Federal Cotton Program — Upland Cotton & Extra-Long Staple

Cotton has a unique and politically charged place in U.S. farm policy. The United States is the world's third-largest cotton producer and the largest exporter, growing roughly 15 million bales annually on about 10 million acres, primarily in the Cotton Belt stretching from the Carolinas through Georgia, Alabama, Mississippi, and the Mississippi Delta into Texas (the largest producing state), Oklahoma, Arizona, and California. Federal cotton support operates through marketing assistance loans (loan rate of $0.55 per pound for upland cotton), Stacked Income Protection Plan (STAX) crop insurance, and special provisions including import quotas and a monthly economic adjustment assistance program for domestic cotton users. Notably, upland cotton was removed from Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC) eligibility after the 2014 Farm Bill following a World Trade Organization dispute (Brazil's challenge to U.S. cotton subsidies), making cotton the only major commodity excluded from the standard Farm Bill safety net. Instead, cotton growers rely on an enhanced crop insurance program and marketing loans as their primary federal support.

Current Law (2026)

Legal Authority

• 7 U.S.C. § 9037 — Special marketing loan provisions for upland cotton (establishes two types of import quotas that activate when U.S. prices exceed world prices, plus monthly cash assistance for domestic cotton users to keep U.S. cotton competitive with imports)
• 7 U.S.C. § 9031 — Marketing assistance loans (nonrecourse loans available to cotton growers for 2014–2031 crop years)
• 7 U.S.C. § 9032 — Loan rates (sets the upland cotton loan rate at $0.55/lb and extra-long staple at $1.00/lb)
• 7 U.S.C. § 1508b — Stacked Income Protection Plan (STAX) (area-based, revenue-loss crop insurance product specifically for upland cotton, with premium subsidies up to 80%)
• 7 U.S.C. § 1444 — Cotton price support levels (historical authority for cotton price supports — largely superseded by current marketing loan and insurance framework)

How It Works

Cotton's unusual position in the Farm Bill traces to a 2004 WTO ruling in which Brazil successfully challenged U.S. cotton subsidies — including direct payments, counter-cyclical payments, and marketing loan provisions — as illegal trade-distorting subsidies. The U.S. initially settled by paying Brazil $147 million per year but ultimately responded in the 2014 Farm Bill by removing upland cotton from PLC and ARC eligibility, taking it out of the standard commodity safety net to reduce the trade-distorting subsidy that triggered the violation. The 2018 Farm Bill partially restored direct payments by making seed cotton (the combined value of cotton lint and cottonseed) eligible for PLC at a reference price of $0.42 per pound — a creative workaround providing some safety-net coverage while arguably complying with WTO obligations by defining the covered commodity differently, with PLC payments triggering when the marketing year average price falls below the reference price. Marketing assistance loans remain cotton's primary price-floor mechanism: growers pledge harvested cotton as collateral through the Commodity Credit Corporation for 9-month USDA loans at $0.55/lb for upland cotton; if prices fall below the loan rate, growers can repay at the Adjusted World Price (pocketing the difference as a marketing loan gain) or receive loan deficiency payments without taking the loan at all.

STAX crop insurance was created specifically for upland cotton as a replacement for the PLC/ARC coverage other commodities receive. STAX is an area-based, revenue-loss product covering losses in the 10–30% deductible range — the gap between individual crop insurance and area-wide revenue shortfall — with federal premium subsidies of up to 80%, though uptake has been lower than expected as many growers prefer individual crop insurance products. Special marketing provisions under § 9037 help keep U.S. cotton competitive in world markets through special import quotas (activating when U.S. prices exceed world prices to allow raw cotton to enter duty-free for domestic mills) and economic adjustment assistance payments to domestic cotton users equal to the U.S.-world price difference. Cotton is an export crop — the U.S. exports roughly 75% of its production, making it the world's largest cotton exporter — so prices are set by world markets and U.S. policy must continually balance domestic farm support against WTO trade obligations. Texas alone produces about 40% of U.S. cotton, and the industry has consolidated dramatically around expensive mechanical harvesting and gin infrastructure that favors large operations.

How It Affects You

State Variations

Implementing Regulations

• 7 CFR Part 1427 — Cotton (51 sections across 4 subparts — CCC's operational rules for cotton Marketing Assistance Loans, Loan Deficiency Payments, recourse seed cotton loans, warehouse standards, and ELS cotton competitive payments):

  • Subpart A — Nonrecourse Cotton MAL and LDP (22 sections): covers 2014 and later upland and ELS cotton crops; loan collateral must be stored in a CCC-approved warehouse (contact the Kansas City Commodity Office for approvals) unless the producer accepts alternative terms (§ 1427.10); loans must be evidenced by electronic warehouse receipts showing gin bale number, warehouse receipt number, and CCC-acceptable title (§ 1427.11); all liens on collateral must be cleared before loan disbursement — lien waivers must fully protect CCC (§ 1427.12); a nonrefundable loan service fee is deducted from loan proceeds at disbursement (§ 1427.13); banks and other assignees (creditors who lent money to the producer) may receive MAL or LDP proceeds directly from CCC when the producer authorizes FSA county office to pay the assignee (§ 1427.15); CCC may insure or reinsure cotton in which it holds an interest; producers who misrepresent collateral, move cotton without written CCC permission, or defraud the loan must repay in full plus costs and lose future program eligibility (§ 1427.18)
  • Subpart D — Recourse Seed Cotton Loans (14 sections): separate loan type for seed cotton (cotton with seed still in it, before ginning) — these are recourse loans (CCC can pursue the borrower for any deficiency) rather than nonrecourse; intended for producers who need immediate operating cash before ginning season
  • Subpart E — Warehouse Standards (8 sections): warehouses that want CCC approval to store cotton must pass inspection, maintain a surety bond from a Treasury-approved surety with local presence, and sign a storage agreement; US Warehouse Act-licensed facilities are exempt from the bond and inspection requirements if already federally licensed; non-federally-licensed warehouses pay an annual contract fee on renewal of their Cotton Storage Agreement (§ 1427.1088)
  • Subpart G — Extra Long Staple (ELS) Competitiveness Payments (7 sections): when the U.S. average price of ELS cotton is non-competitive in world markets, CCC pays ELS cotton producers a competitiveness payment to bridge the gap — calculated as the difference between the U.S. loan rate and the world price for comparable fiber quality

• 7 CFR Part 61 — Cottonseed Sold for Crushing — Inspection, Testing, and Grading: implements the Agricultural Marketing Act of 1946 for cottonseed quality determination; the grade of cottonseed determines its oil yield value, making accurate grading essential to fair pricing between cotton gins and crushing mills. Key provisions:

  • § 61.101 — Grade calculation method: licensed chemists must analyze cottonseed samples to determine the grade by multiplying a quantity index by a quality index, then dividing by 100; the resulting grade number is the standard for pricing cottonseed in commercial transactions
  • § 61.102 — Quantity index: calculated from the cottonseed's oil and ammonia percentages; for upland cottonseed, the index equals four times the percent of oil plus six times the percent of ammonia (protein proxy) — reflecting the two primary value components extracted in crushing: oil for food and industrial uses, and meal (protein) for livestock feed
  • § 61.103 — Quality index and scoring: a cottonseed sample scores 100 (perfect quality) when it has no more than 1.0% foreign matter, no more than 12.0% moisture, and no more than 1.8% free fatty acids (indicating freshness); each parameter that exceeds the threshold reduces the quality index, lowering the overall grade and the price paid by the crushing mill
  • § 61.104 — Approved sampling and testing methods: sample taking, preparation, and grading must follow methods approved by the USDA Director; approved methods ensure that samples are representative and that laboratory results are reproducible — critical to preventing disputes between producers and mills over disputed grade determinations
  • § 61.25 — Licensing to sample cottonseed: persons who want to take official cottonseed samples for grading must hold a USDA license; applicants must apply in English on official forms, and the license is practice-specific to cottonseed sampling
  • § 61.27 — License terms: licenses run for five years from August 1 through July 31 of the fifth year; renewals follow the same August-to-July schedule; the five-year term reduces administrative burden while ensuring periodic requalification
  • § 61.2a — Criminal penalties: willful violations of the cottonseed grading rules — including falsifying samples or grade certificates — carry criminal penalties under 7 U.S.C. § 1623; the threat of criminal liability deters manipulation of grading results in transactions worth hundreds or thousands of dollars per lot

  Cottonseed inspection under Part 61 addresses an asymmetric information problem in the cotton ginning industry: the cotton gin sells cottonseed by the ton, but the crushing mill needs to know how much oil it will actually yield before setting a price. Standardized grading — quantity index for oil/protein content, quality index for contamination and freshness — converts the variable biological content of each batch into a comparable number, enabling transparent pricing and reducing disputes. The grade directly affects the seed's oil-equivalent value and is the primary determinant of the price paid by vegetable oil crushers, animal feed mills, and cottonseed handlers.

Pending Legislation

No standalone cotton program reform bills have been introduced in the 119th Congress. Cotton policy is addressed through the Farm Bill — see Farm Bill Commodity Programs.

Recent Developments

The 2018 Farm Bill's addition of seed cotton to PLC restored some direct payment protection for cotton growers. Cotton industry groups continue to advocate for a higher seed cotton reference price in the next Farm Bill. U.S. cotton exports have been affected by trade tensions with China (historically the largest buyer of U.S. cotton), though other markets (Vietnam, Bangladesh, Turkey, Pakistan) have grown. See Food & Agriculture Tariffs and Trade Remedies & Tariff Law for how these trade tools shape cotton market access. The Uyghur Forced Labor Prevention Act (2021) banned imports of cotton from China's Xinjiang region, indirectly benefiting U.S. cotton competitiveness. Sustainability and traceability have become major industry themes, with the U.S. Cotton Trust Protocol establishing a system to verify environmental and labor practices.