Milling & Baking News - January 3, 2017 - 31

Ingredient Market Trends
Weekly Spotlight

L.D.P.s on wheat set new record

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/ July 3, 2007 X
Milling & Baking News

he U.S. Department of Agriculture in
the 2016-17 crop year to date (June 1,
2016, through Dec. 26) has made a record $110.9 million in loan deficiency payments (L.D.P.s) to wheat growers, eclipsing
the previous record outlay of $106.7 million on L.D.P.s for wheat for all of 2009-10.
All or nearly all of the payments this year
have been made to producers of hard red
winter wheat. In contrast, the "vast majority" of L.D.P.s totaling $106.7 million in
2009-10 and $102.7 million in 2010-11 were
made to durum growers, according to the
U.S.D.A.
Growers are eligible to receive L.D.P.s
on their wheat when wheat prices as
posted at elevators in their county (posted
county prices) fall below the county marketing assistance loan rate announced by
the U.S.D.A. in the spring, in advance of
the year's harvest. Those marketing loan
rates, in turn, reflect levels mandated by
Congress in statute. For instance, in the
2014 farm act, Congress set the national
average marketing assistance loan rate for
wheat for the 2014 through 2018 crop years
at $2.94 per bu. This is the average for allwheat. Marketing loan rates by county further reflect the class and quality of wheat
and local market conditions and may be
above or below the national average.
L.D.P.s are tied to the U.S.D.A.'s marketing assistance loan program under which
growers may take out nine-month nonrecourse loans from the government at
the loan rate prescribed in their counties.
This typically is done to satisfy cash flow
needs while the producer holds wheat off
the market in hope of higher prices later in
the crop year. A producer may repay his
loan in full at the loan rate plus interest at
any time within the nine months or, alternatively, if posted county prices of wheat
hold below the loan rate, he may repay his
loan and redeem the wheat at a level based
on the lower posted county price.
Producers who are eligible to obtain a
marketing assistance loan but who agree
to forgo the loan may obtain an L.D.P.
on their wheat when the posted county
price falls below the county marketing assistance loan rate. This has been the case
across most of hard red winter wheat
country thus far this crop year. This has not
been the case for the other wheat classes.
The L.D.P. rate equals the amount by

which the applicable loan rate where the
wheat is stored exceeds the loan repayment rate.
To date this crop year, wheat producers
have collected $110.9 million on 537.6 million bus of wheat, which equated to an average L.D.P. of about 20.6c per bu.
Of the 2016 total, farmers of the Southwest - Kansas, Oklahoma, Texas, Colorado and Nebraska - have collected $93.2

million in L.D.P.s on 451.8 million bus of
wheat. Kansas growers alone have collected $53 million in L.D.P.s on 267.5 million
bus of wheat, or on 57% of the state's 2016
production.
In the earlier years of heavy L.D.P. outlays, the U.S.D.A. had announced disproportionately high marketing assistance
loan rates for durum compared with the
other wheat classes. For instance, the
U.S.D.A. announced 2010 county loan rates
for durum at between $6.02@6.37 a bu, up
an average of $1.52 a bu from the previous
year. In comparison, the 2010 average loan
rates for hard red spring wheat were announced at $3.66@4.02 a bu, up 46c a bu
from a year earlier, and the average loan
rates for hard red winter wheat in 2010
were $2.37@2.90 a bu, up 16c from 2009.
At the same time, durum production
surged to 105 million bus in 2009 compared with 80 million bus in 2008 and totaled 101 million bus in 2010. County posted prices plummeted under the weight
of the increased supply, which triggered
hefty L.D.P.s on durum that averaged $1.20
a bu in 2009-10 and $1.23 a bu in 2010-11. MBN
Milling bakingbusiness.com
& Baking News X/January
3, 2017 / 31
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Milling & Baking News - January 3, 2017

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