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Cotton subsidies may help growers finance their season

Annie Baxter Jun 8, 2016
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Cotton producers in the U.S. have had a rough time these past few years.
Scott Olson/Getty Images

Low prices and a global oversupply of cotton have been putting a lot of pressure on the nation’s cotton producers. This week, the U.S. Department of Agriculture said it would offer cotton growers $300 million in aid to help stabilize the industry.

“The market is certainly not where any of us would like it to be,” said Steve Verett, executive vice president of the Plains Cotton Growers in Lubbock, Texas, the nation’s leading cotton-producing state.

Verett said cotton producers have had a tough past few years for a number of reasons. He cited lower demand and reduced federal subsidies, stemming from a World Trade Organization dispute. Brazil had complained that U.S. subsidies were distorting global trade markets. The WTO agreed, and the U.S. revised its subsidy program for cotton farmers in the 2014 Farm Bill.  

More recently, China — which had been holding a lot of cotton stocks in reserve — has been releasing them into the global market, pushing prices down.

“The price of cotton is just not covering the cost of production,” Verett said.

The Department of Agriculture’s new aid program will offer producers one-time payments that are determined by their acreage last year and a portion of average ginning costs in their regions. Ginning is the process by which cotton lint is separated from cotton seed.

John Robinson, an agricultural economist at Texas A&M AgriLife Extension Service, said the aid will mostly help farmers finance their operations.

“A banker can pencil in an assured income line that will help make a loan and help make the whole system work,” he said.

The aid program caps payments at $40,000 per producer.

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