Cotton Quality Premiums and Discounts: A Comparison of CCC Loan Schedules and Spot Market Quotations with Regional Aggregation

Dean T. Chen, Carl G. Anderson and Carl Shafer


This paper provides a comparative analysis of the CCC (Commodity Credit Corporation) loan schedule quality premiums and discounts (P/D's) and the spot market quotations P/D's of the Agricultural Marketing Service (AMS/USDA) at both the national level and among four U. S. production regions for a five year period from 1988 through 1992. Two performance criteria were considered in the study, pricing efficiency of cotton qualities and equitable returns among U.S. production regions. During the five year period, CCC loan premiums moved gradually lower and discounts considerably higher due mainly to cotton quality improvements and changes in textile processing technology. The 1992 data were used to provide a more comprehensive analysis of the price deviations of spot market from the CCC loan schedules for six major quality characteristics. Regional aggregation procedures were developed to analyze these price differentials for four U.S. production regions at various levels of aggregation of quality classes and sub-classes. Substantial price differences for several quality attributes were found, especially the differences of staple length and fiber strength in two major U.S. production regions. Results of this study suggest aggregate economic losses of 55 million dollars for the Southwest and 34 million dollars for the West and gains of 25 and 7 millions of dollars for the Delta and Southeast regions, respectively, in 1992 had all pricing been based on spot rather than CCC P/D's.

Reprinted from Proceedings of the 1994 Beltwide Cotton Conferences pp. 462 - 466
©National Cotton Council, Memphis TN

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Document last modified Sunday, Dec 6 1998