Written by Bill Harmon Tuesday, 05 August 2008 14:48
The Commodity Credit Corp. administers a crop-based collateral loan program to include market assistance loans and Loan Deficiency Payments that provide short-term financing to allow farmers to pay their expenses soon after harvest seasons, and to facilitate orderly marketing throughout the rest of the year.
The nine-month-term loan program also provides significant income support when market prices are below statutory national loan rates.
Over the course of a loan term, as grain price conditions improve, producers could sell their crops and repay their loans with the proceeds.
Loan quantities can be stored on the farm or housed in an elevator and secured by a warehouse receipt. Producers interested in obtaining a farm stored type loan must review and agree to specific Kansas farm stored loan policies.
The 2008 base loan rates in Marion County are as follows:
n Wheat: $3.07/bushel.
n Barley: $1.80/bushel.
n Oats: $1.35/bushel.
n Corn: $2.04/bushel.
n Soybeans: $4.91/bushel.
n Grain sorghum: $3.40/per hundred pounds.
Base loan rates are adjusted for discounts and premiums according to the condition and quality of the commodity. Since these marketing-assistance loans are nonrecourse, producers have the option of delivering or forfeiting to the CCC the crops that were pledged as collateral at loan maturity in satisfaction of the indebtedness.
Producers with loan intentions should carefully analyze the Posted County Price—which is the government’s daily market price assumption levels—during the course of their loan term, because, when a PCP goes below a county loan rate, producers can repay the loan at that particular PCP rate, instead of the higher original loan rate, and have all interest charges incurred up to that time waived.
This same principle defines the policy of the Loan Deficiency Payment program in which PCPs must be lower than a loan rate in order for earnings to be triggered.
Thus, with the favorable market prices being experienced on most grain crops currently causing CCC determined commodity values to exceed loan values, LDPs have not yet been in effect.
Finally, producers seeking loans must meet eligibility requirements. To begin with, they must retain beneficial interest in their crops by maintaining control of the commodities, continuing to bear the risk of loss, and retaining title.
Loan producers must maintain beneficial interest in the crop from the time it’s harvested through the date the loan is redeemed or the commodity is turned over to the CCC.
If beneficial interest in a crop is ever lost, the crop becomes ineligible for a loan. To be used as collateral to secure a loan, crops must satisfy the CCC’s minimum grade and quality requirements. Wheat, feed grains, upland cotton and rice are contract crops and, to qualify for a loan or LDP, they must be produced on farms having a direct & counter-cyclical program contract.
For more details about marketing assistance loans and loan deficiency payments, producers should contact the Marion County FSA office, 301 Eisenhower Drive, Marion; 620-382-3714.
Bill Harmon is executive director of the Marion County FSA office.