Cotton farmers have rushed to a government loan support program for the first time in five years, according to US Department of Agriculture data, the latest sign that governments are helping to shoulder the burden of a huge price rout. The USDA has so far shelled out over $10.4 million for about 784,200 bales to farmers through loan deficiency payments, according to the agency's most recent unofficial tally, to compensate for depressed world prices.
The US government has not paid these so-called POP payments since 2009, the data show, suggesting some farmers don't expect a recovery in prices any time soon. Through the program, the US government pays the difference between a support price of 52 cents a lb and world prices, which now hover near 46 cents a lb.
This subsidy program works in tandem with another support that pays farmers a nine-month loan based on the minimum price that helps them with operating costs during the harvest when prices are seasonally low. Under that policy, farmers store the fiber in warehouses. The POP system offers an upfront payment to encourage farmers to sell their bales even before prices have recovered to maintain supplies in the market.
So far this season which started on August 1, farmers have placed 2.2 million bales, worth some $593.4 million in the loan program as crops have been harvested and ginned, the USDA data show. Earlier in the season, industry sources expected farmers to place bales into the loan en masse for the first time in years, as futures headed toward five-year lows due to worries over demand and big crops in India, the United States, and other key producers.
Michael Quinn, President and Chief Executive Officer of Carolinas Cotton Growers Co-operative, said his co-operative is using it for the first time in years. India's state-run procurement agency said it will boost purchases this year, as farmers struggle with weak demand. Pakistan's government last month announced it will buy about one million bales of cotton this year, the first time since 2005/06, the International Cotton Advisory Committee said this week. For US farmers, the loans will be much-needed relief from futures which are below production costs at under 60 cents per lb. "Every penny helps," Quinn said.