	Cotton Production and Market Revenue

		Cotton Production

Nationally, according to the Census of Agriculture, there were 24,805 U.S. farms producing cotton in 2002. Domestic Use and Exports of U.S. Cotton

The United States is itself a large user of its own cotton. Efforts to boost economic growth inpoorer regions of the world have contributed to the import competition. U.S. Market Prices and Farm Cash Receipts

U.S. farm-level cotton prices are determined by world supply and demand conditions, which are substantially influenced by U.S. cotton production and U.S.demand for cotton textiles. Over the 13-year period from 1991 through 2003 shown in the graph, farm prices averaged $0.57/lb. Total cotton subsidy payments to farmers averaged $0.21/lb. The practical result of these farm subsidies is that they stabilize the revenue of cotton farmers. Therefore, the combinedannual average value of the market price and the farm subsidy was $0.78/lb., rangingfrom a low of $0.71 to a high of $0.86. However, data published by the International Cotton AdvisoryCommittee (ICAC) (6) indicate that it is one of thelargest. Subsidies per unit werelargest in Spain ($1.04/lb.) While, on average, variable cash costs weremore than covered by market prices, there was not enough to pay for the remainingfixed costs. (10) Also, U.S. costsmay be about double or more than costs in Brazil andsome of the African countries that compete with the United States in export markets. In comparison, annual variable cash costs of production averaged $0.50/lb.,and total economic costs averaged $0.78/lb. Brazil also argues that the "Step 2" provisions of the U.S. cotton program, as well as the favorable terms provided under U.S. export credit programs and theMarket Access Program (MAP), function as export subsidies and are inconsistentwith U.S.-WTO obligations regarding export subsidies. U.S. agricultural subsidies and import barriers in general and for cotton in particular have become a complicating factor in negotiating a Free Trade Area of theAmericas that would encompass 34 countries. U.S. Cotton Support Programs

		Price Support Programs

To stabilize and support farm incomes, in the face of highly variable prices caused by fluctuating world supply and demand conditions, major crops produced inthe United States, including cotton, have been subsidized since the 1930s. Counter-cyclical payments are similar, but not identical to target price deficiency payments that were made from 1973 through 1995. The difference is that target pricedeficiency payments were made on each farmer's actual production of cotton eachyear whereas farmers now need not produce cotton to receive cotton counter-cyclicalpayments. From 1991 through 2003, the federal cost of crop insurance annually has covered an average 10.9 million planted cotton acres. Crop Disaster Payments. Thisauthority to reduce the AWP is unique to cotton and creates the opportunity forincreased marketing loan program subsidies, even when the price of upland cottonis higher than the loan rate. Cost of U.S. Cotton Production, Crop Years1991-2003 Est.
While cotton, along with other major crops, has been subsidized by the U.S. federal government since the 1930s, cotton subsidies are now in the focus of an international spotlight. The nature andextent of these subsidies have become a roadblock in negotiating multilateral and bilateral tradeagreements. Sharp criticism came from the West and Central African countries during various DohaRound meetings. Also, efforts to create a Free Trade Area of the Americas (FAA) foundered at leastpartially over U.S. cotton subsidies. Now, Congress is watching to see if the United States will berequired by the World Trade Organization (WTO) to revise its cotton subsidies in response to adispute lodged by Brazil.
One reason the international spotlight is on U.S. cotton subsidies, in contrast to other subsidizing nations, is the sheer size of U.S. cotton production and exports. The United States is thesecond-largest producer of cotton in the world, and the largest exporter. Therefore, U.S. cottonsubsidies have global repercussions. Domestically, what happens to cotton subsidies is importantto a broad group of interests because grains, oilseeds, and peanuts receive similar support.
U.S. cotton production and export subsidies provide comprehensive support for producers. Farmers with a history of cotton production are eligible for direct and counter-cyclical payments. On their actual production, farmers may utilize the marketing loans and loan deficiency payments. Protection against low yields is available through subsidized crop insurance, and in some yearsCongress has approved additional disaster payments. When U.S. market prices rise, and there is arisk that competitors might capture more of the world export market and even deliver to U.S. yarnand fabric mills, so-called Step 2 user payments are made to U.S. exporters and mills if theypurchase U.S. cotton.
From 1991 through 2003 farm subsidies for cotton production have cost $1.76 billion per year, on average. This is the annual equivalent of $0.21/lb. of U.S. production. While the United Statesis not alone in subsidizing cotton, this level of support is nearly the highest in the world, accordingto the International Cotton Advisory Committee.
When the $0.21/lb. average crop year farm subsidy is added to the $0.57/lb. average market price, it has given producers an average revenue of $0.78/lb. from 1991 through 2003. This levelof revenue is more than enough to cover average variable cash costs of $0.50/lb., and just enoughto cover average total economic costs of $0.78/lb. According to the International Cotton AdvisoryCommittee, variable cash costs of some of the competing cotton exporting nations are about halfthose of the United States.
This report will not be updated.