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BiorenewablesNonrecourse Marketing Assistance Loans and Loan Deficiency Payments
by Chad Hart
The Federal Agriculture Improvement and Reform Act of 1996 (the 1996 FAIR Act) initiated a nonrecourse marketing assistance loans and loan deficiency payments (LDP) program for 16 crops, including corn and soybeans. The purpose of this program is to provide producers a financial tool to help farmers market their crops throughout the year. The nonrecourse loans allow farmers to store production and sell it when market conditions are favorable. The crop is employed as collateral for the loan. The loans are nonrecourse in that the farmer has the option of repaying the loan by delivering the crop to the Commodity Credit Corporation at loan maturity.
Under certain conditions, the loan may be paid back at less than the principal plus interest and expenses or in lieu of taking a loan, a LDP may be collected. The LDP for a county is determined by comparing the county's loan rate and posted county price (PCP). If the PCP is below the loan rate, then producers are eligible for LDPs. The payment amount is the difference between the loan rate and the PCP. Unlike the loan, the LDP is not repaid.
The county loan rate is derived from the national loan rate and a twelve-month average PCP. Production data and distance to the terminal markets is also taken in account in the setting of the loan rate. The PCP is a price formulated to reflect actual market conditions in the county. It is based on terminal market prices. Price adjustments are made by county and reflect market and transportation factors. The loan rate is set once a year. The price adjustments are rarely changed, but the PCP and the LDP rate change daily.
For example, for Story County, Iowa, the corn loan rate is $1.76/bushel. The terminal markets used to calculate the PCP are the Gulf (GLF) and Kansas City, Missouri (KCM) markets. The price differentials (adjustments) are -$0.57/bushel for the GLF price and -$0.33/bushel for the KCM price. The daily market prices are reported on the Internet at
| Lower Prices | Higher Prices | |
| GLF Price | $2.10 | $3.09 |
| GLF Differential | -$0.57 | -$0.57 |
| PCP based on GLF | $1.53 | $2.52 |
| KCM Price | $1.71 | $2.70 |
| KCM Differential | -$0.33 | -$0.33 |
| PCP based on KCM | $1.38 | $2.37 |
| Effective PCP | $1.53 | $2.52 |
| County Loan Rate | $1.76 | $1.76 |
| LDP Rate | $0.23 | $0.00 |
For more information on this program, see USDA, Price Support Division, Commodity Loan Program.
Disclaimer
CARD provides this service for educational purposes only and assumes no responsibility for how this LDP information is used. Although we try to be as accurate as possible in calculating LDP rates, you should always check with your local Farm Service Agency for the most recent and accurate information.