Milling & Baking News - August 30, 2016 - 28

Washington X

Depressed wheat prices resuscitate
wheat loan deficiency payments
WASHINGTON - Wheat prices
hovering near 10-year lows have
generated a dramatic increase in use
of the U.S. Department of Agriculture's principal remaining farmer
price support mechanisms: the marketing assistance loan program and
loan deficiency payments, particularly in the hard red winter wheat
states. This activity has driven many
in the grain-based foods industry to
brush up on farm bill lexicon after
years when such knowledge wasn't
a priority because relatively high
crop prices limited producer use
of commodity price support programs for grain. At the same time,
the effect of this increased activity

U.S.D.A.'s Commodity Credit Corp.
provide interim financing at harvest
time for producers to meet cash flow
needs without growers having to
sell their commodities when market
prices are typically at their lowest.
In the case of wheat, growers may
enroll all or a portion of their crop in
the program in exchange for a marketing assistance loan. The wheat
enrolled may be stored on farm or in
country elevators and serves as collateral. By enrolling their grain and
storing it, producers may delay the
sale of their wheat until more favorable market conditions emerge.
Producers may enroll wheat in the
marketing assistance loan program

National average farm price
of hard red winter wheat
$8

per bus

$7
$6
$5
$4
$3
June
2013

June
2014

June
2015

June
2016

Source: U.S. Department of Agriculture

on wheat and especially flour prices
likely will remain limited. The days
of federal commodity price support programs resulting in huge
government stocks held off and
overhanging the market are in the
past, according to veteran wheat
market analysts.
The increased activity in loan
deficiency payments has been the
most pronounced and most important development in government
wheat price support this year, but
this activity is based on the relationship between market prices and the
marketing loan rates set by statute
to determine eligibility of commodities to be enrolled in the marketing
assistance loan program, so it's important to begin there.
Nine-month nonrecourse marketing assistance loans extended by the
28 / August 30, 2016 XMilling & Baking News

in any year regardless of whether
the local market price is higher or
lower than the marketing assistance loan rate in their county or
region, and they have done so. But
activity tends to be greater in years
of low prices.
The national average marketing
assistance loan rate is set by statute.
The national average loan rate for
wheat most recently was set at $2.94
a bu under the Agricultural Act of
2014, the current law authorizing
and implementing federal farm and
agriculture programs.
But the marketing loan rate in any
particular county varies from the
national average in consideration of
wheat class as well as local production, storage and marketing conditions. For instance, Kansas county
marketing loan rates for hard red

winter wheat in 2016 range from a
low of $2.98 a bu in Riley and Wichita counties to a high of $3.46 a bu in
Leavenworth and Wyandotte counties (the latter are eastern counties
near Kansas City).
As of Aug. 23, growers have taken
out marketing assistance loans on
51,177,612 bus of new crop wheat.
Wheat growers enrolled more
wheat under the loan in 2015 at
80,963,024 bus, but the 2015 total
includes enrollments for the entire
crop year. Wheat growers may enroll additional bushels any time
during the current marketing year.
Additionally, in years of very low
prices, such as this one, growers
are more likely to claim loan deficiency payments (L.D.P.s) on their
wheat. Wheat against which L.D.P.s
have been collected is no longer
eligible for enrollment under the
loan program.
Kansas wheat growers have been
the most active participants in the
marketing assistance loan program
thus far this year, having enrolled
18,488,756 bus by Aug. 23.
In years when wheat prices are
higher, enrollments in the marketing assistance loan program usually are lower. For instance, in the
2014-15 crop year, when the average
farm price of wheat was $5.99 a bu
compared with $4.89 in 2015-16 and
a forecast $3.35@4.05 in the current
year, 43 million bus of wheat were
enrolled in the marketing assistance
loan program, and in 2013, when the
average farm price was higher still,
enrollments were 25 million bus.
Generally, marketing assistance
loans may be redeemed at any time
during the nine-month term by repayment of principal plus interest,
or producers may opt to deliver the
wheat pledged as collateral to the
C.C.C. as full payment for the loan
at maturity.
The latter course is rare as there
are marketing assistance loan repayment provisions that specify, under
certain circumstances, producers
may repay their loan at less than the
loan rate (principal) plus accrued
interest and other charges. For instance, a producer may opt to repay
the loan and redeem his wheat at a
rate based on the average market
price of wheat in his county during
the preceding 30 days. In doing so,
should that average market price
be below what it would cost him
to redeem his wheat at the county
marketing assistance loan rate plus
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Milling & Baking News - August 30, 2016

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