Cotton Market Responses to 1985 Food Security Act, Dollar Devaluation and U.S. Weather Disturbances

Dean T. Chen and Carl G. Anderson


The strong economic performance of the U.S. cotton industry during the past four years has been widely acclaimed as attributable to the 1985 Food Security Act (FSA85). Some observers have suggested that the recent market strength was also due to such factors as the drought-induced production cutback, lower dollar exchange rates, and a substantial increase in government program payments. As the 1985 farm bill approaches its end, it is crucial to review and evaluate its structure and performance to provide insights for policy deliberations in the upcoming 1990 legislation. This study is a quantitative assessment of the 1985 cotton program's performance based upon computer simulation experiments of a large scale econometric model AGGIES/Cotton. Four major counterfactural scenarios were analyzed based upon assumptions of domestic price supports and dollar exchange rates at the 1985 levels, normal weather conditions and zero Conservation Reserve Program (CRP) acreage retirement. Most significant market impacts were found on the macroeconomic policy of dollar devaluation and the FSA85 target price and loan rate reduction. Drought and CRP acreage impacts were also very strong, but the weather effects were largely spotty showing an offsetting pattern in the simulation period.

Reprinted from 1990 Proceedings: Beltwide Cotton Production Research Conferences pp. 464 - 469
©National Cotton Council, Memphis TN

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Document last modified Sunday, Dec 6 1998