ORIGINALLY WRITTEN BILL HARMON
Producers wanting to supplement the cash-flow of their farming operation should consider the Farm Service Agency’s nonrecourse marketing-assistance loan program, available for nearly all 2005 grain and oilseed crops.
Under this loan program, producers may store their harvested crops and pledge them to the Commodity Credit Corp. as collateral for nine-month term loans.
The advantage of a marketing-assistance loan is the immediate accessibility to a funding source that can be used to help pay the normal expenses of managing a farm enterprise.
Over the course of a loan term, if grain prices improve, producers can 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 of loan must review and agree to specific state policies.
The 2005 base loan rates in Marion County are as follows: wheat, $2.83 per bushel; barley, $1.74 per bushel; oats, $1.38 per bushel; corn, $2.06 per bushel; soybeans, $4.92 per bushel; grain sorghum, $3.34 per 100 pounds; and sunflowers (oil), $8.94 per 100 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 analyze the changing posted county price (PCP)-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 today, LDPs have not been in effect yet at this time.
Finally, producers seeking loans must meet eligibility requirements.
To begin, 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-and-counter-cyclical program contract.
For more details about marketing assistance loans and loan deficiency payments, producers should contact the Marion County FSA office, located at 301 Eisenhower Drive in Marion. The telephone number is 620-382-3714.
Bill Harmon is executive director of the FSA office in Marion.