U.S. cotton farmers seek bank aid as government shutdown drags

Reuters

By Marina Lopes

NEW YORK, Oct 11 (Reuters) - Suspension of some $3 billionworth of federal loans due to the U.S. government shutdown hasforced cotton farmers to turn to commercial banks for aid,boosting their costs and further complicating the upcomingharvest in the world's largest cotton exporter.

The two-week shutdown struck farmers at the start of the2013/2014 harvest, hampering their access to crucial governmentloans used to smooth out seasonal financial pressures throughthe harvest, market participants said.

The added cost of commercial loans is only the latestobstacle for U.S. cotton growers, who are bracing for alower-quality crop that sprung late this year, increasedcompetition from a bumper crop in India, the world's No. 2cotton producer, and a 5 percent sequester cut to federal loans.

"It's a colossal headache," said Darren Hudson, anagricultural economics expert and the Larry Combest EndowedChair of Agricultural Competitiveness at Texas Tech University.

"They got hit upside the head with this shutdown and havemillions of dollars worth of capital they have to come up withto pay these farmers."

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

The farmer worries at the start of the shutdown almost twoweeks ago have hardened into serious challenges as the harvestbegins in earnest and politicians in Washington struggle tobreak a stalemate over the government's budget.

Cotton cooperatives, responsible for financing half of thecountry's fiber, use federal funds to pay farmer members fortheir cotton. Once they sell the fiber, the cooperative paysback the loan.

In turn, the growers need to cash to finance the day-to-dayrunning of their farms ahead of the harvest.

The shutdown has left cooperatives scrambling to find otherfinancing and forced them to turn to commercial banks to fundtheir entire operations, rather than supplement the loans.

"We've used government loans for cash flow for years," said Jeff Thompson, executive vice president for Autauga QualityCotton Association, a cotton co-operative in Alabama.

Since the shutdown, Thompson has tapped existing creditlines to replace the missing loans and ensure farmers get paidon time even though banks charge higher interest rates.

"It will simply be a cost of operating this year," he added.

Co-operatives polled by Reuters would not specify the termsof their bank loans, but they were more costly than the federalfunding which provides farmers with 52 cents per lb of cottonsold.

Faced with steeper interest rates from banks, somecooperatives must sell their cotton as quickly as possible.

This year, Thompson said the bank lending rates were nothigh enough to dent Autauga's operations.

But, if the shutdown drags on, some cooperatives may beforced to burn through their credit, causing fears that nextyear's terms might not be so favorable.

In the meantime, growers are watching the governmentshutdown with frustration, said Mike Quinn, president of theCarolinas Cotton Growers Cooperative.

He represents farmers in Virginia, Georgia, North and SouthCarolina.

"This year the cotton crop is later than normal and with theloan program being subject to sequestration, it's (yet) anotherthing that agricultural markets need to deal with," he said.

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