Cotton’s Marketing Loan Program

The cornerstone of the U.S. cotton program has been the successful operation of the non-recourse marketing loan, which has made cotton competitive, at home and abroad, spurred domestic mill consumption and aided exports.

Published: September 10, 2001
Updated: September 10, 2001

Non-Recourse Marketing Loan Central Component of U.S. Farm Policy

The cornerstone of the U.S. cotton program has been the successful operation of the non-recourse marketing loan that was implemented in 1985. That program has made cotton competitive, at home and abroad. It has spurred domestic mill consumption and aided exports.

Non-Recourse Loan Helps Producers Market Crop

A non-recourse loan program has been a central component of U.S. agricultural policy for well over 30 years and for good reason. Non-recourse loans allow producers to effectively market their products.

Producers receive a loan secured by the value of the commodity that enables them to meet their short-term obligations while lengthening their opportunities to price their commodity more favorably in the marketplace.

Elimination of the non-recourse loan hampers the ability of producers to market their product effectively.

Marketing Loan Makes U.S. Cotton Competitive

With the advent of the marketing loan program based upon world prices, the non-recourse loan has helped U.S. producers compete effectively domestically and in international markets.

It is self-evident that U.S. agricultural commodities must be competitive on world markets if the sector is to be economically viable. The United States exports over 33% of its agricultural production. U.S. agriculture must meet internationally subsidized competition.

The value of the marketing loan program to the U.S. industry is not predicated on the price of U.S. cotton, but on its price relative to cotton sold by other countries. Cotton export sales compete for market share with cotton produced in China, Uzbekistan, Pakistan, Turkey and others. It is against prices quoted by those countries that U.S. cotton must compete.

The U.S. textile industry must have access to market priced raw materials if it is to keep afloat in a super-competitive worldwide textile trading environment. One only has to check labels in a department store or in a clothing magazine to appreciate the level of market penetration by imported textiles--well over 50% of our entire domestic textile market.

Loss of Marketing Loan Would Reduce Effectiveness of Farm Programs

The cotton marketing loan program ensures competitive cotton prices. The 3-step competitiveness provisions work to keep U.S. cotton competitive not only in theory, but also in practice. U.S. prices are evaluated relative to other foreign growths of cotton. If U.S. prices are higher than world prices, the cotton program can be adjusted to offset the higher U.S. prices.

All of the components of this program work to ensure a competitive product for domestic mills and for export. Neither side of the equation is favored. Loss of the marketing loan would shift program costs and fail to achieve true program savings, but would drastically reduce the effectiveness of federal outlays in supporting capacity utilization. Program outlays would have to compensate for the cost of carrying stocks--a direct retrenchment to failed policies of the past.