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Cotton prices high, government support low

By Brad Haire
University of Georgia

The U.S. government will send little to no price-support help to cotton farmers this year. But cotton farmers don’t mind. They don’t need any help this year.

Averaging around 70 cents per pound, cotton prices are the highest they’ve been since 1997, said Don Shurley, a cotton economist with the University of Georgia Extension Service.

Important but volatile

World cotton prices can be volatile. But cotton is important to Georgia and other producer states, adding billions of dollars a year to their economies. That’s why the government steps in from time to time when prices swing low, Shurley said, to help cotton growers stay in business.

Cotton and many other crops have price-support programs funded through the U.S. farm bill. Many complicated formulas determine if and when and how much money the government will send to cotton farmers.

Essentially, when world cotton prices fall below 65 cents, farmers get government payments that help ease the price shock. When cotton prices are high, as they are this year, growers get no help.

Farmers don’t have to think back too far to remember low cotton prices.

Low

In 2001, an oversupply of cotton in the world plunged average cotton prices to a dismal 31 cents per pound, Shurley said. In 2002, prices rebounded only slightly to average 45 cents per pound.

Due to low prices and poor yields brought on by drought, the 2002 Georgia cotton crop, on its own, was worth only about $338 million, Shurley said.

Through programs called loan-deficiency and counter-cyclical payments, though, Georgia farmers got another $202 million in government price support. This made the 2002 crop worth about $540 million.

High

The 2003 Georgia cotton crop is expected to be worth about $722 million on its own.

“This year, because prices are much better,” Shurley said, “government spending will be greatly reduced.”

Cotton money, he said, filters from farmers’ hands into the rural economies where the crop is grown.

Economists figure that for every cotton dollar spent by a farmer for such things as equipment, chemicals, loan payments and land, three more dollars are generated throughout the economy.

The 2003 Georgia cotton crop is on pace to generate about $2.1 billion in economic activity in Georgia.

“This year’s cotton crop will definitely be a boost for Georgia’s economy and the local, rural economies where cotton is grown,” Shurley said.

Cotton prices are up because demand is as strong as ever and supplies are shorter. They have remained high and stable in the past month because China, a major cotton-producing country, had a bad crop and is buying more than expected this year.(Brad Haire is the former news editor with the University of Georgia College of Agricultural and Environmental Sciences.)

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