This “bonus” was taken for granted by US growers and factored into their budget so a reduction in equities will have a material impact. The price a grower gets for a bale will be nearly 10 percent less.
Uncle Sam has further reduced his generosity by capping the warehouse credits US growers get for cotton stored in the loan. Traditionally, the entire warehouse charge was paid for by the US government but now this is capped.
The result is that the grower will be up for some of the warehouse charge for the time that his cotton sits in the loan. With futures in their current state of depression, this charge will likely be quite material.
The result of vanishing equity payments as well this warehouse charge, coupled with a poor season in many parts of the US, may make some growers assess the profitability of growing cotton versus alternative crops.
The world's cotton growers need this. Spare a thought for some West African nations whose entire GDP is linked to the cotton price. Mali, for example, has 80 percent of the workforce tilling the land with cotton bringing the lion's share of export revenue.
Dave Brophy - Cotton Trader for ECOM Commodities Pty Ltd.
marketing@alchempro.com
