Agency has issued a memo that acreage is not required to be destroyed before the claim is finalized as long as the acreage will not be harvested later. The crop insurer can settle the claim based on appraised production.
"The only time a producer would need to destroy a crop prior to receiving an indemnity would be in the limited situation where an unharvested crop remains in the field that could be mechanically harvested within a reasonable period of time, but has been determined there is no market value," the memo said.
In those situations, the farmer will be required to sign a statement affirming that the acreage was destroyed, at which time a full indemnity will be paid. If the crop is harvested later, the actual production will be used to adjust the indemnity.
(CC/AG)
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