Producers may enroll wheat in the marketing assistance loan program 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. 
WASHINGTON, D.C., U.S. — Wheat prices hovering near 10-year lows have generated a dramatic increase in use of the U.S. Department of Agriculture’s (USDA) principal remaining commodity 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 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 USDA’s Commodity Credit Corp. (CCC) 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 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 bushel 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 bushel in Riley and Wichita counties in Kansas, U.S., to a high of $3.46 a bushel in Leavenworth and Wyandotte counties in Kansas, U.S. (the latter are eastern and mostly urban counties).

As of Aug. 23, growers have taken out marketing assistance loans on 51.178 million bushels of new crop wheat. Wheat growers enrolled more wheat under the loan in 2015 at 80.963 million bushels, 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 (LDPs) on their wheat. Wheat against which LDPs 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 18.489 million bushels 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 bushel compared with $4.89 in 2015-16 and a forecast $3.35-4.05 in the current year, 43 million bushels 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 bushels.

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 CCC 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 interest, the producer may realize what is called a marketing loan gain at the expense of the CCC.

Loan deficiency payments may be made to producers who, although eligible to obtain a marketing assistance loan, agree to forgo obtaining the loan for the commodity in return for an LDP. The LDP would be the amount in cents per bushel the county posted price falls below the county marketing loan rate. This effectively establishes the marketing loan rate as a floor under wheat prices.

The USDA explained marketing assistance loan repayment and LDP provisions are intended to minimize potential delivery of loan collateral to the CCC and the accumulation of CCC-owned stocks and related storage costs.

The provisions certainly have been effective in preventing loan forfeitures. In most years, under the current marketing assistance loan provisions, there have been no wheat forfeitures. In 2009, 40,342 bushels of wheat enrolled under the loan were forfeited to the CCC; otherwise, there have been no forfeitures in the past 10 years.

In the most recent 10 years, loan deficiency payments have been made to certain wheat producers in three years: 2010-11, 2009-10 and 2006-07. LDP activity in 2016 stood out from activity in the prior years because of its expanding geography and the number of bushels involved.

As of Aug. 23, producers in 11 states have collected $15.275 million in LDPs on 159.093 million bushels of wheat, which equated to an average LDP payment of about 9¾¢ a bushel.  Of this total, $15.123 million was collected by Southwestern U.S. states — Texas, Oklahoma, Kansas, Nebraska and Colorado — hard red winter wheat producers on 157.132 million bushels of wheat. Kansas producers alone collected $10.697 million on 110.035 million bushels, or on 24% of the state’s estimated wheat production.

In comparison, LDPs were made on 83.228 million bushels of wheat in eight states in 2010-11, on 88.645 million bushels in 10 states in 2009-10 and on 1.575 million bushels in two states in 2006-07. In 2010-11 and 2009-10, heavy LDP payments resulted largely from the USDA having set the county marketing loan rates on durum at very high levels, a circumstance that since has been avoided.

Unlike 2010, 2009 and 2007, to date this year, the vast majority of LDPs have been collected by hard red winter wheat producers. In contrast, no LDPs were collected by Southwestern hard red winter wheat growers in 2010-11, 2009-10 or 2006-07 with the exception of payments on 38,619 bushels of Colorado wheat in 2009-10, and this may have been on spring wheat.

The USDA provides daily updates on marketing assistance loan and loan deficiency payment activity, and it was expected this activity will continue through the crop year, especially if wheat prices weaken during the row crop harvest.