When 1995's Freedom to Farm legislation passed, most farmers cheered. And why not?
At that time, global exports were booming. And many experts were wondering if U.S. farmers could keep up with booming Asian demand.
What a difference three years can make.
Global grain production has surged, while the Asian boom has turned into a big bust. The net result: the lowest corn and soybean prices in the last decade.
Most producers will need to maximize current Farm Service Agency (FSA) government program payments to stay in the black in 1998.
In this article I will explain terms and forms you'll need to review. Here are the terms:
Loan Rate: This is the price per bushel at which the government will loan money in each county.
CPP: County posted price is the buy-back price level that the county FSA sets each day. You can pay back your loan at the loan rate plus accrued interest or at the CPP. This price is good until the close of the day.
This sets up great potential for producers who can get into the FSA office before closing on the day when prices bottom.
LDP: Loan deficiency payment is the price difference between the county loan rate and CPP. As the CPP goes down, your buy-back cost goes down or the amount of your LDP check increases.
Livestock producers can lock in cheap feed or cash grain producers can lock in some big gains in the LDP to offset low cash corn and soybean prices. If the CPP is equal to or higher than the loan rate, no payment is made.
FSA forms to consider using are:
Form CCC-709: This is referred to as a direct sale. It allows you to collect your LDP on the bushels that you have sold for delivery off the combine. You must have this form signed and into the FSA office prior to harvest. If you deliver the grain and pick up a check, you don't have beneficial interest and aren't eligible for any LDP.
This agreement locks you into the LDP rate in effect on the date of delivery to the buyer. Form CCC-666 gives you a lot more flexibility. Do not use form CCC-709 on bushels that are contracted for a later delivery or you will be locked into the LDP on the delivery date.
Form CCC-666: This allows you to certify how many bushels you have in a bin and to lock in the LDP on the day you choose.
If part of your crop is harvested and prices soar, getting the LDP locked in on that day would be your best move. If for tax reasons you don't want to put the crop under loan but want to collect the LDP, this is the right move. If you have seed or a crop that is grown under contract, lock in your LDP using this form.
Form CCC-681: This is the marketing authorization form that allows you to lock in the LDP on grain under loan. You have to list where you'll deliver the corn or soybeans, then will have 15-30 days to pay off the loan.
Note: These policies and many others may differ among counties.
The biggest LDPs will likely occur in October and November 1998. Our analysis at NorthStar suggests no LDP payments are likely in 1999 as your cash price and CPP rally above the county loan level.
Make sure you understand how to use this program before you sell any of your 1998-crop corn and soybeans this fall.
It could make a whopping difference in how well you weather the current financial storm!