Subsidies for Cotton Farming

Prior to the 2014 Farm Bill, the two largest components of aid were direct payments and countercyclical payments. Direct payments were calculated based on the farm's base acreage, which reflects the historical area planted to soybeans and an average yield. This meant that farmer payments stayed the same under this program even after they had reallocated their plantings. Between 2008 and 2012, cotton growers were eligible for payments of $0.0667 per pound on approximately 85.0% of their land. Counter-cyclical payments are made to farmers whenever the price of cotton (including the direct payments) falls below a predetermined value.

Under the 2014 Farm Bill, direct and countercyclical payments for cotton production were eliminated. Cotton is now eligible for the Stacked Income Protection Plan (STX) offered by the USDA’s Risk Management Agency. STAX provides coverage for up to 20% of the expected area revenue, and coverage can be chosen in increments of 5%, 10%, 15% or 20%. Payments kick in when covered area revenue falls below 90% of its expected level, but farmers have the option to select a lower loss trigger. Loss payments reach their maximum when area revenue falls to 70% of its expected level.

In the 2014 Farm Bill, cotton was removed as a covered commodity. Since then, congress and lobbyists have been advocating to reintroduce cotton as a covered commodity. The Bipartisan Budget Act of 2018 now includes cotton seed as an eligible covered commodity in order to provide risk management support to cotton producers. Farmers can now opt for Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC). Under the 2018 Farm Bill, farmers are required to select between one of these two new programs. Under the Price Loss Coverage program (PLC), farmers receive payments if the average US price falls below a certain reference point. Under the Agricultural Risk Coverage program (ARC), payments are determined by county and kick in when actual crop revenue is below a guarantee for a crop year.

For instance, ARC and PLC are authorized from 2013 to 2023. Producers can make a new election to obtain ARC or PLC for the 2019 crop year, which also applies to the 2020 crop year. Producers can change elections annually during the 2021 through 2023 crop years. In addition, owners can update the farm’s PLC payment yield as of the 2020 crop year. In addition, in July 2019 the USDA authorized up to $12.0 billion in financial assistance as part of a trade aid package for certain agricultural goods producers, including soybeans.

More recently, the 2018 Farm Bill was passed resulting in some modifications. For instance, ARC and PLC are authorized from 2013 to 2023. Producers can make a new election to obtain ARC or PLC for the 2019 crop year, which also applies to the 2020 crop year. Producers can change elections annually during the 2021 through 2023 crop years. In addition, owners can update the farm’s PLC payment yield as of the 2020 crop year. Over the five years to 2025, subsidies for cotton farming is expected to have increased 12.05%.