All or nearly all of the payments this year have been made to U.S. producers of hard red winter wheat.
The 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 (LDPs) to wheat growers, eclipsing the previous record outlay of $106.7 million on LDPs 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 LDPs totaling $106.7 million in 2009-10 and $102.7 million in 2010-11 were made to durum growers, according to the USDA.

Growers are eligible to receive LDPs 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 USDA 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 bushel. This is the average for all-wheat. 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.

LDPs are tied to the USDA’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 LDP 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 LDP 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 bushels of wheat, which equated to an average LDP of about 20.6¢ per bushel.

Of the 2016 total, farmers of the Southwest — Kansas, Oklahoma, Texas, Colorado and Nebraska — have collected $93.2 million in LDPs on 451.8 million bushels of wheat. Kansas growers alone have collected $53 million in LDPs on 267.5 million bushels of wheat, or on 57% of the state’s 2016 production.

In the earlier years of heavy LDP outlays, the USDA had announced disproportionately high marketing assistance loan rates for durum compared with the other wheat classes. For instance, the USDA announced 2010 county loan rates for durum at between [email protected] a bushel, up an average of $1.52 a bushel from the previous year. In comparison, the 2010 average loan rates for hard red spring wheat were announced at [email protected] a bushel, up 46¢ a bushel from a year earlier, and the average loan rates for hard red winter wheat in 2010 were [email protected] a bushel, up 16¢ from 2009.

At the same time, durum production surged to 105 million bushels in 2009 compared with 80 million bushels in 2008 and totaled 101 million bushels in 2010. County posted prices plummeted under the weight of the increased supply, which triggered hefty LDPs on durum that averaged $1.20 a bushel in 2009-10 and $1.23 a bushel in 2010-11.