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Analysis sheds light on 'other oilseed' designation for cottonseed

Analysis sheds light on 'other oilseed' designation for cottonseed
Economists project PLC payments for cottonseed could approach $1 billion per year if change is made.

A coalition of rural and urban Democrats and Republicans from across the country, inside and outside the Cotton Belt, are requesting that the secretary of agriculture use his authority under the farm bill to designate cottonseed an oilseed, allowing farmers who produce cottonseed to access the same risk management tools available under the farm bill to other oilseed farmers.

"Other oilseeds" are covered program commodities and eligible for the farm bill’s Average Risk Coverage (ARC) and Price Loss Coverage (PLC). They currently are: canola, crambe, flaxseed, mustard, rapeseed, safflower, sesame and sunflowers.

This large variation between different market prices and a common reference price implies payments by PLC will likely vary among the "other oilseeds."

This week, Secretary of Agriculture Tom Vilsack said the U.S. Department of Agriculture continues to evaluate the legal issues that surround whether the agency can make the change, examining the budget impact and what implications it could have on other trade relationships.

Some new light has been shed on the budget impact as four economists released an analysis that found that the price of cottonseed is well below the "other oilseed" reference price. “If the secretary adds cottonseed to 'other oilseeds,' and since the price of cottonseed is well below the ‘other oilseed’ reference price, PLC payments to cottonseed seem likely,” the authors wrote. PLC payments for cottonseed could approach $1 billion per year if made on current cotton (generic) base acres.

In the analysis from Ohio State University agricultural economist Carl Zulauf and University of Illinois economists Gary Schnitkey, Jonathan Coppess and Nick Paulson, the team questioned whether the “large potential cost of adding cottonseed to ‘other oilseeds’ raises issues of how to pay for it and what share should cotton bear? For example, should the generic base program be altered?”

The economists did state that adding cottonseed to "other oilseeds" may reduce the incentive to plant program crops other than cotton on generic base, “thus reducing government payments to other program crops and providing an offset for at least some of the cost of any cottonseed payments.”

The team noted, “It is not clear how other countries will respond if cottonseed is added to ‘other oilseeds,’ especially when spending by the U.S. on farm programs is increasing and already viewed as high by many countries. This concern likely grows the more spending on U.S. cotton increases above the 2014 farm bill baseline. A (World Trade Organization) case could target not just cotton but the PLC-generic acre program and perhaps even ARC, since the fixed reference price is part of its payment formula, and a producer with generic base can elect ARC."

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