ELS competitiveness program unchanged in new farm bill

The California cotton industry is desperate for good news, and it came in the 2008 farm bill where the successful Extra Long Staple (ELS) cotton export and domestic market competitiveness program emerged unchanged from the old program.

“For California, maintaining the ELS program in the new farm bill was critically important,” said Tom Teixeira of Dos Palos, Calif., one of two California representatives on American Cotton Producers. Teixeira made his observation at a meeting in his hometown hosted by the National Cotton Council.

The sparsely attended Dos Palos gathering was one of just six of the 45 Beltwide informational meetings — three in California and three in Arizona — hosted by the council because Far West cotton acreage, especially in California, is at an all-time low.

There are only 110,000 acres of Upland cotton in California this year, the lowest on record. Also, for the first time Arizona growers are producing more Upland than California, but there there are still only 140,000 acres of Upland in Arizona, a drop of 30,000 acres from last year.

For the second straight year Pima acreage exceeded Upland acreage in California. However, the 2008 175,000 acres of California Pima acreage is down 33 percent from last season.

Cotton acreage has tumbled from more than 2 million acres at one time in both states to less than 500,000 because other crops offer more income potential. Cotton acreage in California has also suffered from the drought with growers using water for permanent and higher value crops rather than cotton. Urban development has also taken a big bite out of cotton acreage in Arizona.

Continuation of the ELS program is good news because demand for American Pima continues to grow and the industry desperately needs San Joaquin Valley producers to grow high quality cotton to meet that demand. The ELS competitiveness program allows American Pima to compete in the world market where more than 90 percent of the U.S. crop is sold. American Pima is the No. 1 world exporter of ELS cotton.

California produces about 95 percent of the ELS cotton grown in the U.S. and that competitiveness program is a market safety net under the California ELS industry.

The competitiveness program allows U.S. Pima cotton growers to compete by making payments to domestic users and exporters of ELS cotton for using U.S. Pima when world market prices are below U.S. prices for competitive growth for a four-week period.

The ELS loan and competitiveness provisions are extended through the life of the farm bill until 2013.

Harrison Ashley, NCC executive vice president, detailed the basics of the 2008 farm bill at meetings in California. Fortunately, most of the major changes coming out of the new farm bill will not impact farmers until 2009.

Teixeira called the bill a “hybrid” with significant changes in the commodity programs, but bigger changes in the conservation titles. Typically, conservation sections have been directed more toward the Midwest. However, Teixeira said California growers should benefit from the $3.4 billion in funding for the Environmental Quality Incentive Plan (EQIP) since it allows the secretary to give priority to EQIP applications for water conservation and irrigation practices to reduce water use on existing farmland.

It allows funding of up to $450,000 for these projects.

Besides irrigation, EQIP funding is available to help growers implement practices to address federal, state and local regulatory requirements.

Water availability for farming and air quality are two of the biggest challenges facing California agriculture.

In two important ways, this year's federal farm program will be the same as last year. Producers won't need to file new farm operating plans unless they have had changes in operations that would affect their eligibility.

And adjusted gross income compliance certification of record will carry forward this year. The adjusted gross income limit remains at $2.5 million for this year; however, starting in 2009 producers won't be eligible for the program if their non-farm income exceeds $500,000 or their farm income is over $750,000. If farmers and ranchers are married, those figures would double, according to USDA.

While the Food, Conservation and Energy Act of 2008 eliminates the three-entity rule for farmers, it also makes it easier for a spouse to become eligible for payments. These changes could have a big impact on farmers, “especially when you talk about the sheer number of farmers who used the three-entity rule,” said Gary Adams, vice president, economics and policy analysis, National Cotton Council who spoke at an informational meeting in Memphis, Tenn.

New rules to allow spouses to become eligible for payments was an important trade-off growers won in the wake of the elimination of the three-entity rule, said Teixeira.

The farm bill will also include a means test for conservation programs. If an individual or entity earned an average of more than $1 million in adjusted non-farm income or more than $1 million in adjusted gross income (if less than 66.66 percent is from farming, ranching or forestry) that individual or entity is ineligible for conservation program payments for the year. This does not apply to easement programs.

Mike Farrish, a cotton merchant with Weil Brothers Cotton Co. in Memphis, said, “Under this new program, there is a whole lot more for the producer to be worried about. He has to understand the program to manage his farm operations.”

Adams said the means testing could impact rental agreements. “If farmers are in a share-rent situation with their landlord, they might need to be concerned if the landlord has a lot of non-farm income. The farmer may need to bring this to the attention of his landlord, to make sure that at the end of the day the landlord doesn't realize that he's not eligible.”

More highlights of the bill:

  • Covers the 2008-2012 crop, although many of the provisions will not start until 2009.

  • Maintains the same basic structure of the 2002 farm bill with the “three legged stool” combination of the marketing loan, countercyclical payments and direct payments.

  • Establishes economic assistance for the U.S. textile industry of 4 cents per pound for all Upland cotton consumed from Aug. 1, 2008, through July 31, 2012. Beginning Aug. 1, 2012, the rate is adjusted to 3 cents per pound. Proceeds must be invested in the textile plant.

  • Creates revenue-based ACRE program.

  • Most of the loan rates will be constant throughout the life of the farm bill: Cotton loan rate remains at 52 cents for base grade (41-4-34) for each year covered by the farm bill. ELS cotton remains at 79.77 cents. The corn loan rate is $1.95. In the last three years of the bill, the wheat loan rate will rise from $2.75 to $2.94.

  • For 2009-2011, the payment acres for direct payments will be reduced to 83.3 percent of base and restored to 85 percent of base for 2012.

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