FARE Blog

Food, Agriculture, and Resource Economics

Cotton Outlook

By Yangxuan Liu and Don Shurley

Download the PDF version of this article.

In 2018, Georgia’s farmers planted 1.43 million acres of cotton, up 150,000 acres from 2017. The average cotton yield is forecast at 946 pounds per acre. Production is forecast at 2.8 million bales, which would be the second highest on record. There are two major contributing factors to the increase in cotton acres in Georgia. First, the relatively high cotton price in 2018, especially during planting season, makes cotton more competitive with other row crops. Second, the Bipartisan Budget Act of 2018 authorized seed cotton as a covered commodity and eliminated generic base and thus the eligibility for payments when planting other covered commodities on farms with generic base.

U.S. cotton planted acreage is 14.04 million, up 1.43 million from 2017, which is the highest planted acres since in 2011. The 2018 U.S. upland cotton is forecasted at 18.9 million bales, down 1.31 million bales from 2017. The reduction in production is largely due to the severe drought conditions in Texas. Even though Texas planting acres increased by 12 percent, the production level reduced by 30 percent from 2017. The forecasted production number might be further negatively impacted by Hurricane Florence on North and South Carolina.

World cotton use or demand has improved significantly in recent years and currently forecast at a record level. Even though U.S. cotton faces an additional 25 percent increase in tariffs on cotton exports to China due to the on-going trade dispute between U.S. and China, U.S. cotton exports are doing very well and are expected to continue to be strong for the 2018-2019 crop year. Exports are currently forecasted to be 15.7 million bales for the 2018 – 2019 crop year, which would be the second highest on record.

The U.S. ending stocks for the 2018 – 2019 crop year are expected to increase to 4.7 million bales. The U.S. cotton industry has benefited from the growth in mill use in other countries. If U.S. sales of cotton into China decline as a result of a Chinese tariff, it is possible that sales to mills in other countries could increase to offset part of the decline in China. A Chinese tariff on U.S. raw cotton could continue to stimulate Chinese imports of duty-free yarn from Vietnam, Indonesia, and the Indian subcontinent. The demand for higher-quality U.S. cotton in those markets could continue to expand. Thus, the impact of a bilateral Chinese tariff on U.S. cotton may lead to a reshuffling or rerouting of, rather than a reduction in, U.S. cotton exports.

China is the world’s largest user of cotton but now the world’s third-largest cotton importer behind Bangladesh and Vietnam. Starting in 2011, the Chinese price support policy had resulted in buildup of ending stocks. In 2014, the Chinese cotton policy shifted from price supports and building government reserves to paying growers with direct cash payments in order to reduce the government cotton reserve. China’s ending stocks for the 2018 – 2019 will continue to decrease and are forecasted to total 29.9 million bales. For 2018, China has approved 800,000 tonnes of additional cotton import quota, which is in addition to the annual 894,000 tonnes of low tariff rate quota that China issues as part of its commitments to the World Trade Organization. This is the first time that China has issued any additional quota since 2013.

Futures prices (Dec 18) for the 2018 crop are currently at or around 82 cents per pound. We have been seeing favorable cotton prices this year, the cash prices for the current calendar year of 2018 ranges from low of 74.60 to high of 94.21 cents per pound. USDA is forecasting the marketing year average price for the 2018 – 2019 crop year to range from 70 to 80 cents per pound, compared to the 2017 – 2018 crop year average of 68 cents per pound.

The Impact of China’s Potential Cotton Tariffs on U.S. Cotton Exports

By Yangxuan Liu, John R. C. Robinson, and Don Shurley

On April 4th, 2018, China announced a potential 25 percent increase in import tariffs on major U.S. origin agricultural commodities in retaliation to a series of tariffs proposed by the United States. United States upland cotton is one of the commodities affected by this proposed increase in import tariffs. The export market is an important source of demand for the U.S. cotton industry. The United States is the largest cotton exporting country with around 71.3% of cotton produced in the U.S. exported last year. China is the second largest trading partner with the U.S. for cotton in 2017 and buys 16.7% of the U.S. cotton exports. The total value of cotton exported to China was worth approximately $976 million last year, which is the second highest value among all the other row crops after soybean.

If Chinese tariffs are imposed on U.S. cotton, global cotton suppliers like India, Australia, and Brazil may experience a near-term opportunity to supply more cotton to China. In the short run, the market disruption could be a shock to the U.S. cotton futures market, particularly if hedge fund speculators sell off their long positions. However, the longer-term situation could see more U.S. exports rerouted to other cotton importing countries. This recent history of the change in China’s internal cotton policy suggests a similar reshuffling effect from a bilateral Chinese tariff on imported U.S. cotton. Chinese raw cotton import tariffs would continue to stimulate imports of duty-free yarn from Vietnam, Indonesia, and the Indian subcontinent.

Click here to download the full publication.

What Farmers Need to Know about Crop Insurance and Prevented Planting

by Adam N. Rabinowitz and Yangxuan Liu

Southern Georgia has seen a lot of rain during the month of May.  The table below shows the precipitation and number of rainy days in 2018 compared to the average from 2015-2017 for four selected areas in southern GA.  Precipitation in 2018 has been, on average, more than twice that of the previous three years.  The number of rainy days has also been more than twice the previous three-year average.

Southern Georgia Rainfall Data for May 1 through May 29  
2018 2015-2017 Average
  Precip. (in) # Rainy days   Precip. (in) # Rainy days
Tifton 6.91 14 2.02 6.33
Camilla 5.16 13 3.26 5.33
Midville 6.74 14 2.98 7.00
Plains 7.11 14   2.94 6.33
Source: http://weather.uga.edu

Subsequently, planting issues have occurred for farmers who typically plant cotton and peanuts during the month of May.  According to the USDA National Agricultural Statistics Service, only 65% of cotton and 73% of peanuts have been planted through May 27th.  This compares to an average of 72% for cotton and 81% for peanuts for the similar period during 2015-2017.  With saturated fields and more rain in the forecast, farmers need to start thinking about whether all their intended plantings will occur following sound agricultural practices.  It is also important to think about how this relates to their crop insurance policy, planting deadlines, and prevented planting eligibility for 2018.

Over 90% of Georgia peanut and cotton farmers typically select some form of crop insurance coverage.  Included in this coverage is a prevented planting provision that provides payments when extreme weather conditions prevent expected plantings by the final planting date or during the late planting period.  The USDA Risk Management Agency (RMA) announces the final and late planting dates, which vary by crop, coverage type, and county.  The table below identifies the final planting date and the end of the late planting period for peanuts and cotton in GA.  Coverage during the late planting period is reduced by 1% for each day after the final planting date, up to the end of the late planting period.

Peanut Revenue & Yield Protection
Final Planting Date End of Late Planting Period Date Counties
5/31/2018 6/10/2018 Jefferson, Johnson, Laurens, Montgomery, Richmond, Treutlen, Washington, Wilkinson
6/5/2018 6/15/2018 All other counties
Source: USDA Risk Management Agency
Cotton Revenue & Yield Protection
Final Planting Date End of Late Planting Period Date Counties
5/25/2018 6/4/2018 Bartow, Chattooga, Elbert, Floyd, Franklin, Gordon, Hart, Henry, McDuffie, Monroe, Morgan, Oconee, Polk, Spalding, Walton, Warren
6/5/2018 6/15/2018 All other counties
* There is a special provision starting in 2018, which will allow for coverage of Upland Cotton planted five days after the end of the late planting period.  If Upland Cotton is planted during that five-day period, it is not eligible for prevented planting.
Source: USDA Risk Management Agency

If planting by these deadlines is not possible, it is important that farmers maintain proper records that document the cause.  Keep in mind that planting decisions must be based on sound agronomic and crop management practices.  If it appears that it will be difficult to finish planting by the final planting date or during the late planting period, farmers should contact their crop insurance agent and discuss their options.

A full publication is available (click here to download) that includes the above information, frequently asked questions, answers, and links to additional resources.

 

2018 Farm Bill and Seed Cotton Program Timeline Update

By Don Shurley, Yangxuan Liu and Adam N. Rabinowitz

The legislative process leading to the next farm bill has now begun.  The current 2014 farm bill will end with the 2018 crop year.  On April 18, the House Agriculture Committee approved The Agriculture and Nutrition Act of 2018 (HR 2).  This was the first step in the legislative process that will lead to the next/new farm bill beginning with the 2019 crop year.

House consideration of the bill is expected this week (week of May 14, 2018).  The Senate Ag Committee has not yet considered it’s version of the new farm bill.  The Senate Ag Committee is expected to consider its version of a new farm bill in late May or possibly sometime in June.  The goal remains to have the new farm bill completed this year.  Debate in both the House and Senate is expected to be contentious, however, where Democrats are opposed to proposed farm bill revisions in the nutrition title.  There is also, as always, likely to be debate on payment limits and payment eligibility.

A factsheet titled House Ag Committee Farm Bill Proposal and Seed Cotton Program FSA Timeline (Click here to download the factsheet) discusses some of the changes in HR 2 compared to the current 2014 farm bill, discusses the remaining farm bill process, and updates to the timeline for the generic base conversion and new seed cotton program.

 

More information can be found at Georgia Agricultural Policy Webpage.

 

The Impacts of China Trade Tariff on Georgia Row Crops

By Yangxuan LiuAdam N. Rabinowitz, and Don Shurley

China announced plans to implement a 25 percent increase in import tariffs on major agricultural commodities from the United States, which includes soybeans, corn and corn products, wheat, sorghum, cotton, and tobacco and tobacco products. The overall United States export value for these agricultural commodities to China are worth around 44.7 billion dollars (USDA FAS, 2018a).

United States agriculture relies on the export markets to absorb its excess supply in order to support domestic agricultural prices. The United States is the largest exporting country for corn, cotton, and sorghum, and the second largest exporting country for soybean and wheat (USDA FAS, 2018b). China is the largest trading partner for United States sorghum and soybean, and the second largest trading partner for cotton (USDA FAS, 2018a). In 2017, China bought 81.4% of the United States sorghum exports, 57.3% of the United States soybean exports, 16.7% of the United States cotton exports, 5.7% of the United States wheat export, and 1.6% of the United States corn export (Table 1).

The Chinese tariffs, if implemented, will increase the United States agricultural prices faced by the Chinese consumers relative to other countries. Thus, it will reduce demand for United States agricultural commodities by Chinese consumers. As a result, the United States needs to find alternative foreign markets to export its excess supply in order to sustain current prices. China is the largest importing country for sorghum and soybean (USDA FAS, 2018b). Developing alternative markets for these commodities might be difficult. Although much of the soybeans going to the European Union typically come from Brazil, the European Union (import 14.8% of soybean traded globally) can serve as an alternative market for United States soybeans. Globally, it is a very competitive supply market for soybeans. China could diversify its suppliers in the long run and purchase more soybeans from Brazil (export 39.8% of soybean traded globally) and Argentina (export 17.0% of soybean traded globally) (USDA FAS, 2018b). In the short run, there will not be enough capacity for these countries to increase their production acres. China will still need to buy American soybeans and sorghum to satisfy their domestic consumption.

China is the third largest importing country for cotton, importing 13.1% of cotton traded globally in 2017 (USDA FAS, 2018b). If the Chinese tariffs on U.S. cotton are put into effect, it might provide a near term opportunity for global cotton suppliers like India, Australia, and Brazil to supply more cotton to China. However, the longer term situation could involve more of a re-routing of U.S. exports to other cotton importing countries, like Vietnam, Bangladesh, Indonesia, Pakistan, and India, than a reduction in U.S. cotton production. Recent history of the change in China’s internal cotton policy has shown that the disruptions of Chinese raw cotton imports stimulates the importing of duty free yarn from countries like Vietnam, Indonesia, and the Indian subcontinent (J.R.C. Robinson, personal communication, April 2018; Shurley, 2018).

A study conducted at Purdue University found that the prices of United States soybeans would fall by 2 and 5% under the 10 and 30 percent tariff, respectively (Pack, 2018). Similar effects of price reduction are expected to the other agricultural commodities. The tariff impact on the sorghum price is expected to be larger than the impact on the soybean price, while the impact on the cotton price is expected to be smaller than the impact on the soybean price.

The potential 25 percent increment in tariff for corn, cotton, sorghum, soybeans, and wheat could have a negative impact to Georgia’s agricultural industry. Cotton is the largest crop produced in Georgia with more than 1.27 million acres harvested last year, and contributes $794 million to Georgia’s economy (Table 2). Georgia produced 10.6% (2.25 million bales) of the total United States cotton production in 2017, and is the second largest cotton producing state after Texas. It is also the second largest cotton export state after Texas. Last year, Georgia exported $441 million of cotton, of which $26 million of cotton was exported to China (USDA FAS, 2018a). The Chinese tariffs will have a direct impact on the cotton exported from Georgia because tariffs will impact the entire United States cotton market and the prices received by every United States cotton farmer. It will also have an indirect impact through the prices received by Georgia cotton farmers. Even though Georgia does not export corn, sorghum, soybean, and wheat directly to China, the lower price of these commodities due to Chinese tariffs would impact Georgia farmers.

 

References

Pack, D. (Producer). (2018). Study: U.S. soybean production, exports would fall if China imposes tariffs. Purdue University Agriculture News. Retrieved from https://www.purdue.edu/newsroom/releases/2018/Q1/study-u.s.-soybean-production,-exports-would-fall-if-china-imposes-tariffs.html

Shurley, D. (2018). Shurley on Cotton: More Tariff Talk.  Retrieved from http://www.cottongrower.com/market-analysis/shurley-on-cotton-more-tariff-talk/

USDA FAS. (2018a). Global Agricultural Trade System Online Dataset. Retrieved from: https://apps.fas.usda.gov/gats/default.aspx

USDA FAS. (2018b). Production, Supply and Distribution Database.  Retrieved April 25, 2018 https://apps.fas.usda.gov/psdonline/app/index.html#/app/advQuery

 

Publication: Surviving the Farm Economy Downturn

by Levi Russell

A new publication entitled “Surviving the Farm Economy Downturn” is now available online free of charge. The publication provides a general farm economy outlook as well as discussions of topics such as risk reduction, cost control, alternative crops, livestock sales during drought, crop insurance, ARC and PLC payment forecasts, stress and suicide, and other issues. Please follow the link below to check out essays on these and other topics:

https://afpc.tamu.edu/extension/resources/downturn-book/

Understanding Your Generic Base Conversion Options With the Seed Cotton Program

by Don Shurley and Adam N. Rabinowitz

We have developed a third publication in a series of fact sheets on the new seed cotton program. Included in this document is a little history of what happened with the 2014 farm bill that led to the development of the seed cotton program.  We provide an example of the decision process and identify things to think about when making the decision.

The PDF can be downloaded here.

MYA Prices and Calculating Payments with the Seed Cotton PLC

by Don Shurley and Adam N. Rabinowitz

This post presents a second fact sheet in a series of publications that briefly explain the basic workings of the new seed cotton program.

Effective with the 2018 crop, “seed cotton” is now a covered commodity under Title I of the 2014 farm bill and eligible for PLC (Price Loss Coverage) payments. For purposes of the legislation, “seed cotton” is unginned upland cotton—a combination of both cotton (lint) and cottonseed.

The linked document discusses:

  • Reference price and payments,
  • Marketing year average prices and how to calculate them,
  • What would have been the past 10 years had the seed cotton program been in place,
  • Payment yields, and
  • A payment calculator

Click on this link to access the factsheet.

 

The Bipartisan Budget Act of 2018: What Farmers and Landowners Need to Know about Cotton and Generic Base

by Don Shurley and Adam N. Rabinowitz

On the morning of February 9, 2018, the U.S. Congress passed budget legislation that included the designation of seed cotton as a covered commodity under the 2014 farm bill. The President has signed this legislation and it has become law. The document linked below highlights the critical components about the new cotton program and treatment of Generic Base.

The Bipartisan Budget Act of 2018

More information, including a decision aid, will be available soon at http://agecon.uga.edu/extension.

Southern Outlook Conference Presentations Available

by Levi Russell

Last week in Atlanta Extension economists, lenders, and ag media met in Atlanta to discuss the market and policy outlook for agricultural commodities in the Southeast in the coming year. UGA economists presented the outlook for peanuts, timber, turfgrass, the green industry, cotton, poultry, and hogs. All presentations are available here. Feel free to contact us with questions about the presentations.

Page 1 of 212