LDP VS. CCC LOAN
In the past month there have been some very favorable opportunities to request a loan deficiency payment (LDP) on corn and soybeans produced in 2004.
One question that many growers have contemplated on unpriced 2004 grain is whether they should take the LDP at harvest time, and then price the grain later, or utilize the CCC loan program at County Farm Service Agency (FSA) offices on the 2004 corn and soybeans after harvest.
The CCC grain that is under loan can either be stored on the farm or at a grain elevator, and can then be released at some later point during the nine-month CCC loan period in order to be sold for a more favorable price. Every bushel of corn and soybeans produced is eligible for either a LDP or can be put under a CCC loan at the County FSA Office, but not both. Some producers fear a loss of income by utilizing the CCC loan program, and bypassing some favorable LDPs at harvest-time.
If everything is equal, the LDP amount and the results of using the CCC loan program should be the same on a given day. The daily “posted county price” (PCP) is used to determine both the LDP rate and the CCC loan release price on a given day. So the net gain from a CCC loan release at the PCP and the LDP on a given day would be equal.
The difference comes because most producers don’t want to release the CCC loan until sometime in the future, and there is a risk that the PCP could increase by that time, thus lowering the net gain. The same reduction would occur if a producer delays collecting a LDP after harvest and the PCP on that grain increases, thus causing lower daily LDP levels.
Of course, there is always the possibility that the PCP on corn or soybeans could decrease after harvest, thus causing both LDPs to increase, and gains from the release of CCC loans to increase.
One disadvantage of taking a LDP at harvest, and then marketing the grain later, is that there are less total dollars available at harvest, compared to receiving the proceeds from the CCC loan. For example, in Blue Earth County the 2004 corn loan rate is $1.82/bu., and the corn LDP on October 25 was 28¢/bu.
Producers need to analyze their farm business cash flow needs and grain marketing plan to determine if collecting a LDP or utilizing a CCC loan best fits their management plan on the 2004 corn and soybeans after harvest. For more information and details on procedures for LDPs and CCC loans, producers should contact their County FSA Office.
Locked In PCP
Producers who are concerned about “posted county prices” (PCPs) increasing after harvest may request Form CCC-697 at County FSA Offices, which is used to “lock-in” a PCP for 60 days on a given amount of eligible bushels that are under a CCC loan.
Producers are not required to exercise the “locked-in” PCP, if there are more favorable PCP’s at the end of the 60-day period. Producers may only exercise the 60-day PCP “lock-in” once in a marketing year on each bushel of grain produced.
The 60-day PCP “lock-in” can provide a “safety-net” for producers that want to use a CCC loan on corn or soybeans after harvest to generate some cash flow revenue, but want to take advantage of the current favorable PCPs in a couple of months. The 60-day PCP ”lock-in” can not be used for LDPs. Again, producers should contact County FSA Offices regarding procedures and rules associated with utilizing a 60-day PCP “lock-in”.
Editors note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at [email protected].