1. Farm Program Support Mechanisms 2004 Beltwide Cotton Conference San Antonio, TX January 5-9, 2004 2004 Beltwide Cotton Conference San Antonio, TX January 5-9, 2004

2. Farm Security and Rural Investment Act of 2002 Covers 2002-2007 crops Allows base/yield updating options Retains marketing loans with adjustments Makes direct payments similar to those under the ’96 Act Introduces counter-cyclical payments Covers 2002-2007 crops Allows base/yield updating options Retains marketing loans with adjustments Makes direct payments similar to those under the ’96 Act Introduces counter-cyclical payments

3. Marketing Loans Base loan rate set at 52 cents –As compared to maximum level of 51.92 cents under the ’96 Act Maximum term reduced from 10 months to 9 months Repayment at the higher of the loan rate plus interest and storage or the AWP Base loan rate set at 52 cents –As compared to maximum level of 51.92 cents under the ’96 Act Maximum term reduced from 10 months to 9 months Repayment at the higher of the loan rate plus interest and storage or the AWP

4. Direct Payments Set at 6.67 cents –Similar to the AMTA (or PFC) payments under the ’96 Act Paid on 85% of base acreage and program yields established under ’96 Act Set at 6.67 cents –Similar to the AMTA (or PFC) payments under the ’96 Act Paid on 85% of base acreage and program yields established under ’96 Act

5. Counter-cyclical Payments ’02 farm bill established target prices for upland cotton, grains, and oilseeds –Cotton target price set at 72.4 cents Target price is used to determine counter-cyclical payments (CCP) Paid on 85% of base acreage and new program yields, if updated. ’02 farm bill established target prices for upland cotton, grains, and oilseeds –Cotton target price set at 72.4 cents Target price is used to determine counter-cyclical payments (CCP) Paid on 85% of base acreage and new program yields, if updated.

6. Counter-cyclical Payments Target price - direct payment - greater of loan rate or MYA price

7. What is the MYA Price? Published by USDA’s NASS, the market year average (MYA) price reflects the average price received by farmers for the marketing year. (Cotton is Aug-Jul) Monthly farm prices are weighted by marketings to calculate the MYA price. Published by USDA’s NASS, the market year average (MYA) price reflects the average price received by farmers for the marketing year. (Cotton is Aug-Jul) Monthly farm prices are weighted by marketings to calculate the MYA price.

8. Cotton Monthly Farm Price vs. Nearby Futures

9. Cotton Gross Receipts (Cents/Lb)

10. 2004 Calendar of Payments JanFeb 2 nd Advanced CCP for ’03 Crop? MarApr MayJunJulAug SepOct Final CCP for ’03 Crop? Final DP for ’04 Crop. 1 st Advanced CCP for ’04 Crop? NovDec Advanced DP for ’05 Crop.

11. Understanding Farm Programs Farm bill is vital to the structure and stability of the US cotton production sector Further information in the afternoon workshop on –How the mechanisms work –How are prices determined and what do they mean –How do support mechanisms enter into marketing decisions Farm bill is vital to the structure and stability of the US cotton production sector Further information in the afternoon workshop on –How the mechanisms work –How are prices determined and what do they mean –How do support mechanisms enter into marketing decisions