Wheat LDPs Kick In For Some

When Marketing Assistance Loans (MAL) were authorized in the 1985 farm bill, the intent was to provide financing at harvest so producers could meet cash flow needs without selling their production when prices typically are low and the supply chain is full.

MALs are “nonrecourse” loans in that the loan can be repaid or cancelled by delivering the commodity that was pledged as collateral to the Commodity Credit Corporation (CCC). In an effort to minimize deliveries, the marketing loan gain (MLG) and loan deficiency payments (LDPs) provide a market-based approach to close out the loan when the crop is worth less than the loan. LDPs actually provide the market benefit without taking out a loan.

To qualify, the producer must still have beneficial interest in the crop, meaning you have control over it and hold the title to it. If you have sold or delivered the crop, ownership/control may be considered to have been transferred even if you haven’t yet received payment.

In addition, you must be in compliance with conservation and wetland requirements, submit an acreage report to account for all cropland on all farms and meet income limitations.

How MALs Work

After harvest, you request a loan on a specific number of bushels at the Farm Service Agency (FSA), using the crop as collateral. The national winter wheat loan rate is $2.94/bu. However, you receive the county loan rate for the county where your crop is stored. Interest, set by USDA based on an index above the CCC’s cost of borrowing from the U.S. Treasury at the time the loan is made, accrues on the loan, which matures at the end of the ninth month from loan approval.

At any time prior to maturity, you can settle the loan by paying what is due or an alternative loan repayment rate determined by the Commodity Credit Corporation (the Posted County Price). County PCPs change daily and can be found at http://www.fsa.usda.gov/FSA/displayLDPRates?area=home&subject=prsu&topic=ldp-ldp. If the PCP is below the loan rate, the gap is the MLG. Upon maturity, you can forfeit the grain and keep what you owe. For specific details regarding forfeiting the grain, visit with your local FSA office.

For instance, suppose your county loan rate is $2.43 and you have accrued 3 cents interest so your amount due is $2.46. Say the PCP is $3.28. You would be better off repaying the loan. But suppose the PCP is only $2.38 – your MLG would be 5 cents.

LDPs simplify matters: You forego taking out the loan and simply request payment of the LDP at any time before the final date. In the example above, if you didn’t take out a loan, you could simply request a 5 cent LDP.

The final MAL or LDP availability date for wheat is March 31.

Once you take the MLG or LDP, you must be able to provide proof of production (such as warehouse receipt if you are subject to a spot check).

Payment Limitations

Beginning with the 2014 crop year, the total amount of MLGs, LDPs, payments under Agricultural Risk Coverage (ARC) and/or Price Loss Coverage (PLC) that a person or legal entity can receive, directly or indirectly, cannot exceed $125,000/year. In addition, producers or legal entities whose average adjusted gross income exceeds $900,000 are not eligible for MLGs or LDPs but can take a MAL and repay it at principal plus interest. They also can participate in the Commodity Certificate Exchange program by taking a MAL and immediately trading it for a Certificate. In that case, the payment limitation does not apply.

For USDA’s Fact Sheet on MALs and LDPs, visit: http://www.fsa.usda.gov/Assets/USDA-FSA-Public/usdafiles/FactSheets/2016/mal_ldp_2016.pdf