Evaluation of the Loss of Direct Payments On the Financing and Profitability of Cotton Farms of the Texas High Plains

Currently all Farm Bill proposals being considered contain provisions to eliminate direct and counter-cyclical payments, replacing them with some type of shallow loss payment system to supplement federal crop insurance.  Where direct payments were a known receivable at the beginning of each financing cycle, the new safety net payments that may or may not be forthcoming each year are not.  Most agricultural lenders in the Texas High Plains follow the practice of limiting the beginning amount of annual farm operating loans to no more than the FCIC insurance guarantee plus direct payments.  This study looks at the farm-level impact of the loss of direct payments and the need to replace those guaranteed payments with a higher level of FCIC insurance coverage. The FARM Assistance program was used to evaluate a Texas High Plains model farm representing the typical cotton production system.  Changes in farm level net income for the Texas High Plains was used as an input to the socioeconomic model, IMPLAN, to measure regional economic impacts.  This estimated the “ripple effects” of the loss of direct payments to economic sectors tied directly and indirectly to the spending of producer income.  Economic indicators used to measure the impact included changes in industry output, value added, and employment.