A variety of oilseeds are grown in the U.S. and some are included as program crops in the 2014 farm bill. The most prominent oilseed is, of course, soybeans but the bill also includes a group known as “other oilseed.”
The term “other oilseed” is defined to include canola, crambe, flaxseed, mustard seed, rapeseed, safflower, sesame seed, and sunflower seed, as well as “any oilseed designated by the Secretary” (P.L. 113-79, sec. 1111(12)).
This article compares the various oilseeds included as program crops on several production and policy attributes. The objective is to put into perspective the on-going discussion about whether to designate cottonseed oil as a program crop.
Background: As part of the 2014 farm bill compromise that resolved Brazil’s successful case against the U.S. cotton program at the World Trade Organization (WTO), cotton is no longer designated as a program crop. Thus, cotton is not eligible for payments from the ARC (Agriculture Risk Coverage) or PLC (Price Loss Coverage) programs.
ARC and PLC payment however can be received if a program crop is planted on former upland cotton base and if that crop is due a payment. This is known as the “generic base” program. Many cotton producers are calling for additional assistance. One such call is a proposal to ask the Secretary of Agriculture to designate cottonseed, a co-product with cotton fiber, as an “other oilseed.”
Cottonseed oil is not a crop, but a byproduct of producing cotton fibers. Zulauf, et al. contains an extended discussion of the “other oilseed” program and the cottonseed oil proposal.
Data Sources: Crop program data, including prices, are from the U.S. Department of Agriculture (USDA), Farm Service Agency (FSA). Planted acres and production are from USDA, National Agricultural Statistics Service (NASS) and USDA, Office of the Chief Economist. These two sources do not report production data for sesame and crambe on an annual basis.
Planted Acres: During the 3 crop years under the 2014 farm bill (2014-16), soybeans accounted for 95% of the 87 million acres planted to the oilseed program crops in Figure 1. For comparison purposes, an average of 9.9 million acres was planted to cotton over the 2014-16 crop years.
Yield: For the 2014-16 crops, average yield of soybeans was at least 80% higher than the other crops in Figure 2. Rapeseed and canola had the next highest yields. Again for comparison purposes, the average yield of cottonseed oil was 982 pounds per acre planted to cotton.
Prices: Because of the important role price plays in U.S. commodity programs, the price of cottonseed oil is included in Figure 3’s presentation of oilseed prices. Four groups of prices emerge from examination of Figure 3. Cottonseed oil consistently has a markedly lower average crop year price.
Price of soybeans, canola, and flaxseed averaged closest to the price of cottonseed oil, but were still 50%-75% higher. Price of rapeseed, mustard, sesame, and crambe all averaged 250% or more than the price of cottonseed oil. Price of safflowers and sunflowers relative to cottonseed oil fell between these latter two groups.
To provide perspective on the relationship between market prices and policy prices, Figure 3 also contains the reference prices authorized by the 2014 farm bill for soybeans and the oilseeds listed in the “other oilseed” definition.
The reference price for “other oilseed” is the same for all designated “”other oilseed.” When expressed in the same units of 100 pounds (or hundredweight (cwt)), the reference price is 44% higher for “other oilseed” than for soybeans.
Base Acres: Payments are made on base acres. Among current oilseed program crops, soybeans account for 94% of their 58 million base acres (see Figure 4). The highest ratio of base acres to 2014-16 average planted acres occurs for sunflowers and canola at 99% and 85%, respectively. For the remaining oilseed program crops, the ratio ranges from 41% for mustard to 66% for soybeans.
Former upland cotton base, now called “generic base,” totals 17.6 million acres. This is 78% higher than the average acres planted to cotton during the 2014-16 crop years. If the Secretary of Agriculture adds an “other oilseed,” then farmers can elect to adjust base acres to include that crop, but the base acres of other program crops would need to be reduced.
A key issue for the cottonseed discussion is that former upland cotton base did not distinguish between cottonseed and cotton fiber. Moreover, as noted above, “generic base” acres under the 2014 farm bill can be planted to other program crops and receive payments for those crops.
FSA reports that 10.2 and 10.7 million acres of generic base was planted to program crops in 2014 and 2015, respectively. “Generic base” planted to corn, soybeans, and wheat averaged 2.0, 3.4, and 2.5 million, respectively.
In short, key questions within the cottonseed oil debate are what base acres should be assigned to cottonseed oil and what should happen to “generic base” acres.
Program Payments – 2014 and 2015: Payments of $1.25 billion have been made to soybeans and “other oilseeds” summed over the 2014 and 2015 crops. Soybeans’ share is 87%, with canola’s share at 11%. The highest payment per base acre across these two crop years is $92 by PLC for canola (see Figure 5). Flaxseed PLC is next at $34. ARC has paid around $20 per base acre to canola, soybeans, and sunflowers.
PLC has made payments for only 3 of the 9 oilseed program crops. PLC pays if crop year price is less than the reference price. Given the relationship between crop year price and reference price for the 2009-13 crops of the “other oilseeds,” it is not surprising that PLC has not made a payment for crambe, mustard, rapeseed, and sesame.
More surprising is that PLC was elected for 65%, 56%, 44%, and 84% of crambe, mustard, rapeseed, and sesame base acres, respectively.
Per acre payments vary less across the oilseed program crops for ARC than PLC. ARC is more likely to make payments because payments are triggered by declines in revenue relative to a benchmark for the last 5 crop years. Yield declines as well as price declines can trigger payments.
It is not surprising that ARC has made payments for all oilseed program crops, although per acre payment rounds to $0 for crambe and rapeseed. Per acre payment by ARC is also capped at 10% of its revenue benchmark.
In contrast, PLC payment per acre is capped by the difference between a crop’s reference price and loan rate. This cap is higher, often much higher, than 10%, implying that per acre payment can potentially be higher for PLC than for ARC. To illustrate, the PLC cap for “other oilseed” is 50% ($20.15 reference price vs. vs. a $10.09 loan rate).
- Soybeans dominate the U.S. oilseed market.
- A much higher yield is likely a key reason for soybean’s dominance.
- Prices vary widely across the oilseeds.
- Given the variation in price and that the reference price is the same for all “other oilseeds,” it is not surprising that payments by PLC vary markedly across the “other oilseeds.”
- The market oriented, revenue design of ARC suggests it is more likely to make consistent payments than PLC. Such has been the case for the 2014 and 2015 oilseed program crops.
- The price of cottonseed oil is much lower than the price of oilseeds currently designated as program crops.
- The large difference between the reference price for “other oilseed” and the price of cottonseed oil potentially means large payments per base acre of cottonseed if it is designated an “other oilseed.” Large payments in turn may raise questions under the WTO settlement of the Brazil cotton case.
- The preceding discussion prompts the question of whether the reference price should vary by “other oilseed” and potentially for cottonseed oil if it becomes a program crop.
- Prices for the three largest current oilseed program crops (soybeans, sunflowers, and canola) have generally been similar over time, however, the reference price for sunflowers and canola is 44% higher than the reference price for soybeans. This relationship is not necessarily a policy issue, but it is worth asking if the magnitude of this difference is worth discussing.
Reference and Data Source
U.S. Department of Agriculture, Farm Service Agency. “ARC/PLC Program” and “ARC/PLC Program Data,” January 2017. https://apps.fas.usda.gov/psdonline/
U.S. Department of Agriculture, National Agricultural Statistics Service. QuickStats. January 2017. http://quickstats.nass.usda.gov/
U.S. Department of Agriculture, Office of the Chief Economist. World Agricultural Supply and Demand Estimates. February 9, 2017. http://www.usda.gove/oce/commodity/wasde/index.htm
Zulauf, C., G. Schnitkey, J. Coppess, and N. Paulson. “Cottonseed and U.S. Oilseed Farm Program Issues.” farmdoc daily (6):18, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, January 28, 2016.