2007 Rice Loan Rates Q&A\'s

[Background:]{.underline} USDA decided to move to more market-oriented
rice loan rates for the 2007 crop in an announcement made on February 2,
2007. In a major change from past methodology, the procedure for
determining this year\'s loan rates incorporated market information by
State and type of rice for the past 2 years, as provided by USDA\'s
National Agricultural Statistics Service (NASS) and Agricultural
Marketing Service (AMS). The 2002 Farm Bill contained provisions which
encouraged USDA to adjust loan rates for a commodity for differences in
grade, type, location or other factors when the loan rate relationships
are inconsistent with market prices. The following Q&A\'s were developed
to explain the changes made to the 2007 rice loan rates.

[]{#Q1 .anchor}Q1. Has USDA adjusted other commodities\' class and
county/state/region loan rates to maintain consistency with market
prices?

A1. Yes. County loan rates for wheat, feed grains and oilseeds were
adjusted to reflect updated posted county price (PCP) relationships and
statutorily designated national average loan rates for the 2002 and
subsequent crops. Regional loan rates were implemented for dry peas
(2003 crop) and lentils (2006 crop) to reflect regional price
differences. To see a table illustrating a time-line of marketing
assistance loan program changes [click here](#Table1).

Q2. How were rice loan rates by class determined previously?

A2. Since the 1987 crop, the long grain whole kernel loan rate was set
at \$1 above the medium/short grain whole kernel loan rate. The broken
kernel loan rate was established at 50 percent of the long grain whole
kernel loan rate. As a result, the national average long grain rough
rice loan rate exceeded the medium grain rough rice loan rate on average
by about \$0.54 per hundredweight (cwt). Farm-stored loan rates were
established using the warehouse-store (milling factor) loan rates and
the 5-year Olympic state-level average milling yields.

[]{#q3 .anchor}Q3. Why did USDA reduce long grain loan rates and
increase medium/short grain loan rates for the 2007 crop?

A3. Over the 1998-2006 marketing years, medium grain prices have
exceeded long grain prices in all but 2 years ([click here](#Table2) to
see chart and table). The 2002 Farm Bill included provisions to adjust
marketing assistance loan rates based on grading and other factors when
loan rate relationships are inconsistent with market prices. USDA
decided to move toward more market-oriented rice loan rates, and that 5
cents was an appropriate long grain rough rice adjustment for 2007. As a
result, the national average long grain loan rate, on a rough basis,
dropped from \$6.64 per cwt in 2006 to \$6.59 in 2007.

[]{#q4 .anchor}Q4. Why are some States\' 2007-crop farm-stored long
grain rough rice loan rates higher than last year while others are
lower?

A4. The differences between the national average long grain rough rice
loan rate and a state\'s long grain rough rice loan rate reflect the
average difference in prices received by farmers during the last 2
years, as determined by NASS. In the past, only milling quality
differences were used to establish state-level farm-stored long grain
rough rice loan rates. Farm prices reflect average milling yield
differences between states, as well as other market factors that
determine its value. This methodology was also used to establish the
California and mid-South farm-stored medium grain rough rice loan rates.
[Click here](#Table3) to view a table of the 2006 and 2007 State-level
farm-stored rough rice loan rates compared with recent market price
quotes.

[]{#q5 .anchor}Q5. Do producers who store on farm versus in a warehouse
realize a difference in loan proceeds?

A5. Yes. When rice stored in a warehouse is placed under loan, the
milling quality and grade of that rice are known and included on the
warehouse receipt. The warehouse- stored (milling factor) loan rates and
grade discount schedule are used to establish loan proceeds for
warehouse-stored rice when it is placed under loan.

Grade and milling quality of farm-stored rough rice are not known. Thus,
rough rice loan rates are used to establish loan proceeds on farm-stored
loans. Historically, between three-fifths and two-thirds of rice loans
are warehouse-stored, with the remainder representing farm-stored loans
([Click here](#Table4) to see a table of farm-stored and
warehouse-stored loan quantities).

Q6. Why did the relationships between whole and broken kernel loan rate
factors change for the 2007 crop?

A6. This year\'s whole and broken kernel (milling factor) loan rates are
set to reflect the \$0.05 per cwt reduction in the long grain rough rice
loan rate compared with the 2006 crop, and to reflect the previous
2-year average market price relationship between broken kernels and long
grain whole kernels, as determined using milled and broken kernel prices
reported by AMS. Market prices of broken kernels have averaged about
two-thirds of the value of long grain rough rice.

Q7. Did the national average all rough rice loan rate change for the
2007 crop?

A7. No. The national average production-weighted rough rice loan rate
remains \$6.50 per cwt, as required by statute.

For more information, contact Tom Tice (<Tom.tice@wdc.usda.gov>,
202-720-2891) or Bill Chambers (<William.chambers@wdc.usda.gov>,
202-720-3134).

[Click here for the PDF
version](../../../../Internet/FSA_File/2007_rice_lrs_qas_022707.pdf).

[]{#Table1 .anchor}**Table 1. Timeline of Market-Oriented Loan Program
Changes**

  ------------ -------------------------- ------------ ----------------------
  **Crop**     **Program Change**         **Crop       **Previous Policy**
                                          Year**       

  Wheat        County loan rates (CLRs)   2002 &       CLRs were fixed at the
               are based on the previous  subsequent   same level as the 1995
               2-year average posted                   crop for 1996-2001.
               county prices (PCPs). CLRs              Each county loan rate
               are set by class (durum,                was an all wheat loan
               hard red winter, soft red               rate with the loan
               winter, hard red spring,                repayment rate
               and white).                             established by class.

  Feed Grains  CLRs are based on the      2002 &       CLRs were fixed at
  1/           previous 2-year average    subsequent   same level as the 1995
               PCPs.                                   crop for 1996-2001.

  Wheat        Durum CLRs are based on    2003 &       Durum CLRs were
               the previous 2-year        subsequent   previously established
               average PCPs.                           using hard amber durum
                                                       subclass PCPs.

  Dry Peas 2/  Regional loan rates (East, 2003 &       Dry pea loan rate had
               West) reflect differences  subsequent   previously been a
               in prices between distinct              national rate with a
               production regions.                     national repayment
                                                       rate.

  Lentils 2/   Regional loan rates (East, 2006 &       Lentil loan rate had
               West) reflect differences  subsequent   previously been a
               in prices between distinct              national rate with a
               production regions.                     national repayment
                                                       rate.
  ------------ -------------------------- ------------ ----------------------

1/ Feed grains include corn, grain sorghum, barley and oats.

2/ For pulse crops (dry peas, lentils and small chickpeas), the West
Region includes the Palouse (Idaho, Oregon and Washington) and other
States west of the Rocky Mountains (Alaska, Arizona, California, Hawaii,
Nevada, New Mexico, and Utah). The East Region includes Montana, North
Dakota, and all other States not in the West Region.

[Back](#Q1)

[]{#Table2 .anchor}**Table 2. Long Grain Compared with Medium/Short
Grain: Loan Rates and Farm Prices**

  ----------------------- ----------------------- -----------------------
  Years                   Long Grain to           
                          Medium/Short Grain      

                          Whole Kernel Loan Rate  Farm Price

  1986-90                 112 %                   112.5%

  1991-95                 110 %                   100.1%

  1995-00                 110 %                   108.3%

  2001-05                 110 %                   82.1 %
  ----------------------- ----------------------- -----------------------

**Figure 1. Long Grain Compared with Medium/Short Grain Farm Prices**

![](media/image1.wmf){width="5.99375in" height="3.88125in"}

Source: National Agricultural Statistics Service, *Agricultural Prices*,
January issue, various years.

[Back](#q3)

[]{#Table3 .anchor}**Table 3**. 2006- and 2007-crop Rough Rice Loan
Rates by Class and State

+----------------+------------+---------+-----------------+---------+
| State          | 2006       | 2007    | Loan rate       | Creed   |
|                |            |         | difference,     |         |
|                | loan rate  | loan    | 2006-2007       | Report  |
|                |            | rate    |                 | 1/      |
+----------------+------------+---------+-----------------+---------+
|                |            |         |                 | 0       |
|                |            |         |                 | 2/07/07 |
+----------------+------------+---------+-----------------+---------+
| Long grain:    |            |         |                 |         |
+----------------+------------+---------+-----------------+---------+
| Arkansas       | 6.59       | 6.45    | -0.14           | 9.64    |
+----------------+------------+---------+-----------------+---------+
| California     | 6.48       | 6.59    | +0.11           | NA      |
+----------------+------------+---------+-----------------+---------+
| Louisiana      | 6.71       | 6.89    | +0.18           | 9.83    |
+----------------+------------+---------+-----------------+---------+
| Mississippi    | 6.68       | 6.73    | +0.05           | 9.64    |
+----------------+------------+---------+-----------------+---------+
| Missouri       | 6.50       | 6.23    | -0.27           | 9.64    |
+----------------+------------+---------+-----------------+---------+
| Texas          | 6.91       | 7.16    | +0.25           | 10.54   |
+----------------+------------+---------+-----------------+---------+
| National       | 6.64       | 6.59    | -0.05           | NA      |
| Average,       |            |         |                 |         |
|                |            |         |                 |         |
| Long grain     |            |         |                 |         |
+----------------+------------+---------+-----------------+---------+
|                |            |         |                 |         |
+----------------+------------+---------+-----------------+---------+
| Medium grain:  |            |         |                 |         |
+----------------+------------+---------+-----------------+---------+
| California     | 6.08       | 6.26    | +0.18           | 12.03   |
+----------------+------------+---------+-----------------+---------+
| Mid-South      | 6.06       | 5.92    | -0.14           | 11.50   |
|                |            |         |                 |         |
| (largely       |            |         |                 |         |
| Arkansas)      |            |         |                 |         |
+----------------+------------+---------+-----------------+---------+
| National       | 6.07       | 6.20    | +0.13           | NA      |
| Average,       |            |         |                 |         |
|                |            |         |                 |         |
| Medium grain   |            |         |                 |         |
+----------------+------------+---------+-----------------+---------+
|                |            |         |                 |         |
+----------------+------------+---------+-----------------+---------+
| Short grain:   |            |         |                 |         |
+----------------+------------+---------+-----------------+---------+
| National       | 6.10       | 6.28    | +0.18           | NA      |
| Average, short |            |         |                 |         |
| grain          |            |         |                 |         |
+----------------+------------+---------+-----------------+---------+

1/ Reproduced with permission of the Creed Rice Market Report.

[Back](#q4)

[]{#Table4 .anchor}**Table 4.** Quantities of Farm and Warehouse Stored
Rice Loans: 2002-2006

  ----------- ----------- ----------- ----------- ------------ -----------
  Year        Warehouse   Farm Loans  Total 1/    Percent in   Percent on
              Loans                               Warehouses   Farms

              Million                                          
              Cwts.                                            

  2002        89.5        42.9        132.4       67.6         32.4

  2003        66.8        24.3        91.1        73.3         26.7

  2004        102.5       44.8        147.3       69.6         30.4

  2005        86.9        48.1        135.0       64.4         35.6

  2006        54.5        36.9        91.4        59.6         40.4

  2002-06     400.3       197.1       597.3       67.0         33.0
  ----------- ----------- ----------- ----------- ------------ -----------

1/ Totals may not add due to rounding.

[Back](#q5)

[Click here for the PDF
version](../../../../Internet/FSA_File/2007_rice_lrs_qas_022707.pdf).