| Abstrakt: |
The Farm Security and Rural Investment Act of 2002 is considerably different and more complex than previous programs. The new farm bill provides combined payments that add up to a stated safety net target price of 72.4 cents per pound for upland cotton. The provisions, however, are segmented and designed to maintain market-oriented features of past programs. The target price is basically used in calculating other possible payments. Because most program payment components are affected by market price levels, producers will need to become skillful market observers and rely heavily on pricing and "hedging" strategies to enhance income. Producers have more marketing decisions to make than ever before. Program benefits are impacted substantially by market direction and price changes. When the average price received during the twelve-month marketing season rises above the 52-cent per pound base loan rate, counter-cyclical payments will be reduced and disappear if the price reaches 65.73 cents per pound. Also, cotton must be produced in order to realize a market price, a possible marketing loan benefit or, for base quality, a nonrecourse loan rate of 52 cents per pound. The key to increasing income includes a working understanding of the program provisions (for more details on farm program provisions see www.usda.gov/farmbill), as well as forces likely to drive prices higher or lower in the futures and cash markets. The next step is to use appropriate and cost-effective pricing strategies that minimize financial risk and maximize income. Not only protection against lower prices, but also to protect against lower government payments because of higher market prices. The producer needs to develop a marketing plan that includes "hedging" strategies, mostly using options, to offset expected price changes that reduce income or to benefit from sustained price rallies. That is, seek income from the market that will add to government program payments. [ABSTRACT FROM AUTHOR] |
