Marketing Assistance Loan and LDP
Programs
The Farm Service Agency (FSA) administers commodity loan programs
with marketing loan provisions for wheat, rice, corn, grain sorghum,
barley, oats, upland cotton, 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 (PCPs)
for wheat, feed grains, and oilseeds, or on the prevailing world
market price for rice and upland cotton. PCPs are calculated (and
posted) by the government each day the Federal government is open,
except for minor 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 (LDPs) 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 that 75%
of adjusted gross income 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 the CCC for a commodity loan. These provisions enable producers
who are facing payment limits an opportunity to benefit from the
lower loan repayment rates.
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