For over advances on 2000 crop

Calcot's 1,725 members in California and Arizona will get only two years to repay more than $30 million into their cooperative for over advances on the 2000 crop.

The bills will go in the mail after Sept. 1 and are expected to range from about $20 per bale to more than $70 per bale. The lower figure will apply to cotton in the cooperative's seasonal pools where the repayment will amount to five to seven cents per pound. The final settlement for the 2000 crop will be announced at the cooperative's annual luncheon meeting in Visalia, Calif., Sept. 25.

About a third of the cooperative's cotton is in call pools where growers set market level prices they want, and some producers there may have to repay more than $70 per bale. However, there are producers in the call pool who will receive a positive final settlement because they did a better job of marketing and managing their risks than the cooperative's management for the seasonal pool.

The two-year repayment plan was a compromise reached with the cooperative's two lenders, Robobank and CoBank. Calcot wanted five to seven years for growers to repay in these tough economic time farmers, using primarily retains. The banks. however, reportedly wanted repayment in a year.

Calcot advanced upland seasonal pool growers in California and Arizona 56 to 63 cents per pound, but final settlement will be less than that following an unprecedented 32-cent crop in cotton prices since January.

Calcot recovers

The market has made some gains since the repayment announcement was made, and Calcot has recovered ground, thanks to a healthy loan deficiency payments on Arizona cotton and Step 2 payments, but there is not enough time left in the marketing year to overcome the total over advance deficit.

Growers must repay any over-advance money in full by Sept. 20, 2003. The money will come from;

  • The 4 cents per bale retains from the 1995-96 crop, which were to be returned to growers this year.

  • If a producer delivered Pima in 2002 and is in an over-advance situation, the 5-cent progress payment will be applied to the grower's account receivable.

  • Many growers had cotton in both the seasonal and call pools and any positive call pool final settlement will be applied to the grower's account receivable.

  • Two cents of any advance for the 2001-02 crop to be delivered this fall will be withheld and applied to any over advance to the point that 50 percent of the total overpayment is retired. Any advances above that level will be paid to the grower.

  • If after all these withholdings there remains an overpayment balance, an additional amount will be withheld from progress payments on this year's crop to meet the 50 percent repayment level by Sept. 30, 2002.

  • The 1996-97 retains will be applied to the account receivable next year.

  • The current agreement with the banks is for enough of the 2002-03 crop advance to retire the balance of a grower's over advance account, which must zero out by Sept. 30, 2003.

Advances for the 2001-02 crop will be set in August, but Calcot is saying it's a safe bet that they won't be higher than the loan levels of from 53 to 54.60 cents for uplands and 82.05 to 80.45 for California and Arizona Pimas.

Shock waves

The news of Calcot's financial woes has sent shock waves through its membership, which has seen only one other over advance repayment in the cooperative's 74-year history.

“Obviously, we would prefer to not be in this situation, and especially during this exceptionally difficult financial crisis that is decimating American agriculture, but it has happened and it must be resolved,” said Calcot president Tom W. Smith in a letter to growers outlining the repayment procedures.

Obviously there are grower members don't want to deliver cotton to the cooperative this year to avoid repayment withholding, but the cooperative's management said growers can only sign out of the cooperative from Feb. 1 through Feb. 15. However, they are not allowed to sign out if they owe Calcot money.

With the low price of cotton going into this season, many producers opted out of cotton. Retains will be used to offset some of their over advance, but that likely will not be enough to pay off the debt and growers must pay 50 percent of any over advance by Sept. 30, 2002.

Growers will be charged interest on any outstanding balances. It will be Calcot's cost of borrowing, approximately 5 percent. Interest starts on Oct. 1 on any remaining balances.

One of the criticisms leveled at Calcot management is that it did not position member cotton in the market as prices fell. As soon as the over advance became apparent, the directors ordered a new risk management policy to preclude this happening again.

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