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International Price for Cotton Falls Below Threshold Triggering US Loan Repayments to Farmers

Cotton futures are at the lowest levels in nearly five years. Under the US farm program, USDA offers cotton growers nine-month loans at a rate of 52 cents per pound that are secured with the commodity. USDA said the adjusted world price — a proxy for the physical price of the fiber — for the week beginning Friday, was at 50.94 cents per pound. When the USDA’s world price falls below the loan rate, the government allows cotton farmers to pay back their loans at the world price rather than the higher price at which they took the loans. Farmers also have the option to forgo a loan and simply receive a payment that equals the amount by which the loan rate exceeds the USDA’s world price when they sell their cotton. Cotton growers currently have $24.3 million in outstanding federal loans, according to the latest data on the USDA’s website. That figure is expected to increase as the US harvest ramps up. USDA is reportedly discussing “creative ways” around the problem which could include “dealing with the Adjusted World Price,” a source informed.

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