As cotton harvest shifts into high gear across the South, several things have left those involved in the commodity scrambling for answers.
“This is kind of a perfect storm,” says Steve Verett, executive vice president of the Texas-based Plains Cotton Growers, Inc.
The first thing occurred late Monday afternoon on September 30, only hours prior to the government shutdown. The USDA’s Farm Service Agency announced they’d sequester all crop loan advances and, if applicable, loan deficiency payments (LDPs).
“They said that any commodity loan applications would be sequestered and reduced by 5.1 percent.
“At the same time, they announced they’d not be putting any commodities in loans until, at least, around October 15 or 16. The reason is when they were preparing to apply the sequester, they had to rewrite software to accommodate it.”
As the government is shut down, attempts by Farm Press to get answers from FSA offices on the announcements proved fruitless.
What isn’t clear to Verett is what would happen “if, assuming the government was still open, someone would want to redeem a commodity out of the loan. For instance, cotton producers in the Rio Grande Valley have almost completed harvest. If any of that cotton has gone into the loan, whether through a pool or whatever, the merchants may need to redeem that in order to sell it and ship it. Even if the government opens (before mid-October), it isn’t clear to me whether that would be allowed. Of course, that is kind of moot because the government did shut down.”
Now, everything is on hold.
“When the FSA offices do reopen, what happens? No one has been in developing and working with that software. It’s hard to believe that mid-October action won’t be pushed to a later date.”
Verett says the National Cotton Council and others have been pushing Congress on this. “As far as I know, this is unprecedented – loan proceeds have never been part of a sequester. These are loans, not direct payments and the like. These are loans and must be paid back.”
The situation has certainly created a lot of consternation, especially among the marketers. The merchandisers that operate pools and use the government loans for short-term financing are worried, says Verett.
“The cooperatives are trying to figure all this out. They’re looking at the possibility of commercial financing instead of government loans.”
Several things working in their favor: the cash price is well above the loan and, with current interest rates, the marketers can get private short-term financing and not face exorbitant interest rates.
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But there is a perception these are needless changes.
“Everyone is already set up to deal with marketing through help from the government. The process has worked well and it isn’t broken. Yet, now, they have to revamp all of it.”
That process takes time and money, says Verett. “But it can be done and, depending on how long the government is shut down, they may not have a choice. Cotton harvest is moving right along and there’s going to be a lot of cotton they’re going to have to deal with.”