Key changes Marketing
loan provisions are added for peanuts, wool, mohair, and
honey. Loan
rates for wheat, feed grains, and upland cotton are
increased from previously legislated maximums. Loan rates for
soybeans and other
oilseeds are reduced from previously legislated maximums.
Loan rates are fixed in legislation.
Summary of provisions The Farm Service Agency
(FSA) administers commodity loan programs with marketing
loan provisions for wheat, rice, corn, grain sorghum,
barley, oats, upland cotton, soybeans, other oilseeds,
peanuts, mohair, wool, honey, small chickpeas, lentils, and
dry peas through the Commodity
Credit Corporation (CCC). Commodity loan programs allow
producers of designated crops to receive a loan from the
Government at a commodity-specific loan rate per unit of
production by pledging production as loan collateral. After
harvest, a farmer may obtain a loan for all or part of the new
commodity production.
Commodity loans may be repaid in three ways:
- At the loan rate plus interest costs (CCC interest cost
of borrowing from the U.S. Treasury plus 1 percentage
point),
- By forfeiting the pledged crop to the CCC at loan
maturity, or
- At the alternative loan repayment rate.
Loan
program benefits can also be taken directly as loan deficiency
payments.
When market prices are below the loan rate, farmers are
allowed to repay the commodity loans at a lower loan repayment
rate. Marketing loan repayment rates are based on
local, posted
county prices (PCP) for wheat, feed grains, and oilseeds,
or on the prevailing world market prices for rice and upland
cotton. PCPs are calculated (and posted) by the Government
each day the Federal Government is open, except for other
oilseeds, which are calculated weekly. Prevailing world market
prices for rice and upland cotton are also calculated on a
weekly basis. When a farmer repays the loan at a lower PCP or
prevailing world market price, the difference between the loan
rate and the loan repayment rate, called a marketing loan
gain, represents a program benefit to producers. In
addition, any accrued interest on the loan is waived. When a
marketing loan gain is received on a given collateralized
quantity, that quantity is not eligible for further loan
benefits.
Alternatively, eligible farmers may choose to receive
marketing loan benefits through direct loan deficiency
payments (LDP) when market prices are lower than commodity
loan rates. The LDP option allows the producer to receive the
benefits of the marketing loan program without having to take
out and subsequently repay a commodity loan. The LDP rate is
the amount by which the loan rate exceeds the posted county
price or prevailing world market price and thus is equivalent
to the marketing loan gain that could alternatively be
obtained for crops under loan. When an LDP is paid on a
portion of the crop, that portion cannot subsequently be used
as collateral for another marketing loan or LDP.
Marketing assistance loan
rates |
Commodity |
Unit |
2002-03 |
2004-07 |
Wheat |
Bushel |
$2.80 |
$2.75 |
Corn |
Bushel |
$1.98 |
$1.95 |
Grain sorghum |
Bushel |
$1.98 |
$1.95 |
Barley |
Bushel |
$1.88 |
$1.85 |
Oats |
Bushel |
$1.35 |
$1.33 |
Upland cotton |
Pound |
$0.52 |
$0.52 |
Rice |
Hundredweight |
$6.50 |
$6.50 |
Soybeans |
Bushel |
$5.00 |
$5.00 |
Other oilseeds |
Pound |
$0.096 |
$0.093 |
Peanuts |
Ton |
$355.00 |
$355.00 |
Graded wool |
Pound |
$1.00 |
$1.00 |
Nongraded wool |
Pound |
$0.40 |
$0.40 |
Mohair |
Pound |
$4.20 |
$4.20 |
Honey |
Pound |
$0.60 |
$0.60 |
Small chickpeas |
Hundredweight |
$7.56 |
$7.43 |
Lentils |
Hundredweight |
$11.94 |
$11.72 |
Dry peas |
Hundredweight |
$6.33 |
$6.22 |
Producers who elect to use acreage planted to wheat,
barley, oats, or triticale for the grazing of livestock are
eligible to receive "graze-out" payments in lieu of loan
deficiency payments. The payment quantity is determined by
multiplying the acreage grazed times the payment yield for
direct payments for that covered commodity on the farm. LDPs
for triticale use the grazing payment rate and payment yield
for wheat on the farm. If there is no wheat yield on the farm,
the payment will be constructed based on yields on comparable
wheat farms.
The payment limit on marketing loan gains and loan
deficiency payments is $75,000 per person, per crop year. The
three-entity rule is retained. Under the three-entity rule, an
individual can receive a full payment directly and up to a
half payment from each of two additional entities. Producers
with adjusted gross income over $2.5 million, averaged over 3
years, are not eligible for payments, unless more than 75
percent of adjusted gross income is from agriculture.
Commodity certificates can be purchased at the
posted county price for wheat, feed grains, and oilseeds or at
the effective adjusted world price for rice or upland cotton.
The certificates are available for producers to use
immediately in acquiring crop collateral pledged to CCC for a
commodity loan. These provisions enable producers who are
facing payment limits an opportunity to benefit from the lower
loan repayment rates.
Economic implications When commodity prices are
below commodity loan rates, loan benefits augment market
receipts. The ERS report Analysis of
the U.S. Commodity Loan Program with Marketing Loan
Provisions shows that impacts of marketing loans vary year
by year, depending on the absolute and relative magnitudes of
expected crop-specific marketing loan benefits. When prices
are low, marketing loans can create incentives to produce
specific crops. With marketing loan benefits ranging from
around $5 billion to over $8 billion in 1999-2001, total
acreage planted to the eight major field crops was estimated
to have increased by 2-4 million acres annually as a
result.
Cross-commodity effects of supply response to relative
returns (including marketing loan benefits), however, result
in acreage shifts among competing crops, which can lead to
reductions in plantings of some crops in some years. Most
impacts occur in years when there are marketing loan benefits,
with little effect in subsequent years when prices rise high
enough to eliminate marketing loan benefits.
The 2002 Farm Act increases loan rates for wheat and feed
grains, while lowering the loan rates for soybeans and other
oilseeds from their caps. At the margin, these loan rate
changes would shift plantings toward wheat and feed grains
when commodity prices are low, compared with leaving loan
rates at their caps under the 1996 Farm Act.
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