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MARKETING LOAN IMPACTS - RICE AND COTTON

Authors
Disciplines
  • Agricultural Science
  • Communication
  • Design
  • Political Science

Abstract

MARKETING LOAN IMPACTS-RICE AND COTTON Carl G. Anderson and Mechel Paggi Texas A&M University The 1985 Food Security Act is designed to make agricultural com- modities more competitive in the world market. This is to be accom- plished by lowering the loan rate level, reducing its effectiveness as a price floor, and/or providing payment-in-kind (PIK) certificates. The rice and cotton programs' objectives are to protect farm income and to lower carryover stocks to workable levels through the use of mar- keting loans and a competitive price. New Program Concepts Changes in the farm bill have implications on market prices, the amount of government payments to farmers, and effectiveness of the loan rate in establishing a market price floor. The loan rate was effective in setting a price floor in previous farm programs. During the 1980s this floor price, along with a strong dollar, pushed U.S. crop price levels above those of the world and stocks increased signifi- cantly. To lower the loan rate, however, would make the $50,000 pay- ment limit increasingly restrictive and discourage program participation. The rice marketing loan program was implemented as of April 15, 1986, for the 1985 crop as well as the new crop. Although the cotton program was announced in early 1986, it did not become effective until August 1 for the 1986 crop. A marketing loan program was authorized to bypass the payment limit and allow U.S. commodities to compete in international markets. Because the cotton marketing loan was announced well in advance of implementation, it created an unusual market situation. This caused some sales to be delayed until after August 1. Less than 2 million bales were exported in the 1985- 86 marketing year as buyers waited for a price drop that turned out to be 40 cents per pound. 47 1986 Rice Program The general provisions of the 1986 rice program are summarized in Table 1. Table 1. Comparison of 1985 and 1986 Rice Program Provisions Program Provision 1985 1986 Target Price ($/

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