2. Subsidies for cotton farming July 2022
Key Statistics Estimated value in 2023: $3.00 million
2018-2023 Compound Growth: -59.13%
Forecast value in 2028: $492.00 million
2023-2028 Compound Growth: 177.31%
Current Performance Prior to the 2014 Farm Bill, the two largest components of aid were direct payments and countercyclical
payments. Direct payments were calculated based on the farm's base acreage, which reflects the
historical area planted to soybeans and an average yield. This meant that farmer payments stayed the
same under this program even after they had reallocated their plantings. Between 2008 and 2012, cotton
growers were eligible for payments of $0.0667 per pound on approximately 85.0% of their land. Counter-
cyclical payments are made to farmers whenever the price of cotton (including the direct payments) falls
below a predetermined value.
Under the 2014 Farm Bill, direct and countercyclical payments for cotton production were eliminated.
Cotton is now eligible for the Stacked Income Protection Plan (STX) offered by the USDA's Risk
Management Agency. STAX provides coverage for up to 20% of the expected area revenue, and coverage
can be chosen in increments of 5%, 10%, 15% or 20%. Payments kick in when covered area revenue falls
below 90% of its expected level, but farmers have the option to select a lower loss trigger. Loss payments
reach their maximum when area revenue falls to 70% of its expected level.
In the 2014 Farm Bill, cotton was removed as a covered commodity. Since then, congress and lobbyists
have been advocating to reintroduce cotton as a covered commodity. The Bipartisan Budget Act of 2018
now includes cotton seed as an eligible covered commodity in order to provide risk management support
to cotton producers. Farmers can now opt for Price Loss Coverage (PLC) and Agricultural Risk Coverage
(ARC). Under the 2018 Farm Bill, farmers are required to select between one of these two new programs.
Under the Price Loss Coverage program (PLC), farmers receive payments if the average US price falls
below a certain reference point. Under the Agricultural Risk Coverage program (ARC), payments are
determined by county and kick in when actual crop revenue is below a guarantee for a crop year.
For instance, ARC and PLC are authorized from 2013 to 2023. Producers can make a new election to
obtain ARC or PLC for the 2019 crop year, which also applies to the 2020 crop year. Producers can
change elections annually during the 2021 through 2023 crop years. In addition, owners can update the
farm's PLC payment yield as of the 2020 crop year. In addition, in July 2019 the USDA authorized up to
$12.0 billion in financial assistance as part of a trade aid package for certain agricultural goods
producers, including soybeans. Overall, subsidies for soybean farmers is expected to increase at an
annualized rate of 3.4% over the five years to 2022.
More recently, the 2018 Farm Bill was passed resulting in some modifications. For instance, ARC and PLC
are authorized from 2013 to 2023. Producers can make a new election to obtain ARC or PLC for the 2019
crop year, which also applies to the 2020 crop year. Producers can change elections annually during the
2021 through 2023 crop years. In addition, owners can update the farm's PLC payment yield as of the
2020 crop year.
The crop agriculture sector is heavily supported by the government, with a multitude of programs aimed
at providing farmers with some level of income stability in a business plagued with unpredictability. This
report includes outlays provided for wheat, sorghum, barley and oats. The majority of subsidies extended
to growers are regulated under the farm bill, an overarching piece of agricultural legislation passed about
every five years. The 2018 Farm Bill was passed in December 2018. The data for this report, including
forecasts, are sourced from the Farm Service Agency (FSA), a part of the US Department of Agriculture
(USDA). All figures reflect the net outlays for each fiscal year in nominal dollars.
Outlook Outlays are projected to fluctuate and increase during the outlook period. However, these projections are
susceptible to an oversupply in the market or natural disasters, either of which would necessitate larger
payouts from the government.
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