FARE Blog

Food, Agriculture, and Resource Economics

Cotton Payments, Disaster Assistance, and Safety Net Update

By Don Shurley and Yangxuan Liu

Download the PDF version of the factsheet

MFP (Market Facilitation Program) Payments

USDA announced last July that it would act to assist farmers damaged by tariffs and reduced exports.  In September, the Market Facilitation Program (MFP) was initiated and the signup began.  MFP payments are received on actual 2018 production.  The payment rates for crops commonly grown in Georgia are listed below:

Initially, the signup deadline was January 15, 2019 but due to the partial government shutdown that included Farm Service Agency (FSA) offices, the signup deadline was extended to February 14, 2019.  The signup period has now ended.  Before payments can be received, in addition to signing up for MFP, the 2018 production must be certified.  The deadline for certifying production with FSA is May 1, 2019.

A first/initial payment was authorized on half of 2018 production.  If the farm was signed up for MFP and 2018 production has already been certified, the first payment has likely already been received.  A second payment—at the same MFP rate on the other half of production, was announced on December 17, 2018.  If the farm is already signed up and certified the production, the second payment has also been made or should be made shortly.

Producers did not need to sign up again for the second payment.  If the first payment has not been or was not received, one payment for the total amount will be received.  Below is an example for how the payment is calculated. Assuming a farm produced 750,000 lbs or approximately 1,500 running (gin count) bales of upland cotton lint in 2018.

Example First Payment:

Total Certified Production = 750,000 lbs

MFP = 750,000  x  ½  x  $0.06  =  $22,500

Example Second Payment:

Total Certified Production = 750,000 lbs

MFP = 750,000  x  ½  x  $0.06  =  $22,500

Example Total (All In One Payment):

Total Certified Production = 750,000 lbs

MFP = 750,000  x  $0.06  =  $45,000

Unfortunately, MFP payments for cotton will be less than expected.  This is due to crop loss caused by Hurricane Michael and excessive rains and delayed harvest during the entire harvest season that followed.  Prior to Hurricane Michael, USDA projected the Georgia crop at 2.9 million bales or approximately 1.4 billion pounds.  The MFP on that amount would have been approximately $83.5 million.  The latest USDA projection for the Georgia crop is approximately 936 million pounds and MFP of $56.1 million—a 33% reduction.

The limit on MFP payments is $125,000 per person or legal entity for corn, cotton, grain sorghum, soybeans, and wheat combined and applicants must have an AGI of less than $900,000.  The limit on MFP is separate from the limit on ARC/PLC.

Given the relative crop acreages in Georgia and the relatively small payment on corn, on average, the majority of a person or entity’s MFP will be on cotton if the operation grows cotton.  For example, to reach the $125,000 payment limit from cotton only, it would require about 2 million pounds (4,340 USDA 480-lb statistical bales or about 4,183 “running bales” from the gin).  At the state average yield of 693 pounds per acre, this would be equivalent to roughly 3,000 acres of cotton per person or legal entity at that yield.  Had yield been higher as expected (and many producers have said they had a record crop prior to Michael), the limit would have reached the cap at much smaller production and would have been an issue for some producers.

2018 Disaster Assistance

At the time of this is written, there is yet no 2018 disaster relief package but the outlook appears to be improving for having legislation soon.

After months of budget negotiations, disagreements, delays, continuing resolutions, and a partial government shutdown, both the House and Senate passed the final budget package for FY19 on February 14, 2019 and President Trump signed the legislation into law on February 15, 2019.

Unfortunately, although included in earlier budget bills that never fully passed through both House and Senate, 2018 disaster funding was omitted from the February 14 final FY19 legislation.  This means that disaster funds will now come in the form of a separate (supplemental) appropriations bill.

Recently, a bi-partisan group of Senators spearheaded by Senator David Perdue (GA) introduced legislation to the Senate for $13.6 billion in relief efforts including $3 billion for crop-related losses during 2018 due to Hurricanes Michael and Florence and other natural disasters.

Details and the specific workings of the program are unknown and yet to be determined by USDA, should the legislation proceed forward and become law.  From what is known, this Senate legislation seems to closely align with a similar House bill that passed back in January.  Therefore, if the Senate bill passes, it should not be difficult and time-consuming to work out the differences in a conference bill.  President Trump has indicated he will sign disaster legislation when it reaches his desk.  It is hoped that the Senate bill can be considered and passed later this month.

It appears that this legislation for 2018 losses would provide relief through the Wildfires and Hurricanes Indemnity Program (WHIP) in a similar manner as for 2017 crop losses.  In general, the WHIP payments formula is:

WHIP Payment = WHIP Expected Value – WHIP Harvest Value – Insurance Indemnities

The WHIP Expected Value is based on the crop insurance Actual Production History (APH) for the crop and the coverage level of crop insurance elected for the crop.  A WHIP factor of 70% to 90% is proposed and would be applied to the APH—the higher the insurance coverage level, the higher the WHIP factor.

The WHIP Harvest Value is based on the actual yield.  Insurance Indemnities would be the amount(s) received on the crop.  Efforts are on-going to have the premium paid deducted from this amount.

The idea or concept behind WHIP disaster assistance is to pay the producer something above what crop insurance elected on the farm would pay—to provide an additional amount above what crop insurance is going to pay.  This amount will vary depending on whether the crop was insured or not and, if so, at what coverage level.

Because many producers in Georgia were anticipating a record crop, especially for non-irrigated production, it is realized that because WHIP is based on the farms APH, that any payment received cannot fully compensate for the actual loss.  Any amount of payment is helpful, however.

The following website illustrates an example of how WHIP worked for 2017 crop losses.  The WHIP factors will have to be updated/revised based on how similar legislation would compensate for 2018 losses.  Nevertheless, the illustrated example is useful in understanding the concept.

http://www.cotton.org/econ/govprograms/ag-disaster-asst-programs.cfm

Seed Cotton (SC) Program Update

Seed cotton (SC) became a covered commodity and eligible for ARC (Agricultural Risk Coverage) and PLC (Price Loss Coverage) effective with the 2018 crop—the last year of the 2014 farm bill.  Seed cotton continues as a covered commodity in the new 2018 farm bill.  Payment for both ARC and PLC is received on 85% of the farms seed cotton base acres.

The PLC Payment is the PLC Payment Rate times the established seed cotton payment yield for the farm times 85% of the farms seed cotton base acres.

Currently, the projected seed cotton PLC Payment Rate is 2.9 cents per pound.  This is based on the most recent projections of the 2018 market year average (MYA) price for upland cotton and cottonseed.  The SC MYA Price is a weighted average price (based on production upland cotton and all cottonseed) as shown in the table below.  Currently, the SC MYA Price is projected to be 33.8 cents per pound.  This is subject to change—the marketing year for 2018 cotton does not end until July 31, 2019.

The PLC Reference Price for seed cotton is 36.7 cents per pound.  A PLC payment is received if the SC MYA Price is less than 36.7 cents.  Currently, the SC PLC projects to be 2.9 cents per pound (36.7 – 33.8 = 2.9).

For 2019, producers on a farm must elect ARC or PLC for seed cotton.  The 2019 election will be for the 2019 and 2020 crops.  Starting with the 2021 crop, an election will be made each year for the 2021, 2022, and 2023 crops.  The choice of ARC or PLC is not always clear cut and can be confusing.  In making the decision, the main factors to remember are:

  • PLC payment is triggered by price only.
  • The PLC payment for the crop on a farm will depend on the farms PLC Payment Yield for the crop.
  • ARC is triggered by revenue.
  • An ARC payment depends on county yield, not the farm’s own yield.

How PLC and ARC compare is going to vary and will be specific to the farm because the amount of any PLC payment, and thus how ARC and PLC will compare, will be determined in-part by your own PLC payment yield for your farm.  FSA guidelines for ARC/PLC election and enrollment for the 2019 and 2020 crops have not yet been announced.

Beginning with the 2019 crop (the first year of the new farm bill), the PLC Reference Price will be allowed to “float”.  A PLC Payment will be received if the MYA Price for the crop is less than the “Effective” Reference Price for the crop.  The Effective Reference Price will be the higher of the Statutory Reference Price (36.7 cents, for example for seed cotton) or 85% of the 5-year OA (Olympic Average) MYA Price but not to exceed 115% of the statutory price.

This “Effective Price” also impacts ARC.  In ARC, this Effective Reference Price is used as a substitute for the MYA Price in calculating the Benchmark Price if the MYA Price is lower than the Effective Reference Price.

Seed Cotton ARC/PLC and STAX

Most producers have already made their seed cotton generic base allocation decision and election and enrollment of either ARC or PLC for the 2018 crop.  These decisions had to be made or the producer had to already be on FSA’s list (register) waiting to be serviced by December 7, 2018.

The late timing was such that ARC/PLC election and enrollment for 2018 didn’t have to be made until after the start of the 2018 crop marketing year and near the end of the 2018 growing season.  This turned out to be a good thing because Hurricane Michael resulted in large yield loss in some counties and, as a result, some seed cotton bases switched to ARC rather than PLC—ARC being more likely to have a higher payout than PLC for 2018 in some situations.

For the 2018 crop, a farm could have STAX insurance coverage and also have seed cotton base enrolled in ARC or PLC on the same farm.  We suspect this is because the crop insurance sales closing and premium payment deadlines for 2018 spring planted crops occurred months earlier and prior to ARC/PLC election and enrollment.  The sales closing deadline in Georgia, for example, is February 28th.

Effective with the 2019 crop, if a farm has seed cotton base and if that seed cotton base is enrolled in ARC/PLC, all cotton acres planted on that farm are not eligible for STAX.  This has been a source of confusion and misinformation.  The following website is an excellent source of information provided by the USDA Risk Management Agency (RMA) and answers many questions related to ARC/PLC and STAX:

https://www.rma.usda.gov/en/News-Room/Frequently-Asked-Questions/2019-STAX-and-Agriculture-Risk-Coverage-and-Price-Loss-Coverage

In summary, if the seed cotton base on a farm is enrolled in ARC/PLC, all cotton acres planted on that farm are ineligible for STAX.  In Georgia, the crop insurance sales closing deadline for spring planted crops like cotton is February 28th.  This is likely going to be before the ARC/PLC enrollment deadline.  If a producer thinks he/she may want to have STAX coverage for the farm, the producer can purchase STAX first (by the sales closing deadline) then still have the option to enroll in ARC/PLC later, prior to the premium due date, and STAX coverage will be cancelled.  (Note: It is expected that STAX coverage can be cancelled but guidelines concerning this are not yet been released by RMA.)  The sales closing date for 2019 spring planted crops has already passed.

The producer must elect ARC or PLC for seed cotton base on the farm.  In 2019, for example, the producer will elect ARC or PLC for seed cotton base for the 2019 and 2020 crops.  Election does not impact the eligibility for STAX.  The producer will then make a separate decision to actually enroll in ARC/PLC for the crop year.  If seed cotton base on the farm is enrolled in ARC/PLC, then the farm is not eligible for STAX.

ARC and STAX are similar as they are both a form of an area revenue guarantee.  STAX is getting a second look mainly in situations where the cotton acres to be planted on a farm are greater than the seed cotton base on that farm or in situations where cotton will be planted and the farm has no seed cotton base.

Federal Disaster Aid Package Becomes Law

by Adam N. Rabinowitz

On June 6, 2019, the disaster aid package (officially known as H.R. 2157, “Additional Supplemental Appropriations for Disaster Relief Act, 2019.”) was signed into law.  The bill contains substantial money that will aid Georgia in the recovery from Hurricane Michael, as well as addressing other disasters throughout the U.S. during calendar years 2018 and 2019, including Hurricane Florence, other hurricanes, floods, tornadoes, typhoons, volcanic activity, snowstorms, and wildfires.  I have outlined below key highlights of the legislation directly relevant to Georgia agricultural producers.

  • A total of $3 billion has been allocated to losses of crops (including milk, on-farm stored commodities, crops prevented from planting in 2019, and harvested adulterated wine grapes), trees, bushes, and vines.
  • Block grants will be provided to states for forest restoration, poultry, and livestock losses.
  • Tree assistance payments are to be made to eligible orchardists or nursery tree growers of pecan trees with a tree mortality rate that exceeds 7.5% (adjusted for normal mortality) and is less than 15% (adjusted for normal mortality) for losses incurred from January 1, 2018 and December 31, 2018.
  • Not more than $7 million for agricultural producers whose Whole Farm Revenue Protection indemnity payments were reduced following 2018 crop year losses due to state authorized disaster assistance programs.
  • Crops eligible for Federal Crop Insurance or Noninsured Crop Disaster Assistance Program (NAP) are limited to payments not to exceed 90% of the loss for those that obtained either of these policies. For producers that did not obtain available crop insurance or NAP, payments are limited to 70% of the loss.  The expected value of the crop is defined as the greater of the projected price or the harvest price.
  • Additional allocations were made for the Emergency Forest Restoration Program ($480 million), Emergency Conservation Program ($558 million), Emergency Watershed Protection Program ($435 million), and rural community facilities programs ($150 million).

Keep in mind that dollar figures included here are not allocations only for Georgia but are for all producers throughout the nation that are eligible for aid.  It is expected that the crop losses will be managed through the Farm Service Agency (FSA) using the Wildfires and Hurricanes Indemnity Program (WHIP) in the same fashion as was applied in 2018 for Hurricane Irma, with the exception of the increased payment limits to 90% and 70% for insured and uninsured acres, respectively.  The signup process and payment dates are not known at this time.  More information is forthcoming.

First Look at the Farm Bill Title I for Row Crops: Agriculture Improvement Act of 2018

By Yangxuan Liu* and Adam N. Rabinowitz*

Download the PDF version of the factsheet.

On December 11, 2018, the U.S. Senate passed the Agriculture Improvement Act of 2018 (2018 Farm Bill).  The U.S. House Representatives passed the same version on December 12, 2018.  The President of the United States is expected to sign the bill into law on December 20, 2018.  The 2018 Farm Bill continues programs for Title I commodities from the 2014 Farm Bill: the Agriculture Risk Coverage (ARC) program, the Price Loss Coverage (PLC) program, and the Marketing Assistance Loans (MAL) program with Loan Deficiency Payments (LDP).  Below we have identified some major changes in the new farm bill for easy reference.

  • The election between ARC/PLC is one of the key changes for Title I commodities in the 2018 Farm Bill. The initial election will be in 2019 for the 2019 and 2020 crop years. Beginning with the 2021 crop year, producers are allowed to change their ARC/PLC program elections annually.
  • A new effective reference price and updated PLC program yields are created for covered commodities.
  • The statutory PLC reference prices for Title I commodities remain the same as in the 2014 Farm Bill with seed cotton added. The effective reference price permits the reference price to increase up to 115% of the statutory reference price.
  • At the sole discretion of the owner of a farm, the owner shall have a 1-time opportunity to update the PLC payment yield, on a covered-commodity-by-covered-commodity basis. The payment yield is used in calculating the PLC payment for each covered commodity for which the PLC election is made.
  • In the case of seed cotton, for the purposes of determining the average yield per planted acre, the average yield for seed cotton per planted acre shall be equal to 2.4 times the average yield for upland cotton per planted acre.
  • Beginning in 2019, ARC-CO (ARC-County) payments will be based on the physical location of the farm, with farms that cross multiple counties being prorated into each county.
  • When calculating the benchmark revenue for ARC-CO, the effective reference price will be used as part of the calculation for the 5-year Olympic average price when the effective reference price is higher than the marketing year average price. In addition, the 5-year Olympic average yield will use either the county average yield or 80% of the county transitional yield, whichever is higher for that year.
  • Loan rates for the MAL program have increased for most commodities, except peanuts. Peanuts maintain the $355/ton loan rate and cotton will have a factor to limit year-to-year variability.
  • Payment limits are still $125,000, with a separate payment limit for peanuts. First cousins, nieces, and nephews are going to be included in the family members eligible for payments.
  • Unassigned base will remain unassigned and not be eligible for payments.
  • Adjusted Gross Income limits remain at $900,000 per person or legal entity.

 

*These authors contributed equally to this post.

Information on Disaster Assistance Programs

By Adam N. Rabinowitz

Click here for a PDF version of this post.

Last week Hurricane Michael ripped through the heart of Georgia agriculture, devastating the southwest region and destroying a significant amount of our farmers’ hard work.  While government programs can never fully replace the loss, there are a number of resources that are available to help farmers recover from disasters.  Some general tips and good practices include:

  • Collect documentation! Prior to starting any cleanup activity, make sure to take pictures of damage and losses that have occurred.
  • If you have crop insurance, contact your crop insurance agent to report losses or damages. It is important to do this before starting any cleanup activities so that everything can be documented properly.   Furthermore, farmers need to notify their crop insurance agent within 72 hours of discovery of a loss.  Beyond that, farmers should make sure that a signed written notice is provided within 15 days of the loss.
  • If you have noninsured crop disaster assistance or are eligible for other disaster assistance programs, contact the local FSA office. It is important to do this before starting any cleanup activities so that everything can be documented properly and a waiver can be issued prior to cleanup.

Important Disaster Resources

The USDA has a disaster website for Hurricane Michael that can be accessed at: https://www.usda.gov/topics/disaster/storms.  At that link there is information on FEMA and other disaster programs.  There is also a more direct resource related to agriculture that can be accessed at: https://www.farmers.gov/recover.  Some of the disaster assistance programs potentially applicable to hurricane losses include:

More information about each of these programs can be found at the above websites.  In addition, there have been some specific disaster related questions which are answered below.

  • What is the next step(s) after receiving crop damage? (reporting claims, documentation, etc.)

Depending on the program, contact either your crop insurance agent or local FSA office.  Make sure to take pictures of the damage and do not burn any debris.  An adjuster or FSA representative will need to survey the damage, thus it is important to wait before starting any cleanup until this has happened or permission to cleanup has been granted.

Keep in mind certain crop insurance deadlines.  Notice to your crop insurance agent must occur before abandoning a crop within 72 hours of a loss.  A written notice needs to be signed within 15 days of loss.

In addition to documenting the damage and loss, keep track of expenses related to cleanup.  It is advisable to keep records of all activities related to the disaster.

  • Do farmers have to pick the crop (in certain situations)? (requesting an appraisal, pros/cons of picking vs. taking the appraisal)

This is a difficult question that depends on individual circumstances.  Some issues that need to be considered is whether there is any salvage value of the crop and the quality of anything that can still be harvested.  If it is a good crop then it should be harvested.  The farmers crop insurance agent can help make a determination of how to proceed.

  • If you don’t pick the crop, how bad will it hurt the established yield?

If there is crop available to pick and you choose not to then it will count against the loss.

  • What if a farmer has an FSA loan on a structure that was damaged?

Contact the local FSA office immediately to report this damage.

  • What additional disaster relief may become available and when?

After many natural disasters that result in widespread damage there are often additional programs that become available to aid with agricultural losses.  This, however, is not guaranteed and it does take time before they are available as they require a special appropriation from the U.S. Congress and signature of the President.  One such example is the 2017 Wildfires and Hurricanes Indemnity Program (WHIP) that covered losses from Hurricane Irma that caused widespread damage in September 2017.  Allocation for that program was not made until February 9, 2018 as part of the Bipartisan Budget Act of 2018.  Sign up for that program did not begin until July 16, 2018.

While a special allocation may not be immediately available, it is important to document losses and to communicate to your legislators in a way that illustrates the impact that Hurricane Michael has had on your farming operation.  This information will help drive policy decisions and additional allocations that may become available.

 

Disclaimer

The information provided in this document is not a specific recommendation.  Producers should make disaster assistance decisions in consultation with their crop insurance agent local Farm Service Agency or other government entity responsible for program administration.

 

Market Facilitation Program: What is available to cover my marketing losses from trade tariffs?

By Yangxuan Liu

Download the PDF version of this article. 

U.S. Department of Agriculture releases details about the spending plans for $12 billion in trade aid package for farmers. The main component of the aid package is the Market Facilitation Program (MFP). MFP is authorized under the Commodity Credit Corporation (CCC) and administered by Farm Service Agency (FSA). MFP provides a direct payment to help producers who have been negatively impacted by foreign governments imposing tariffs on U.S. agricultural products.

MFP payment rates will consist of two announced payment rates. The first rate is announced on September 4, 2018 for the first payment rate and applies to 50% of the producer’s 2018 actual harvest production. On or near December 3, 2018, if applicable, the second payment rate will be announced and will apply to the remaining 50% of the producer’s 2018 production. For each commodity covered, USDA has set the first payment rates for the 50% of the producer’s 2018 actual harvested production as follows:

  • Cotton – $.06 per pound, estimate total payments of $277 million
  • Corn – $.01 per bushel, estimated total payments of $96 million
  • Soybeans – $1.65 per bushel, estimated total payments of $3.6 billion
  • Sorghum – $.86 per bushel, estimated total payments of $157 million
  • Wheat – $.14 per bushel, estimated payments of $119 million
  • Hogs – $8 a head, estimated payments of $290 million
  • Milk – $.12 a hundredweight, estimated payments of $127 million

The signup started on Tuesday, September 4, 2018 until Tuesday, January 15, 2019. For cotton producers, you can sign up with FSA now and update later to FSA with your production record, e.g. ginning records.

MFP payments are capped per person or legal entity at a combined $125,000 for corn, cotton, sorghum, soybeans and wheat, and another $125,000 for dairy and hogs. This payment cap applies to MFP only. The $125,000 payment cap for Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) payments is a separate cap. Eligible applicants must have an ownership interest in the commodity, be actively engaged in farming and have an average adjusted gross income (AGI) for tax years 2014, 2015 and 2016 of less than $900,000. Producers will have the option to submit CCC-910’s and report production in person, by mail, or electronically to FSA.

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.

The Impacts of Chinese Tariff on Georgia Agriculture

By Yangxuan Liu, Esendugue Greg Fonsah, Levi Russell, Adam N. Rabinowitz, and Don Shurley

The uncertainty in trade policy between China and the U.S. creates concerns among the agricultural community. We recently released an extension publication, named The Impacts of China and United States Trade and Tariff Actions on Georgia Agriculture: the Perspectives of UGA Agricultural Economists. Georgia agriculture produces many of the items targeted by Chinese tariffs, including nuts, fruits, soybean, corn, wheat, sorghum, cotton, pork, beef, and tobacco. The Chinese retaliatory trade tariff on products of U.S. origin would have a negative impact on Georgia’s agriculture and economy. However, the magnitude of the impact of these new tariffs on Georgia’s agricultural industry is unclear.  In this extension publication, we discussed in detail about the Chinese tariff and its potential impact on pecan, cotton, soybean, corn, wheat, sorghum, and livestock industry.

Click here to download the full publication.

 

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