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USDA Announces 2021 Cotton Loan Rate Differential

The USDA announced the 2021 crop loan rate differentials for upland and extra-long staple cotton, which are applied to the crop loan rate to determine the per-bale actual loan rate. The differentials, also referred to as loan rate premiums and discounts, get calculated based on market valuations of various cotton quality factors over the prior three years. The 2021 crop differential schedules get applied to 2021 crop loan rates of 52 cents per pound for the base grade of upland cotton and 95 cents per pound for extra-long-staple cotton. The 2018 Farm Bill stipulates that the loan rate for the base quality of upland cotton ranges between 45 and 52 cents per pound based on the simple average of the Adjusted World Price for the two marketing years immediately preceding the current marketing year. But the loan rate cannot be less than 98 percent of the preceding year’s loan. The loan rate provided to an individual cotton bale is based on the quality of each bale as determined by the USDA’s Ag Marketing Service classing measurements. The differentials are important to cotton producers because they’re used to derive the actual loan rate for each bale of cotton, above (premium) or below (discount) the average per pound loan rate, depending on the grade or quality of the cotton.

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