What is in this article?:
- U.S. government actions hamper 2013 cotton marketing
- Will reduce cash-flow
• If cotton is placed under loan, the grower can either redeem/pay the loan plus interest and storage and sell the cotton or in addition to the loan amount receive an “equity payment” from a merchant/buyer and the merchant will continue to carry the cotton in storage and later repay the loan and charges.
Current U.S. government actions and inactions pose many questions to marketing the 2013 U.S. cotton crop.
Will reduce cash-flow
The Sequester reduction in the loan amount will reduce cash-flow, but it is expected that merchant equities (unless already fixed) will be raised to reflect the decrease in the loan amount. Thus, most growers including those in marketing association pools, are unlikely to see a reduction in total proceeds.
Government shutdown puts programs on hold
Also effective Oct. 1, many government agencies have been closed until further notice due to the lack of an agreement by Congress to continue funding. USDA functions including local offices and including administration of programs such as the loan have been discontinued until funding is restored.
During this time, commodities cannot be put in loan nor loans made. This disrupts cash-flow for growers who would otherwise place cotton in loan.
Marketing associations may, however, still be able to make their pool advance payments until the government is up and running again.
The longer the shutdown lasts, however, the bigger the problem will become and ripple effects felt. While loans cannot be made, some merchants/buyers have indicated a willingness to convert an equity contract to an equivalent cash sale to provide cash-flow for the grower and avoid storage charges.
Direct Payments are also on hold. Even once the government shutdown is over, the loan process will continue to be disrupted for a period of two weeks while FSA software is updated.
Many questions remain to help more fully clarify how all this works and what the impacts will be, but those questions will remain unanswered until FSA is back in service.
More from Southeast Farm Press