{"id":188,"date":"2013-10-08T13:12:28","date_gmt":"2013-10-08T17:12:28","guid":{"rendered":"http:\/\/site.extension.uga.edu\/colquittag\/?p=188"},"modified":"2013-10-16T09:56:52","modified_gmt":"2013-10-16T13:56:52","slug":"cotton-marketing-news-special-issue-october-7-2013","status":"publish","type":"post","link":"https:\/\/site.extension.uga.edu\/colquittag\/2013\/10\/cotton-marketing-news-special-issue-october-7-2013\/","title":{"rendered":"Cotton Marketing News\u2013 Special Issue October 7, 2013"},"content":{"rendered":"

SPECIAL ISSUE:<\/strong><\/p>\n

Marketing Loan, Sequestration Cut, and US Government Shutdown<\/strong><\/p>\n

Sequestration<\/strong><\/span>.<\/strong> Last week was not a good week for program crops including cotton.\u00a0 Effective October 1, all 2013 program crops placed in Marketing Loan on or after that date will have a 5.1% reduction in Loan proceeds.\u00a0 The Loan Rate (base rate of 52 cents per lb in the case of cotton) is not changed (because this is set by previous statute and cannot be changed) but the resulting Loan amount is to be reduced by 5.1%.\u00a0 The reduction is due to automatic spending cuts (Sequestration) required by the Budget Control Act of 2011 (delayed by the American Taxpayer Relief Act of 2012).<\/p>\n

The following is an example of the reduction applied per bale:<\/p>\n\n\n\n\n\n
Loan Rate*<\/strong><\/td>\nBale Weight<\/strong><\/td>\nGross Loan Amount<\/strong><\/td>\n5.1% Reduction<\/strong><\/td>\nReduced Loan Amount<\/strong><\/td>\n<\/tr>\n
$0.5445<\/td>\n498 lbs<\/td>\n$271.16<\/td>\n$13.83<\/td>\n$257.33<\/td>\n<\/tr>\n
* Base rate adjusted for quality premiums and discounts<\/em><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

If cotton is placed (stored) under Loan, the grower then has two options: (1) redeem\/pay the loan (plus interest and storage) and sell the cotton or (2) in addition to the loan amount receive an \u201cequity payment\u201d from a merchant\/buyer and the merchant will continue to carry the cotton in storage and later repay the loan and charges.\u00a0 Prior to harvest, the grower may instead enter into an \u201cequity option contract\u201d with the merchant\/buyer whereby the equity may already be determined and the grower receive the loan plus equity upon harvest and delivery of the cotton.<\/p>\n

Unlike the Mid-South, most individual growers in the Southeast do not typically use the Loan as a marketing tool as just described.\u00a0 Marketing associations, however, are heavy users of the Loan and these associations handle a large amount of cotton in both the Southeast and Mid-South.<\/p>\n

When prices are sufficiently above the Loan Rate, there will be no Loan Deficiency Payment (LDP) or Marketing Loan Gain (MLG).\u00a0 For most growers, the Loan is simply a cash-flow and marketing tool.\u00a0 It is a way to provide much needed cash-flow (the Loan amount) soon after harvest with the remainder (equity) to be determined later.\u00a0 The Sequester reduction in the Loan amount will reduce cash-flow but it is expected that merchant equities (unless already fixed) will be raised to reflect the decrease in the Loan amount.\u00a0 Thus, most growers including those in marketing association pools, are unlikely to see a reduction in total proceeds.<\/p>\n

Government Shutdown<\/strong><\/span>.<\/strong>\u00a0 Also effective October 1, many government agencies have been closed until further notice due to the lack of an agreement by Congress to continue funding.\u00a0 USDA functions including local offices and including administration of programs such as the Loan have been discontinued until funding is restored.<\/p>\n

During this time, commodities cannot be put in Loan nor Loans made.\u00a0 This disrupts cash-flow for growers who would otherwise place cotton in loan.\u00a0 Marketing associations may, however, still be able to make their pool advance payments until the government is up and running again.\u00a0 The longer the shutdown lasts, however, the bigger the problem will become and ripple effects felt.\u00a0 While loans cannot be made, some merchants\/buyers have indicated a willingness to convert an equity contract to an equivalent cash sale t<\/strong>o provide cash-flow for the grower and avoid storage charges.<\/p>\n

In addition to the Loan process, Direct Payments (DP) are also on hold.\u00a0 Even once the government shutdown is over, the Loan process will continue to be disrupted for a period of 2 weeks while FSA software is updated.\u00a0 Many questions remain to help more fully clarify how all this will work and what the impacts will be.\u00a0 <\/strong>But those questions will remain unanswered until FSA is back in service.<\/p>\n

Don Shurley<\/p>\n

University of Georgia<\/p>\n","protected":false},"excerpt":{"rendered":"

Cotton Marketing News <\/em>is written biweekly by UGA cotton economist, Don Shurley, and sponsored by Southern Cotton Growers, Inc.<\/p>\n","protected":false},"author":23,"featured_media":103,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6,4,15,12],"tags":[],"class_list":["post-188","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-agribusiness","category-cotton","category-economics-policy","category-marketing"],"_links":{"self":[{"href":"https:\/\/site.extension.uga.edu\/colquittag\/wp-json\/wp\/v2\/posts\/188","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/site.extension.uga.edu\/colquittag\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/site.extension.uga.edu\/colquittag\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/site.extension.uga.edu\/colquittag\/wp-json\/wp\/v2\/users\/23"}],"replies":[{"embeddable":true,"href":"https:\/\/site.extension.uga.edu\/colquittag\/wp-json\/wp\/v2\/comments?post=188"}],"version-history":[{"count":2,"href":"https:\/\/site.extension.uga.edu\/colquittag\/wp-json\/wp\/v2\/posts\/188\/revisions"}],"predecessor-version":[{"id":190,"href":"https:\/\/site.extension.uga.edu\/colquittag\/wp-json\/wp\/v2\/posts\/188\/revisions\/190"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/site.extension.uga.edu\/colquittag\/wp-json\/wp\/v2\/media\/103"}],"wp:attachment":[{"href":"https:\/\/site.extension.uga.edu\/colquittag\/wp-json\/wp\/v2\/media?parent=188"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/site.extension.uga.edu\/colquittag\/wp-json\/wp\/v2\/categories?post=188"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/site.extension.uga.edu\/colquittag\/wp-json\/wp\/v2\/tags?post=188"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}