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Colossal Headache; Cotton farmers sought bank aid in government shutdown

Colossal Headache; Cotton farmers sought bank aid in government shutdown

Despite Congress reaching an agreement this week to end the federal shutdown, the agricultural industry in Texas is still feeling its effects. The suspension of some $3 billion worth of federal loans due to the U.S. government shutdown forced some cotton farmers to turn to commercial banks for aid, boosting costs and further complicating the upcoming harvest in the world’s largest cotton exporter.

“It’s a colossal headache,” said Darren Hudson, an agricultural economics expert and the Larry Combest Endowed Chair of Agricultural Competitiveness at Texas Tech University. “They got hit upside the head with this shutdown, and have millions of dollars’ worth of capital they have to come up with to pay these farmers.”

The shutdown struck farmers at the start of the harvest, hampering their access to crucial government loans used to smooth out seasonal financial pressures through the harvest. The added cost of commercial loans is only the latest obstacle for U.S. cotton growers, who are bracing for a lower-quality crop that sprung late this year, increased competition from a bumper crop in India, the world’s No. 2 cotton producer, and a 5 percent sequester cut to federal loans.

Cotton cooperatives, responsible for financing half of the country’s fiber, use federal funds to pay farmer members for their cotton. Once they sell the fiber, the cooperative pays back the loan. In turn, the growers need to cash to finance the day-to-day running of their farms ahead of the harvest. The shutdown left cooperatives scrambling to find other financing, and forced them to turn to commercial banks to fund their entire operations, rather than supplement the loans.

The United States is set to produce an estimated 12.9 million 480-lb bales in the 2013/14 year that started on Aug. 1. Based on the December cotton price of about 83 cents per pound, that crop is worth about $5.2 billion.

Reporting by Marina Lopes

CONTACT: Darren Hudson, Director, Cotton Economics Research Institute, Texas Tech University, (806) 742-1921 ext. 272 or darren.hudson@ttu.edu

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Editor’s Note: For full text of the story, go to http://finance.yahoo.com/news/u-cotton-farmers-seek-bank-193839126.html

 

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