FARE Blog

Food, Agriculture, and Resource Economics

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.

Planted Acres vs Base Acres

by Adam Rabinowitz

There have been some comments from policymakers regarding the upcoming farm bill and the debate between planted acres and base acres.  Here is an explanation as to why base acres have been used and the potential impact of using planted acres.

The 2014 Farm Bill contains provisions for Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) commodity programs that are tied to a “base acreage” for which to compute payments. Base acres for a particular Farm Service Agency (FSA) farm depend on the past decisions by the farm to reflect either 1991-1995, 1998-2001, or 2009-2012 planted acres. Regardless of the specific base acreage determination, the common point among the commodity programs and farms is that base acreage is determined on historical planted acreage and not current year planted acreage. There are two main concerns over computing safety net program payments on current planted acres.

  1. Payments made on current planted acres means that newly planted acres are eligible for payments. This has the potential to distort market prices because planting decisions will be directly impacted by the eligibility for program payments. As planted acres increase, the market price will decrease, resulting in increased program payments, which may continue to perpetuate into a further increase in acreage, payments, etc.
  2. World Trade Organization (WTO) agreements contain limits on trade-distorting domestic support. When government safety net payments are tied to planted acres they would likely be reported as product specific crop commodity program payments. Product specific payments are viewed as potentially trade-distorting and thus subject to WTO limits.

Historical base acres have thus been used to mitigate the potential negative market distortion from government programs and potential violation of trade agreements. By determining safety net program payments on historical acreage, there is little (if any) incentive to make planting decisions based on the ability to receive government payments. With current safety net payments being issued in October of the following year after harvest, there is an even greater disconnect between planting decisions and government payments. Furthermore, ensuring that agricultural commodities maintain compliance with trade agreements is critical for continued expansion of demand and access to foreign markets for U.S. farmers.