Discussion
This graph world prices (the green line labeled “A” Index) compared to U.S. prices (the blue line labeled “Nearby Futures. It also shows the Adjusted World Price or AWP (red line) which is simply the A-Index adjusted for transportation and quality differentials. That is, the Adjusted World Price reflects the willingness to pay of foreign buyers of U.S. cotton. When the Adjusted World Price is below the 52-cent loan rate, there is a positive loan deficiency payment (LDP). The vertical height of the gray area represents the value of the LDP.