The conference call & webinar will begin at the top of the hour 2018 Seed Cotton Program Information Conference Call & Webinar Hosted by National Cotton Council The conference call & webinar will begin at the top of the hour Please type your questions in the Chat box Questions will be answered at the end of the presentation The conference line will be in listen-only mode until time for Q&A Audio will only be available on the conference line

2018 Seed Cotton Program Information Information based on NCC’s review of the legislative language. Final details are subject to change based on USDA’s interpretation of language and implementation.

Seed Cotton Program Seed Cotton is designated as a covered commodity eligible for Title I Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC) programs in the 2014 Farm Bill beginning with the 2018 crop Seed Cotton refers to unginned upland cotton that includes both lint and cottonseed The Reference Price is set at $0.367 per lb The Price Floor is at $0.250 per lb

Seed Cotton Marketing Year Avg (MYA) Price Seed Cotton MYA Price - weighted average of the upland cotton lint price and the cottonseed price = (U.S. Upland Cotton Lint Production * U.S. Upland Cotton Lint MYA Price + U.S. Cottonseed Production * U.S. Cottonseed MYA Price) / (U.S. Upland Cotton Lint Production + U.S. Cottonseed Production) Lint and cottonseed prices are weighted based on annual shares of production The MYA Price is not final until the end of the marketing year (Aug. 1 – July 31) USDA publishes monthly estimates throughout the marketing year

2017/18 Seed Cotton MYA Price Example U.S. Upland Cotton Lint MYA Price ($/lb) = $0.690 U.S. Cottonseed MYA Price ($/lb) = $0.075 (or $150/ton) U.S. Upland Cotton Lint Production (lbs) = 20,570,000 bales * 480 lbs/bale = 9,873,600,000 lbs U.S. Cottonseed Production (lbs) = 6,725,000 tons * 2,000 lbs/ton = 13,450,000,000 lbs Total U.S. Cotton Lint and Cottonseed Production (lbs) = 9,873,600,000 + 13,450,000,000 = 23,323,600,000 lbs

2017/18 Seed Cotton MYA Price Example Seed Cotton MYA Price ($/lb) = (9,873,600,000 * $0.690) + (13,450,000,000 * $0.075) 9,873,600,000 + 13,450,000,000 23,323,600,000 = 9,873,600,000 * $0.690 + 13,450,000,000 * $0.075 23,323,600,000 23,323,600,000 = (0.4233 * $0.690) + (0.5767 * $0.075) = $0.3353

Seed Cotton Prices $ per Pound

Illustration of Seed Cotton Marketing Year Average Price per Pound   Cottonseed MYA Price ($/Ton) Lint MYA Price ($/Lb) $140 $150 $160 $170 $180 $190 $200 $210 $220 $230 $240 $250 $260 $0.51 $0.256 $0.259 $0.262 $0.265 $0.268 $0.271 $0.274 $0.276 $0.279 $0.282 $0.285 $0.288 $0.291 $0.53 $0.270 $0.273 $0.294 $0.296 $0.299 $0.55 $0.290 $0.293 $0.302 $0.305 $0.308 $0.57 $0.287 $0.310 $0.313 $0.316 $0.59 $0.307 $0.319 $0.322 $0.325 $0.61 $0.301 $0.304 $0.327 $0.330 $0.333 $0.63 $0.321 $0.324 $0.336 $0.339 $0.342 $0.65 $0.318 $0.341 $0.344 $0.347 $0.350 $0.67 $0.338 $0.353 $0.356 $0.359 $0.69 $0.332 $0.335 $0.358 $0.361 $0.364 $0.367 $0.71 $0.352 $0.355 $0.370 $0.373 $0.376 $0.73 $0.349 $0.372 $0.375 $0.378 $0.381 $0.384 $0.75 $0.366 $0.369 $0.387 $0.390 $0.392 $0.77 $0.386 $0.389 $0.395 $0.398 $0.401

Seed Cotton Payment Yield Seed Cotton Yield = Lint yield + Cottonseed yield = 2.4 * Lint Yield Since cottonseed yield is determined as 1.4 * lint yield, consistent with approach in crop insurance Upland Cotton Lint Payment Yield = Higher of CCP lint yield or updated lint yield One-time opportunity to update the payment yield for upland cotton based on 90% of the average of 2008-2012 actual yields, not counting years in which cotton was not grown

Seed Cotton Payment Yield Example Cotton Lint Yield (lbs/acre) = 800 Pounds of Cottonseed (lbs/acre) = 1.4 * 800 = 1,120 Seed Cotton Payment Yield (lbs/acre) = 800 + 1,120 = 1,920 or = 2.4 * 800

Seed Cotton PLC Payment Rate Payment is made when the Reference Price exceeds the higher of the MYA Price and the Price Floor Seed Cotton PLC Payment Rate ($/lb) = Reference Price – the higher of (MYA Price, Price Floor) Seed Cotton Payment Rate = $0 if Seed Cotton MYA Price is greater than $0.367

Seed Cotton PLC Payment Paid on 85% of the farm’s decoupled seed cotton base Seed Cotton PLC Payment ($/base acre) = PLC Payment Rate * Payment Yield * 0.85

Seed Cotton PLC Payment Example 2017/18 Seed Cotton MYA Price = $0.3353 Seed Cotton PLC Payment Rate ($/lb) = $0.367 – higher of ($0.3353, $0.250) = $0.0317 Seed Cotton Maximum PLC Payment ($/base acre) = ($0.367 - $0.250) * 1,920 * 0.85 = $190.94 Seed Cotton PLC Payment ($/base acre) = $0.0317 * 1,920 * 0.85 = $51.73

Seed Cotton ARC-CO Program The ARC-CO program provides revenue loss coverage at the county level ARC-CO payments are issued when the actual county seed cotton revenue is less than the ARC-CO guarantee

Seed Cotton ARC Program ARC-CO Guarantee = 86% * Benchmark Revenue Benchmark Revenue = U.S. Benchmark Seed Cotton MYA Price * Benchmark Seed Cotton Yield Benchmark Seed Cotton MYA Price = average of the previous 5 years Seed Cotton MYA price, excluding the years with the highest and lowest price (Olympic Average) If the MYA price in any of the 5 years is < reference price, the reference price is substituted for the MYA price

Seed Cotton ARC Program Benchmark Seed Cotton Yield = average of the previous 5 years county Seed Cotton Yield, excluding the years with the highest and lowest yield (Olympic Average) If the county yield in any of the 5 years is < 70% of the county T yield, 70% of the county T yield is substituted

Seed Cotton ARC Program Actual Revenue = U.S. Seed Cotton MYA Price * Seed Cotton Yield Maximum ARC-CO Payment = 10% * Benchmark Revenue Revenue Shortfall = ARC-CO Guarantee – Actual Revenue ARC-CO Payment per Base Acre = minimum of (maximum ARC-CO Payment, Revenue Shortfall) * 0.85

ARC-CO Example Calculation Marketing Year Seed Cotton MYA Price ($/lb) County Seed Cotton Yield (lbs/acre) 2012/13 $0.3727 2,280 2013/14 $0.3933 1,920 2014/15 $0.3161 $0.3670 1,680 2015/16 $0.3254 $0.3670 2,160 2016/17 $0.3456 $0.3670 2,040 2012-16 Olympic Average $0.3689 2017/18 $0.3353 Benchmark Revenue ($/acre) = $0.3689 * 2,040 = $752.57 ARC-CO Guarantee ($/acre) = $752.57 * 0.86 = $647.21

ARC-CO Example Calculation Actual Revenue ($/acre) = $0.3353 * 1,920 = $643.87 Maximum ARC-CO Payment ($/acre) = 0.10 * $752.57 = $75.26 Revenue Shortfall ($/acre) = $647.21 – $643.87 = $3.34 ARC-CO Payment ($/base acre) = minimum of ($75.26, $3.34) * 0.85 = $2.84

Seed Cotton Base Acres Established through the conversion of generic base acres Generic base acres are not in effect beginning with the 2018 crop For any farms with generic base and no covered commodities (including seed cotton) planted from 2009 through 2016, those generic base acres will become unassigned crop base and ineligible for PLC/ARC

Seed Cotton Base Acres For all other farms with generic base, producers shall choose one of the following options to convert generic base acres to seed cotton and other covered commodity base acres: Option 1: Seed cotton base equals higher of 2009–12 average seed cotton plantings or 80% of generic base, not to exceed total generic base any unconverted generic base becomes unassigned crop base and ineligible for PLC/ARC   Option 2: All generic base converted proportionally based on 2009–12 average plantings of seed cotton and other covered commodities

Seed Cotton Base Acreage Example - 1 Total Generic Base: 500 acres 2009-12 average planted acres: Cotton: 300 acres Corn: 200 acres Peanuts: Soybeans: 100 acres Total Covered Commodities: 800 acres

Seed Cotton Base Acreage Example - 1 Option 1: Seed cotton base equals the higher of: 2009-12 average planted cotton acres = 300 80% * 500 generic base acres = 400 Seed Cotton Base: Unassigned Base: = 100

Seed Cotton Base Acreage Example - 1 Option 2: Allocate 500 acres of generic base to the following crops: Planted and Considered Planted (P&CP) 2009-12 Average P&CP Allocation Percentage Allocated Base Acres Crop 2009 2010 2011 2012 Cotton 300 250 350 300/800 = 0.375 0.375 * 500 = 187.5 Corn 100 200 200/800 = 0.250 0.250 * 500 = 125.0 Peanuts Soybeans 150 100/800 = 0.125 0.125 * 500 = 62.5 Total 800 1.00 500

Seed Cotton Base Acreage Example - 2 Total Generic Base: 500 acres 2009-12 average planted acres: Cotton: 200 acres Corn: 300 acres Soybeans: Total Covered Commodities: 800 acres

Seed Cotton Base Acreage Example - 2 Option 1: Seed cotton base equals the higher of: 2009-12 average planted cotton acres = 200 80% * 500 generic base acres = 400 Seed Cotton Base: Unassigned Base: = 100 or Option 2: Allocate 500 acres of generic base to the following crops: Seed Cotton: 500 * (200/800) = 125.0 Corn: 500 * (300/800) = 187.5 Soybeans: = 187.5 Total Allocated Base Acres: = 500.0

Seed Cotton Base Acreage Example - 3 Total Generic Base: 500 acres 2009-12 average planted acres: Cotton: Wheat: 200 acres Sorghum: 100 acres Total Covered Commodities: 800 acres

Seed Cotton Base Acreage Example - 3 Option 1: Seed cotton base equals the higher of: 2009-12 average planted cotton acres = 500 80% * 500 generic base acres = 400 Seed Cotton Base: Unassigned Base: = 0 or Option 2: Allocate 500 acres of generic base to the following crops: Seed Cotton: 500 * (500/800) = 312.5 Wheat: 500 * (200/800) = 125.0 Sorghum: 500 * (100/800) = 62.5 Total Allocated Base Acres: = 500.0

Seed Cotton Base Acreage Example - 4 Total Generic Base: 500 acres 2009-12 average planted acres: Cotton: 450 acres Corn: 150 acres Wheat: 200 acres Total Covered Commodities: 800 acres

Seed Cotton Base Acreage Example - 4 Option 1: Seed cotton base equals the higher of: 2009-12 average planted cotton acres = 450 80% * 500 generic base acres = 400 Seed Cotton Base: Unassigned Base: = 50 or Option 2: Allocate 500 acres of generic base to the following crops: Seed Cotton: 500 * (450/800) = 281.25 Corn: 500 * (150/800) = 93.75 Wheat: 500 * (200/800) = 125.00 Total Allocated Base Acres: = 500.00

Seed Cotton Base Acreage Example - 5 Total Generic Base: 500 acres 2009-12 average planted acres: Cotton: 600 acres Corn: 200 acres Total Covered Commodities: 800 acres

Seed Cotton Base Acreage Example - 5 Option 1: Seed cotton base equals the higher of: 2009-12 average planted cotton acres = 600 80% * 500 generic base acres = 400 Seed Cotton Base: = 500 Unassigned Base: = 0 **Seed cotton base cannot be greater than generic base** or Option 2: Allocate 500 acres of generic base to the following crops: Seed Cotton: 500 * (600/800) = 375 Corn: 500 * (200/800) = 125 Total Allocated Base Acres:

Seed Cotton Base Acreage Example - 6 Total Generic Base: 500 acres 2009-12 average planted acres: Cotton: 100 acres Corn: Alfalfa (non-covered crop): 600 acres Total Covered Commodities: 200 acres

Seed Cotton Base Acreage Example - 6 Option 1: Seed cotton base equals the higher of: 2009-12 average planted cotton acres = 100 80% * 500 generic base acres = 400 Seed Cotton Base: Unassigned Base: or Option 2: Allocate 500 acres of generic base to the following crops: Seed Cotton: 500 * (100/200) = 250 Corn: Total Allocated Base Acres: = 500

500 Illustration of Seed Cotton PLC Payment per Base Acre Reference Price $0.367   Lint Pymt Yield 500 Seed Cotton Pymt Yield 1,200 Seed Cotton Floor $0.25 Cottonseed MYA Price ($/Ton) Lint MYA Price ($/Lb) $140 $150 $160 $170 $180 $190 $200 $210 $220 $230 $240 $250 $260 $0.51 $113 $110 $107 $104 $101 $98 $95 $92 $89 $86 $84 $81 $78 $0.53 $96 $93 $90 $87 $75 $72 $69 $0.55 $66 $63 $60 $0.57 $64 $61 $58 $55 $52 $0.59 $73 $70 $67 $49 $46 $43 $0.61 $40 $37 $34 $0.63 $44 $41 $38 $35 $32 $29 $26 $0.65 $53 $50 $47 $23 $20 $17 $0.67 $14 $12 $9 $0.69 $21 $18 $15 $6 $3 $0 $0.71 $27 $24 $0.73 $0.75 $1 $0.77

600 Illustration of Seed Cotton PLC Payment per Base Acre Reference Price $0.367   Lint Pymt Yield 600 Seed Cotton Pymt Yield 1,440 Seed Cotton Floor $0.25 Cottonseed MYA Price ($/Ton) Lint MYA Price ($/Lb) $140 $150 $160 $170 $180 $190 $200 $210 $220 $230 $240 $250 $260 $0.51 $136 $132 $128 $125 $121 $118 $114 $111 $107 $104 $100 $97 $93 $0.53 $122 $115 $108 $90 $86 $83 $0.55 $101 $94 $87 $80 $76 $72 $0.57 $73 $69 $66 $62 $0.59 $91 $84 $59 $55 $52 $0.61 $77 $70 $63 $56 $48 $45 $41 $0.63 $49 $42 $38 $35 $31 $0.65 $28 $24 $21 $0.67 $53 $46 $39 $17 $14 $10 $0.69 $32 $25 $18 $11 $7 $3 $0 $0.71 $4 $0.73 $22 $15 $0.75 $8 $1 $0.77

700 Illustration of Seed Cotton PLC Payment per Base Acre Reference Price $0.367   Lint Pymt Yield 700 Seed Cotton Pymt Yield 1,680 Seed Cotton Floor $0.25 Cottonseed MYA Price ($/Ton) Lint MYA Price ($/Lb) $140 $150 $160 $170 $180 $190 $200 $210 $220 $230 $240 $250 $260 $0.51 $158 $154 $146 $142 $138 $133 $129 $125 $121 $117 $113 $109 $0.53 $134 $130 $105 $101 $97 $0.55 $126 $122 $93 $89 $85 $0.57 $118 $114 $110 $81 $77 $72 $0.59 $106 $102 $73 $69 $64 $60 $0.61 $98 $94 $65 $61 $57 $52 $48 $0.63 $86 $53 $49 $44 $40 $36 $0.65 $74 $45 $41 $32 $28 $24 $0.67 $37 $33 $20 $16 $12 $0.69 $29 $25 $21 $8 $4 $0 $0.71 $17 $13 $0.73 $9 $5 $0.75 $1 $0.77

800 $52 Illustration of Seed Cotton PLC Payment per Base Acre Reference Price $0.367   Lint Pymt Yield 800 Seed Cotton Pymt Yield 1,920 Seed Cotton Floor $0.25 Cottonseed MYA Price ($/Ton) Lint MYA Price ($/Lb) $140 $150 $160 $170 $180 $190 $200 $210 $220 $230 $240 $250 $260 $0.51 $181 $176 $171 $167 $162 $157 $153 $148 $143 $138 $134 $129 $124 $0.53 $158 $139 $125 $120 $115 $110 $0.55 $144 $130 $111 $106 $101 $97 $0.57 $135 $116 $102 $92 $88 $83 $0.59 $121 $107 $93 $78 $74 $69 $0.61 $112 $98 $79 $65 $60 $55 $0.63 $84 $70 $51 $46 $41 $0.65 $75 $56 $42 $37 $32 $28 $0.67 $66 $61 $47 $33 $23 $18 $14 $0.69 $52 $38 $19 $9 $5 $0 $0.71 $43 $24 $10 $0.73 $29 $15 $1 $0.75 $6 $0.77

900 Illustration of Seed Cotton PLC Payment per Base Acre Reference Price $0.367   Lint Pymt Yield 900 Seed Cotton Pymt Yield 2,160 Seed Cotton Floor $0.25 Cottonseed MYA Price ($/Ton) Lint MYA Price ($/Lb) $140 $150 $160 $170 $180 $190 $200 $210 $220 $230 $240 $250 $260 $0.51 $203 $198 $193 $187 $182 $177 $172 $166 $161 $156 $145 $0.53 $188 $167 $151 $135 $130 $124 $0.55 $162 $146 $125 $119 $114 $109 $0.57 $157 $141 $136 $120 $104 $98 $93 $0.59 $131 $115 $99 $94 $88 $83 $78 $0.61 $126 $110 $89 $73 $67 $62 $0.63 $105 $84 $68 $57 $52 $47 $0.65 $95 $79 $63 $42 $36 $31 $0.67 $74 $58 $53 $37 $26 $21 $15 $0.69 $48 $32 $16 $11 $5 $0 $0.71 $43 $27 $6 $0.73 $22 $1 $0.75 $17 $12 $0.77

1,000 $65 Illustration of Seed Cotton PLC Payment per Base Acre Reference Price $0.367   Lint Pymt Yield 1,000 Seed Cotton Pymt Yield 2,400 Seed Cotton Floor $0.25 Cottonseed MYA Price ($/Ton) Lint MYA Price ($/Lb) $140 $150 $160 $170 $180 $190 $200 $210 $220 $230 $240 $250 $260 $0.51 $226 $214 $208 $202 $197 $191 $185 $179 $173 $167 $161 $155 $0.53 $209 $203 $162 $156 $144 $138 $0.55 $186 $174 $168 $133 $127 $121 $0.57 $151 $145 $139 $115 $109 $104 $0.59 $157 $122 $116 $110 $98 $92 $86 $0.61 $134 $128 $93 $87 $81 $75 $69 $0.63 $111 $105 $99 $63 $58 $52 $0.65 $82 $76 $70 $64 $46 $40 $34 $0.67 $88 $47 $41 $35 $29 $23 $17 $0.69 $65 $59 $53 $18 $12 $6 $0 $0.71 $36 $30 $24 $0.73 $7 $1 $0.75 $19 $13 $0.77

1,200 $78 Illustration of Seed Cotton PLC Payment per Base Acre Reference Price $0.367   Lint Pymt Yield 1,200 Seed Cotton Pymt Yield 2,880 Seed Cotton Floor $0.25 Cottonseed MYA Price ($/Ton) Lint MYA Price ($/Lb) $140 $150 $160 $170 $180 $190 $200 $210 $220 $230 $240 $250 $260 $0.51 $271 $264 $257 $243 $236 $229 $222 $215 $208 $201 $193 $186 $0.53 $194 $187 $173 $166 $0.55 $223 $216 $159 $152 $145 $0.57 $209 $202 $195 $188 $181 $174 $167 $138 $131 $124 $0.59 $153 $146 $139 $132 $125 $118 $111 $104 $0.61 $97 $90 $83 $0.63 $147 $133 $126 $119 $76 $69 $62 $0.65 $112 $105 $98 $91 $84 $77 $70 $63 $55 $48 $41 $0.67 $56 $49 $42 $35 $28 $21 $0.69 $85 $78 $14 $7 $0 $0.71 $64 $57 $50 $43 $36 $29 $22 $0.73 $15 $8 $1 $0.75 $0.77 $2

1,500 $97 Illustration of Seed Cotton PLC Payment per Base Acre Reference Price $0.367   Lint Pymt Yield 1,500 Seed Cotton Pymt Yield 3,600 Seed Cotton Floor $0.25 Cottonseed MYA Price ($/Ton) Lint MYA Price ($/Lb) $140 $150 $160 $170 $180 $190 $200 $210 $220 $230 $240 $250 $260 $0.51 $339 $330 $321 $312 $304 $295 $286 $277 $268 $259 $251 $242 $233 $0.53 $313 $287 $278 $269 $234 $225 $216 $207 $0.55 $261 $252 $243 $208 $199 $181 $0.57 $244 $235 $226 $217 $191 $182 $173 $164 $155 $0.59 $218 $209 $174 $165 $156 $147 $138 $129 $0.61 $201 $192 $183 $148 $139 $130 $121 $112 $103 $0.63 $175 $166 $157 $131 $122 $113 $104 $95 $86 $78 $0.65 $158 $149 $105 $96 $87 $69 $60 $52 $0.67 $132 $123 $114 $88 $79 $70 $61 $43 $35 $26 $0.69 $106 $97 $62 $53 $44 $18 $9 $0 $0.71 $80 $71 $45 $36 $27 $0.73 $54 $19 $10 $1 $0.75 $28 $2 $0.77

Other Details For the 2018 crop, the STAX insurance product MAY be purchased for acres of upland cotton planted on a farm enrolled in the seed cotton PLC/ARC program STAX must be purchased prior to the sales closing date Restrictions apply in subsequent crop years   The non-recourse marketing assistance loan for upland cotton lint remains unchanged in the 2014 Farm Bill with an upland cotton loan rate of $0.52/lb for the 2018 crop PLC/ARC payments for seed cotton are subject to the payment limit of $125,000 applicable to covered commodities (other than peanuts)

Producer/Landowner Decisions Landowners Update payment yields (if updated yield > CCP yield) Choose between base update options Producers Choose PLC or ARC Producers will make a PLC/ARC Election for the 2018 crop year on each farm with seed cotton base If all producers on a farm fail to make a unanimous election for PLC/ARC, the farm will be assumed to choose PLC for seed cotton

Next Steps Gather similar information used during implementation of ‘14 farm bill Yield records from 2008-12 Planting history from 2009-12 At the appropriate time, check with your local FSA office for additional information FSA has not announced a sign-up date Stay informed – check www.cotton.org for updated information

Thank you for participating in the webinar & your support of the National Cotton Council Questions?