Thursday, December 25, 1997

The cotton loan program is a different game now

By J.T. SMITH / AR-N Farm Editor

The 7-year farm law, which governs the nation's farm policy through Year 2002, made some significant changes in the government's cotton loan program.

There is no longer an 8-month extension available after the traditional 10-month loan period has ended.

This change means that farmers who place cotton into the government loan have two choices. At the end of the 10-month loan they either:

-- Forfeit the cotton held in collateral by the USDA Commodity Credit Corportion; or

-- Repay the loan at the end of the 10-month period and get the cotton back.

Another change is that the USDA Farm Service Agency offices are no longer deducting the warehouse receiving charge and accrued storage charge -- up to the loan inception -- from the gross loan amount prior to issuing a check to the producer.

So this likely will show up later as a reduction in the amount of equity the cotton producer has left when he sells the crop.

If a producer decides to surrender the cotton to the CCC at the end of the 10-month laon period, the producer will be responsible for the receiving charges and any storage accrued before the cotton's entry into the CCC loan.

Tim Hall, executive director of the Taylor County FSA, Abilene, said producers would be billed by USDA for such warehouse charges.

An example of how it works

Hall said he gives a scenario for how the change might affect Farmer Jones.

Suppose Farmer Jones harvested his cotton in November of 1997 and let it stay in the warehouse until some time in February 1998 when he finally decided to put it in the government loan program.

"He can't sit on cotton in the warehouse for the three (prior) months and not expect to pay the storage for those months," Hall noted.

At the end of the 10-month CCC loan period, suppose that cotton prices were still depressed, and Farmer Jones decides to surrender his cotton into the CCC loan rather than redeem and sell it.

Some 13 months have passed -- the 10 months of the loan period and the prior three months. When Farmer Jones forfeits his cotton, the USDA office will pay for the storage charges of the 10 months, but not the receiving and storage charges of the first three months.

"It would be the farmer's responsibility for those three months," Hall notes.

The cotton producer could expect to be billed for those months.