Seed Cotton As A Covered Commodity:

Transcription

1 Seed Cotton As A Covered Commodity: An overview of new seed cotton provisions added to the 2014 Farm Bill Program information based on a review of the legislative language. Final details are subject to change based on USDA s interpretation of language and implementation. Presented by Plains Cotton Growers, Inc.

2 Cotton s path to Title I? Following passage and during implementation of the 2014 Farm Bill the U.S. cotton industry (PCG, NCC) began working toward a solution that would renew Title I program protections for cotton producers. Farm Bill signed (February 7, 2014) Implementation Period (Aug March 2015) 2014/2015 Enrollment (June 2015 Sept. 2015) Cottonseed as minor oilseed discussions with USDA/HAC (Summer 2014 Winter 2015) Cotton Transition Assistance Program (June 2015 Sept. 2015)

3 Cotton s path to Title I? During Farm Bill implementation PCG, NCC and other cotton groups began discussing possibility of designating cottonseed as a minor oilseed. USDA Sec. Tom Vilsack determines he DID NOT have adequate authority; offers assistance via Gin Cost Share (February 2016) 2015 Cotton Ginning Assistance Program (June / July 2016) Industry/HAC shifts effort to legislative fix to obtain a Cottonseed designation (Spring 2016) Cottonseed language proposed (Fall 2016) Cottonseed REMOVED from 2016 Omnibus Budget (May 2017)

4 Cotton s path to Title I? Cotton industry determines that Seed Cotton is BEST OPTION for long-term safety net program under Title I. HAC Chairman Mike Conaway and staff secure inclusion of Seed Cotton fix in third Disaster Supplemental bill. Cottonseed REMOVED from 2016 Omnibus Budget (May 2017) HAC Seed Cotton legislation developed House passes Supplemental Disaster bill w/seed Cotton Fix; Senate support is critical to success Focus changes from cottonseed to Seed Cotton (Spring 2017) PCG meets with key Senate leaders (Cornyn, Moran, Hoeven, Boozman)

5 Ingredients of success Cotton industry engagement with key congressional leadership was critical to developing necessary support for inclusion of the Seed Cotton fix in the Supplemental Disaster bill approved by the House of Representatives in December 2017 and the Senate in February Plains Cotton Growers PAC and the NCC Committee for the Advancement of Cotton helped open dialogue and build relationships with non-ag Representatives and Senators regarding need for Seed Cotton Title I safety net for producers. PCG and NCC staff and PCG leadership met with Senators John Cornyn, Jerry Moran, John Hoeven and John Boozman between January 15-18, 2018 to discuss inclusion of Seed Cotton in Senate legislation addressing outstanding budget and disaster issues. Senate and House passage of the Bipartisan Budget Act of 2018 occurred on February 9, 2018, four years after the 2014 Farm Bill was signed into law.

6 Cotton s Safety Net Restored An unprecedented occurrence: The addition of Seed Cotton as a covered commodity to the 2014 Farm Bill via the Bipartisan Budget Act of 2018 marks the first time that a NEW COVERED COMMODITY has been added outside of the normal Farm Bill development cycle. DIVISION F Improvements to Agriculture Programs SEC (a) Treatment of seed cotton. (1) DESIGNATION OF SEED COTTON AS A COVERED COMMODITY. Section 1111(6) of the Agricultural Act of 2014 (7 U.S.C. 9011(6)) is amended (A) by striking The term and inserting the following: (A) IN GENERAL. The term ; and (B) by adding at the end the following: (B) INCLUSION. Effective beginning with the 2018 crop year, the term covered commodity includes seed cotton..

7 Seed Cotton At A Glance Seed Cotton included as a covered commodity effective with the 2018 crop year. Seed Cotton = Unginned upland cotton that includes BOTH lint and seed Pay Limit = Seed Cotton program payments will fall under the unified payment limit for ARC, PLC and marketing loan benefits which is set at $125,000 per person Sign-up to begin within 90 days of enactment

8 Seed Cotton At A Glance Seed Cotton Reference price = $0.367/lb Seed Cotton Loan rate = $0.25/lb (used ONLY to calculate the maximum PLC Payment rate) 2018 Marketing Year = Aug. 1, 2018 through July 31, Payment yield = 2.4 times the Counter-cyclical payment yield for cotton lint established in the 2008 Farm Bill (including a one-time opportunity to update the payment yield just like other covered commodities in 2014 Farm Bill) Payment acres = Generic Base reallocated to create Seed Cotton base Generic base acres ARE NOT in effect beginning with the 2018 crop

9 Decisions, Decisions, Decisions The Owner(s) of the farm have three decisions to make: 1). Title One Program Election ARC or PLC?? 2). Establishment of Payment Acres Allocation of Generic Base 3). Establishment of the Payment Yield Optional Yield Update

10 Seed Cotton: ARC or PLC Election Special Election Period For Price Loss Coverage Or Agriculture Risk Coverage: In the case of acres allocated to seed cotton on a farm, all of the producers on the farm shall be given the opportunity to make a new 1-time election to reflect the designation of seed cotton as a covered commodity. Effect Of Failure To Make Unanimous Election: If all the producers on a farm fail to make a unanimous election, the producers on the farm shall be deemed to have elected price loss coverage for acres allocated on the farm to seed cotton. This decision stays with the farm for the life of the farm bill.

11 Establishing Payment Acres Generic Base reallocation scenarios: If NO Covered Commodities were planted on the farm between , Option 1. ALL Generic Base will be allocated to UNASSIGNED crop base then Remaining 20% of Generic Base allocated to UNASSIGNED crop base then Residual Generic Base allocated to UNASSIGNED crop base. The higher of 80% of Generic Base to Seed Cotton Base, or the simple average of Upland cotton planted on the farm between , not to exceed current Generic base, to Seed Cotton Base, Option 2. then OR Allocate ALL Generic Base to base acres for covered commodities proportional to the planting of ALL Covered Commodities (including Seed Cotton) on the farm between NOTE: Generic base acres ARE NOT in effect beginning with the 2018 crop and following the completion of the Generic base allocation process.

12 Establishing Payment Acres If the owner/owners of the farm CANNOT agree on an option (Option One or Two) to allocate the generic base on the farm, and fail to select an allocation method, the generic base on the farm will be allocated based on Option One. The higher of 80% of Generic base to Seed Cotton Base, then Remaining 20% of Generic base allocated to UNASSIGNED crop base or the simple average of Upland cotton planted on the farm between , not to exceed current Generic base, to Seed Cotton Base then Remaining Generic Base allocated to UNASSIGNED crop base

13 Seed Cotton Base Allocation Example - 1 Acre Farm Generic Base Acres = planted acres: 2009 Cotton 280 Corn 60 Sorghum 0 Peanuts 60 TOTAL Option AVERAGE 295 Acres 50 Acres 25 Acres 30 Acres Acres % covered commodities 73.75% 12.5% 6.25% 7.5% 100% Higher of: 80% to Seed Cotton ac. 20% to Unassigned - 72 ac. or, Seed Cotton planted acres not to exceed Generic base Seed Cotton ac. Unassigned - 65 ac. OR, Option 2. Seed Cotton ac. Corn - 45 ac.; Sorghum ac.; Peanuts - 27 ac.

14 Seed Cotton Base Allocation Example - 2 Acre Farm Generic Base Acres = planted acres: 2009 Cotton 300 Sorghum 60 Wheat 40 TOTAL Option AVERAGE 325 Acres 45 Acres 30 Acres Acres % covered commodities 81.25% 11.25% 7.5% 100% Higher of: 80% to Seed Cotton ac. 20% to Unassigned - 72 ac. or, Seed Cotton planted acres not to exceed Generic base Seed Cotton ac. Unassigned - 35 ac. OR, Option 2. Seed Cotton ac. Sorghum ac.; Wheat - 27 ac.

15 Seed Cotton Base Allocation Example - 3 Acre Farm Generic Base Acres = planted acres: 2009 Cotton 360 Sorghum TOTAL Option AVERAGE 370 Acres 30 Acres 0 Acres Acres % covered commodities 92.5% 7.5% 100% Higher of: 80% to Seed Cotton ac. 20% to Unassigned - 72 ac. or, Seed Cotton planted acres not to exceed Generic base Seed Cotton ac. OR, Option 2. Seed Cotton ac. Sorghum- 27 ac.

16 Seed Cotton Base Allocation Example - 4 Acre Farm Generic Base Acres = planted acres: 2009 Cotton 360 Sorghum TOTAL Option AVERAGE 370 Acres 30 Acres 0 Acres Acres % covered commodities 92.5% 7.5% 100% Higher of: 80% to Seed Cotton ac. 20% to Unassigned - 80 ac. or, Seed Cotton planted acres not to exceed Generic base Seed Cotton ac. Unassigned - 30 ac. Seed Cotton ac. Sorghum - 30 ac. OR, Option 2.

17 Seed Cotton Base Allocation Example - 5 Acre Farm Generic Base Acres = planted acres: 2009 Cotton 200 Rye 200 (cover) TOTAL Option AVERAGE 200 Acres 200 Acres Acres % covered commodities 100% 100% Higher of: 80% to Seed Cotton ac. 20% to Unassigned - 80 ac. or, Seed Cotton planted acres not to exceed Generic base Unassigned ac. Seed Cotton ac. OR, Option 2. Seed Cotton - ac.

18 Establishing the Payment Yield Payment Yield For seed cotton for a farm shall be equal to 2.4 times the Countercyclical payment yield for upland cotton for the farm established under the Food, Conservation, and Energy Act of Yield Factor Derived from the combination of a 1.4x seed-to-lint multiplier (to estimate cottonseed production) PLUS a 1x lint multiplier Estimated Lint Yield + Cottonseed Yield = (Lint Yield times 1) + (Lint Yield times 1.4) = Seed Cotton Payment Yield (Lint Yield times 2.4)

19 Establishing the Payment Yield Optional Yield Update At the sole discretion of the owner of a farm with a yield for upland cotton, the owner of the farm shall have a 1-time opportunity to update the payment yield for upland cotton for the farm as specified in the 2014 Farm Bill. Update to 90% of the simple average yield per planted acre of the Upland cotton planted during the time period Substitute yields (75% of county average yield per planted acre) available to replace low or undocumented yields Years when NO cotton was planted excluded from the average

20 Establishing the Payment Yield Payment Yield For seed cotton for a farm shall be equal to 2.4 times the Counter-cyclical payment yield for upland cotton for the farm established under the Food, Conservation, and Energy Act of 2008 CC Yield Factor x x x x x x x Seed Cotton Payment Yield = = = = = = = ,080 1,200 1,320 1,440

21 Seed Cotton: MYA Price Calculation Effective Price The effective price for seed cotton shall be equal to the marketing year average price for seed cotton, calculated using USDA data for price and production. Lint and cottonseed prices are weighted based on annual share of production. Seed Cotton MYA Price Calculation The marketing year average price for seed cotton for a crop year shall be equal to: (Value Of Cotton Lint Production + Value Of Cottonseed Production) divided by Total Pounds Of Seed Cotton Production

22 Seed Cotton: MYA Price Calculation 2017/2018 Seed Cotton MYA Price (the Effective Price) (based on USDA Feb estimates): U.S. Upland Cotton Lint MYA Price ($/lb) = $0.690 U.S. Upland Cotton Lint Production (lbs) = 9,873,600,000 lbs (20,570,000 bales X 480 lbs/bale) = $0.075 (or $150/ton) = 13,450,000,000 lbs (6,725,000 tons X 2,000 lbs/ton) = 23,323,600,000 lbs U.S. Cottonseed MYA Price ($/lb) U.S. Cottonseed Production (lbs) Total U.S. Seed Cotton Production (lbs) Formula: (Value Of Cotton Lint Production + Value Of Cottonseed Production) divided by Total Pounds Of Seed Cotton Production

23 Seed Cotton: MYA Price Calculation 2017/2018 Seed Cotton MYA Price (the Effective Price) (based on USDA Feb estimates): Formula: (Value Of Cotton Lint Production + Value Of Cottonseed Production) divided by Total Pounds Of Seed Cotton Production MYA Seed Cotton Price ($/lb) = ( (9,873,600,000 * $0.690) + (13,450,000,000 * $0.075) ) divided by ( 23,323,600,000 ) MYA Seed Cotton Price ($/lb) = ($6,812,784,000 + $1,008,750,000) 23,323,600,000 = $7,821,534,000 23,323,600,000 = $ per lb

24 Seed Cotton: Payment Rate Seed Cotton (SC) Payment Rate Calculation (SC Reference Price) minus (Higher of SCMYA Price or SC Loan Rate) SC Reference Price MYA Seed Cotton Price SC Payment Rate $0.367 per lb $ per lb $ per lb MAXIMUM Seed Cotton Payment Rate SC SC Maximum Reference Price Loan Rate = SC Payment Rate $0.367 per lb $0.25 per lb = $0.117 per lb

25 Seed Cotton: PLC Payment Formula Seed Cotton (SC) PLC Payment Calculation (SC Payment Yield) X (SC Payment Rate) X (SC Base Acres) X 0.85 SC Payment Yield 1,200 lb SC Payment Rate X $ per lb SC Base Acres X 100 acres X 0.85 $3, SC Payment per Base Acre = $32.33 per Base Acre

26 Seed Cotton: Payment Estimates $70 $60 $50 $/acre $40 $30 $20 $10 $0 Upland Cotton Program Payment Estimates based on 500 lb CCP Yield (Example Only)

27 Seed Cotton: PLC Payment/Base Acre (Example based on 2017/18 MYA estimates) Seed'Cotton'PLC'Payment'Rate'per'Base'Acre'Example Reference'Price $ Lint'Payment'Yield 500 Seed'Cotton'Pymt'Yield 1,200 Seed'Cotton'Floor $ Cottonseed'MYA'Price Lint%Price%($/lb) $140 $150 $160 $170 $180 $190 $200 $0.60 $0.61 $0.62 $0.63 $0.64 $0.65 $0.66 $0.67 $0.68 $0.69 $0.70 $0.71 $0.72 $0.73 $0.74 $0.75 $74 $70 $65 $61 $57 $53 $48 $44 $40 $35 $31 $27 $22 $18 $14 $9 $71 $67 $63 $58 $54 $50 $45 $41 $37 $32 $28 $24 $19 $15 $11 $6 $68 $64 $60 $55 $51 $47 $42 $38 $34 $29 $25 $21 $16 $12 $8 $3 $65 $61 $57 $52 $48 $44 $39 $35 $31 $26 $22 $18 $13 $9 $5 $1 $62 $58 $54 $49 $45 $41 $36 $32 $28 $23 $19 $15 $11 $6 $2 $0 $59 $55 $51 $46 $42 $38 $33 $29 $25 $21 $16 $12 $8 $3 $0 $0 $56 $52 $48 $44 $39 $35 $31 $26 $22 $18 $13 $9 $5 $0 $0 $0

28 Seed Cotton and STAX Limitation On Stacked Income Protection Plan Effective beginning with the 2019 crop year, a farm shall not be eligible for the Stacked Income Protection Plan for upland cotton for a crop year for which the farm is enrolled in coverage for seed cotton under (1) price loss coverage under section 1116 of the Agricultural Act of 2014; or (2) agriculture risk coverage under section 1117 of that Act. For 2018 only producers can be enrolled in PLC or ARC and ALSO PURCHASE a Stacked Income Protection Plan (STAX) policy of insurance on a farm.

29 Online decision aid available TAMU Agriculture and Food Policy Center The AFPC has created an updated base reallocation and payment yield update tool to assist producers interested in exploring the various options available to them during implementation of the Seed Cotton program. To access the seed cotton decision aid go to the following link:

30 Crop Insurance

31 Cottonseed Endorsement Price election set at $0.09 per pound ($180/ton) Continues to be an option that adds value to your underlying policy (YA, RA, STAX, etc ) Yield only coverage that triggers when your actual yield falls below the yield guarantee

32 Replanted Crop Definition Easily the most unfavorable change made for 2018 Was triggered by issues outside of cotton and Texas, but the fix for those changes that were implemented in June of 2017 had broad implications, far beyond the original issue that was being addressed. Once the impact of the changes came to light PCG went to work to identify how we could address the issue and limit impacts on producers. This has been the subject of multiple conversations between Plains Cotton Growers, USDA RMA staff and staff at the House Agriculture Committee.

33 Replanted Crop Definition Specifically, the new definition for Replanted Crop considers any failed crop acreage replanted to the same crop prior to the end of an established Late Planting Period, or within the period of time specified in the Special Provisions (which impacts cotton specifically), to be a replanted crop from which any production will be determined and used to calculate the indemnity. There is a considerable amount of confusion about how replanted crops will be handled in The good news for producers is that they will continue to have an opportunity to choose to replant cotton as an uninsured second crop. Beginning with the 2018 crop year, cotton producers who incur an insurable loss to their initially planted acreage and fail the acreage will be able to replant cotton as an uninsured, second crop no sooner than 15 days after the Final Plant Date.

34 Yield Cups Yield Exclusion/Trend Yield Adjusted APH s Beginning in 2018 yield cups, which prevent a producer s APH yield from declining more than 10 percent from one year to the next, will become optional. Growers will have to elect to have yield cups apply to their APH databases on or before applicable Sales Closing Dates to ensure they will continue to apply to their APH database. In addition to making the cups optional, RMA has also extended the applicability of the yield cup to APH databases that are participating in the Trend Adjusted Yield provision as well as the 2014 Farm Bill s Yield Exclusion option. Note that there will be a difference in the insurance cost for a database with Yield Cups compared to a database that has no Yield Cup in place due to the difference in the pounds of cotton insured as well as the manner in which RMA calculates the premium rate (basically the same that premium is calculated for YE and TA). The revised premium calculation replaces the previously imposed 5% Yield Cup surcharge.

35 Enterprise Units by Practice RMA announced a change to its implementation of the 2014 Farm Bill provision They have updated the Enterprise Unit by Practice guidelines to FINALLY allow a producer to establish an enterprise unit on one practice and maintain optional unit coverage on a different practice. This is good news for producers who need the flexibility to choose the most appropriate unit structure for each practice on their farm.

36 Quality Adjustment Provisions RMA released the new Upland Cotton Loss Adjustment Manual and changed the QA procedure from a 15 percent quality loss DEDUCTIBLE to a 10 percent quality loss TRIGGER that will allow the full amount of the quality loss to be captured by the producer. The new procedure will continue RMA s current practice of applying the resulting quality loss factor to the grower s total pounds of production and therefore REDUCE the amount of Production To Count that will subsequently be reported on the grower s final production report for APH purposes. Next phase of this discussion will be to attempt to change RMA s policy of reducing the yield for APH purposes when making this value-based adjustment for quality.

37 Conservation Compliance RMA has also shifted the deadline for receiving revised AD1026 Conservation Compliance forms from June 1 to the premium billing date. Will allow additional time for these forms to be submitted to the USDA Farm Service Agency and transmitted to RMA and reduce the potential for loss of premium subsidy benefits.

38 Questions? Plains Cotton Growers, Inc West Loop 289 Lubbock, Texas Telephone: (806)