On December 20, 2018, the President of the United States signed the 2018 Farm Bill, continuing to implement the Price Loss Allowance (PLC) and Agricultural Risk Allowance (ARC) for seed cotton. These subsidy bills were enacted in February 2018 and will be implemented from the 2018/19 year.
The 2018 U.S. Farm Bill has made significant adjustments to cotton policy. The cotton support policy has changed from the previous insurance-based Mainly changed to guaranteed and higher-level security and subsidies based on reference prices, similar to the countercyclical subsidies in the 2008 Farm Bill. This change has increased the income of some upland cotton producers (who have cotton farms and continue to engage in upland cotton production). It is a support for seed cotton rather than lint cotton, and may increase the cotton planting area in the United States. However, this subsidy has nothing to do with the actual planting area and only relates to the long-term historical situation. In addition to ARC/PLC subsidies for seed cotton, the new farm bill also includes a marketplace loan program and crop insurance.
Price loss subsidy (PLC) is based on price and is similar to previous countercyclical subsidies. When the market price or annual average price of seed cotton is lower than the fixed reference price, producers will be provided with a price loss subsidy (accounting for 85% of the benchmark area). The annual average price of seed cotton is the weighted average price of upland cotton and cottonseed. The reference price of PLC is 36.7 cents/pound, and the lowest price is 25 cents/pound. For specific calculations, the historical average unit yield of lint cotton * 2.4 is used to obtain the seed cotton subsidy rate of return. This subsidy (PLC) is paid when the reference price is higher than the annual average price and the minimum price.
The Agricultural Insurance Subsidy (ARC) is a subsidy for loss of income in cotton-producing counties. Farms elect income loss protection at the county level by commodity classification. The subsidy is paid when the actual income of seed cotton at the county level is lower than the price guaranteed by the agricultural insurance subsidy. Commodity revenue is based on county revenue for each commodity, calculated using the county-level yield average over the past five years (excluding the highest and lowest prices) and national prices. Income subsidies are paid when county income is 76-86% lower than the benchmark county income, and the maximum subsidy cannot exceed 10% of the benchmark income.
There are currently no exact figures for price loss subsidies or agricultural insurance subsidies. In 2018/19, most of the seed cotton base area was included in the price loss subsidy, with the total subsidy = 630 pounds/acre (yield) * 2.4 (factor) and 1,317 acres (area). The maximum price loss subsidy or agricultural insurance subsidy is capped at US$125,000 (for crops other than peanuts), and the total adjusted income is US$900,000. The total price loss subsidy/agricultural insurance subsidy in 2018/19 is expected to be US$400 million. Dollar.
The STAX scheme, which provides insurance subsidies to upland cotton growers, remains in effect for 2018/19. Under the STAX program, subsidies are paid if a county’s actual revenue is less than 90 percent of expected revenue. STAX provides subsidies to growers with income losses of 10-30%, with the option of 5% incremental subsidies. The federal government pays 80% of the subsidy and subsidizes some of the administrative and operating costs of insurance companies offering STAX.
In 2017/18, the total subsidies provided by the STAX program were US$105 million. In 2018/19, the total subsidies provided by the STAX program were US$140 million, covering 1.6 million hectares. Reported area (38% of harvested area). A significant portion of the STAX subsidy is purchased in conjunction with standard crop insurance.
In 2018/19, the Market Lending Program (MLP) continues to be implemented. It is based on the average AWP price of two consecutive years, which cannot be lower than 45 cents/pound or higher. at 52 cents/lb. Beginning in 2019/20, the MLP base price for long-staple cotton is 95 cents/lb (previously 79.77 cents/lb). Under this scheme, upland cotton producers receive loan top-up subsidies, commodity certificate exchange proceeds or market loan proceeds (MLG). LDP is paid when the market price (AWP) is lower than the loan price. The commodity certificate exchange income and market loan income are the same as LDP. The income is obtained when the loan cotton is redeemed. Cotton farmers can only choose one of the three options. It is estimated that the United States did not pay any LDP subsidies or MLG subsidies in 2017/18 and 2018/19.
In addition, the U.S. government also provides crop insurance subsidies for cotton production to prevent crop yield decline and income loss caused by natural disasters. This multi-peril crop insurance covers yield losses due to weather, insect infestation and fire, but does not cover farmer negligence. This insurance is sold to cotton farmers through private insurance companies, and the U.S. Department of Agriculture’s Risk Administration provides partial subsidies for the premiums. More than 90% of the actual sown area is included in this subsidy.
The crop insurance program is very robust, with total premiums ultimately covering total claims, and underwriting profits and losses distributed between the company and the government according to a formula in the reinsurance agreement between the parties. In 2018/19, cotton insurance subsidies were $670 million (7.6 cents/lb), up from $561 million (5.6 cents/lb) in 2017/18.
Added all types of subsidies, including price loss subsidies, agricultural risk subsidies, crop insurance subsidies and STAX subsidies, the total U.S. cotton subsidies in 2018/19 was $1.2 billion ( 14 cents/lb), up from $890 million (9 cents/lb) in 2017/18.
</p
