Fact Sheet

Nonrecourse Marketing Assistance Loan and

Loan Deficiency Payment Program

June 2003

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Overview

Marketing assistance loans provide

producers interim financing at

harvest time to meet cash flow

needs without having to sell their

commodities when market prices

are typically at harvest-time lows.

Allowing producers to store

production at harvest facilitates

more orderly marketing of

commodities throughout the year.

Marketing assistance loans for

covered commodities are

nonrecourse because the

commodity is pledged as loan

collateral and producers have the

option of delivering the pledged

collateral to the Commodity Credit

Corporation (CCC) as full payment

for the loan at maturity. Market loan

repayment provisions specify, under

certain circumstances, that

producers may repay loans at less

than principal plus accrued interest

and other charges. Alternatively,

loan deficiency payment (LDP)

provisions specify that, in lieu of

securing a loan, producers may be

eligible for an LDP. For ELS cotton,

LDP provisions do not apply and

marketing assistance loans must

be repaid at the loan rate plus

interest.

Marketing assistance loan

repayment and LDP provisions are

intended to prevent delivery of loan

collateral to CCC, minimize

accumulation of CCC-owned

stocks, and allow U.S. producedcontinues

commodities to be marketed

competitively. Accumulating CCCowned stocks tends to make U.S.-

produced commodities less

competitive in world markets and

can result in substantial storage

costs to taxpayers.

The Farm Security and Rural

Investment Act of 2002 (Sections

1201-1209), Public Law 107-171

(2002 Act) continues nonrecourse

marketing assistance loan and LDP

provisions of previous legislation.

The 2002 Act provides for

nonrecourse marketing assistance

loans and LDPs for the 2002-2007

crops of wheat, corn, grain

sorghum, barley, oats, soybeans,

other oilseeds (including

sunflowers, canola, safflower,

flaxseed, rapeseed, mustard seed,

crambe and sesame), rice, upland

and Extra Long Staple (ELS) cotton,

peanuts, honey, wool, mohair, dry

peas, lentils, and small chickpeas.

Eligibility Requirements

To be eligible for marketing

assistance loans and LDPs

producers must:

(1) comply with conservation and

wetland protection

requirements;

(2) report how they use their

cropland acreage on the farm;

(3) have beneficial interest in the

commodity on the date the loan

or LDP is requested and, in the

case of a loan, retain beneficial

interest while the loan is

outstanding; and

(4) ensure that the commodities

meet CCC minimum grade and

quality standards.

Nonrecourse Marketing

Assistance Loans

Loan Rates

The 2002 Act sets national average

loan rates at the levels shown in

Table 1. (See Table 1. National

Average Loan Rates, 2002-2007

Crops per production unit).

Local loan rates are based on each

commodity’s national average loan

rate, and they:

■ vary by county;

■ are based on the county where

the commodity is stored; and

■ may be adjusted by CCC with

premiums and discounts to

reflect quality factors.

Settling Loans

Loans mature on the last day of the

ninth calendar month following the

month in which the loan is

approved. A producer may settle an

outstanding nonrecourse loan:

■ during the loan period by

repaying the loan; or

■ upon maturity by forfeiting the

commodity to CCC.
Fact Sheet

Nonrecourse Marketing Assistance Loan and

Loan Deficiency Payment Program

A producer may repay a marketing

assistance loan any time during the

loan period at the lesser of the:

■ loan rate plus accrued interest

and other charges; or

■ alternative loan repayment rate

CCC determines.

For all loan eligible commodities

(except upland cotton, ELS cotton,

and rice), the alternative loan

repayment rate is the CCC

determined market price.

For wheat, feed grains, and

oilseeds, the CCC determined local

market price is often referred to as

the posted county price (PCP).

PCP’s are established and available

at each local USDA Service Center.

Generally, PCP’s are based upon

market prices at appropriate U.S.

terminal markets, adjusted to reflect

quality and location. PCP’s are

announced daily for wheat, feed

grains, and soybeans; and weekly

for other oilseeds.

For peanuts, CCC determines

national posted prices for four types

of peanuts and announces them

weekly. For wool, CCC determines

regional posted prices based on

micron lengths and announces

them weekly. For mohair, CCC

determines and announces a

national posted price weekly.

For upland cotton and rice, the

alternative repayment rate is the

prevailing world market price

(adjusted to U.S. quality and

location), often referred to as the

AWP. AWP’s are announced

weekly.

For ELS cotton, a producer must

repay a loan at the loan rate plus

accrued interest and other charges.

Marketing Loan Gains

A producer realizes a marketing

loan gain if the loan is repaid at less

than the loan principal. The

marketing loan gain rate equals the

amount by which the applicable

loan rate exceeds the loan

repayment rate.

Commodity Certificates

Commodity certificates are

available to producers to exchange

for 2002- through 2007-crop

collateral pledged to CCC for a

commodity loan. Commodity

certificates will be available for sale

at USDA Service Centers to

producers with outstanding

nonrecourse marketing assistance

loans. The exchange rate will be

the PCP or AWP (upland cotton and

rice) on the date the commodity

certificate is purchased.

Commodity certificate exchanges

will not be available when the

exchange rate exceeds the

applicable loan rate. Realized gains

from the certificate exchange, also

called certificate exchange gains,

equal the amount by which the loan

rate exceeds the PCP. For further

information, see the FSA Fact

Sheet Commodity Certificates,

contact a local USDA Service

Centers, or visit the FSA Web site

at: www.fsa.usda.gov

Premiums and Discounts

Premiums and discounts are

determined according to the grade

and quality of a specific quantity of a

commodity that a producer pledges

as loan collateral. Premium and

discount schedules vary

considerably by commodity and are

applied to the loan rate in the county

where the commodity is stored. On

a per-unit basis, premiums are

added to and discounts are

subtracted from the loan rate when

the loan is made. With the

exception of ELS cotton, the same

premiums and discounts applied to

the loan rate when the loan is made

also apply to the loan repayment

rate if a producer chooses to repay

the loan.

Interest

The interest rate charged on a

commodity loan is set at 1

percentage point above CCC’s cost

of borrowing from the U.S. Treasury

at the time the loan is made.

Section 163 of the Federal

Agricultural Improvement and

Reform Act of 1996 Act (7 USC

7283) requires the additional 1

percentage point. Once a loan is

made, the rate is fixed except that

the interest rate for loans

outstanding on January 1 is

adjusted to reflect CCC’s cost of

borrowing on January 1, plus 1

percentage point.

Accrued interest is the amount of

interest that accrues while a loan is

outstanding, starting with the day

the loan is made. Accrued interest

is calculated as: (i) the applicable

interest rate times (ii) the ratio of the

number of days under loan (starting

with the initial day and continuing

through the day prior to the day a

loan is repaid) to the number of

days in a year (i.e., 365) times (iii)

the loan principle.

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continues
Loan Deficiency Payments

A producer who is eligible to obtain

a loan, but who agrees to forgo the

loan, may obtain an LDP. The LDP

rate equals the amount by which

the applicable loan rate where the

commodity is stored exceeds the

alternative loan repayment rate for

the respective commodity. The

LDP equals the LDP rate times the

quantity of the commodity for which

the LDP is requested. Table 2

provides an example of how corn

marketing loan gains and LDPs are

calculated.

See Table 2. Corn Marketing

Loan Gain/Loan Deficiency

Payment Examples

OTHER REQUIREMENTS

Beneficial Interest

A producer retains beneficial

interest in the commodity if all of the

following remain with the producer:

■ Control of the commodity. The

producer retains the ability to

make all decisions affecting the

commodity, including

movement, sale, and the

request for a loan or LDP,

■ Risk of loss in the commodity.

The producer is responsible for

loss or damage to the

commodity. If the commodity is

insured, any indemnity must be

payable to the producer, and

■ Title to the commodity. The

producer has not sold or has not

delivered the commodity or

warehouse receipt to the buyer.

Title may be considered to be

transferred before the producer

receives payment for the

commodity. For example, title is

Fact Sheet

Nonrecourse Marketing Assistance Loan and

Loan Deficiency Payment Program

considered transferred if a

producer executes an option to

purchase without a provision in

the agreement that states that

title, risk, and beneficial interest

remains with the producer until

the buyer exercises this option

to purchase and the option to

purchase expires at the earlier

of:

(a) the maturity of any CCC

loan secured by such

commodity;

(b) the date CCC claims title

to such commodity; or

(c) another date provided in

the option.

Once beneficial interest in the

commodity is lost, the commodity

loses eligibility for a loan or LDP

and remains ineligible even if the

producer later regains beneficial

interest.

For further information see the FSA

Fact Sheet on Beneficial Interest

Requirements For Loans and

LDPs, contact a local USDA

Service Center, or visit the FSA

Web site at www.fsa.usda.gov.

Production Evidence

A producer who repays a loan at

less than the loan rate plus accrued

interest and other charges or

receives an LDP must provide

production evidence acceptable to

CCC, such as evidence of sales,

warehouse receipts, or load

summary or assembly sheets.

Final Loan/LDP Availability Dates

Producers may obtain loans or

receive LDPs on all or part of their

eligible production anytime during

the loan availability period. The loan

availability period runs from when

the commodity is normally

harvested (or sheared for wool and

mohair) until specified dates in the

following calendar year (e.g., for

2003-crop corn—May 31, 2004).

The final loan/LDP availability dates

for the respective commodities are

listed in Table 3. (See Table 3.

Final Loan/LDP Availability Dates

by Commodity).

ADJUSTED GROSS INCOME

AND PAYMENT LIMITATIONS

Adjusted Gross Income

Limitation

Starting with the 2003 crop,

individuals and entities whose

previous 3-year average adjusted

gross income (AGI) exceeds

$2.5 million are ineligible for many

program benefits unless they can

establish that at least 75 percent of

their AGI is derived from agriculture.

Program benefits for which

individuals or entities exceeding the

AGI limit will be ineligible include:

■ Direct payments;

■ Counter-cyclical payments;

■ Loan deficiency payments;

■ Marketing loan gains;

■ Agricultural Management

Assistance Program;

■ Conservation Security Program;

■ Conservation Reserve Program;

■ Environmental Quality

Incentives Program;

■ Farmland Protection Program;

■ Grassland Reserve Program;

■ Ground and Surface Water

Conservation Program;

■ Wetland Reserve Program.

continues

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Fact Sheet

Nonrecourse Marketing Assistance Loan and

Loan Deficiency Payment Program

Payment Limitations

The 2002 Act establishes limits on

payments a “person” may receive

from farm programs. The definition

of “person” includes individual

farmers, but also encompasses

limited partnerships, corporations,

and other types of organizations.

The three-entity rule, carried over

from previous legislation, limits to

three the number of entities through

which a “person” may receive

payments.

Table 1. National Average Loan Rates, 2002-2007 Crops (per production unit)

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continues

Commodity Production Unit 2002 and 2003 2004 through 2007

Wheat bushel $2.80 $2.75

Corn bushel $1.98 $1.95

Grain sorghum bushel $1.98 $1.95

Barley bushel $1.88 $1.85

Oats bushel $1.35 $1.33

Soybeans bushel $5.00 $5.00

Other Oilseeds pound $0.096 $0.093

Rice hundredweight $6.50 $6.50

Upland Cotton pound $0.52 $0.52

ELS Cotton pound $0.7977 $0.7977

Peanuts short ton $355.00 $355.00

Honey pound $0.60 $0.60

Wool, graded pound $1.00 $1.00

Wool, ungraded pound $0.40 $0.40

Mohair pound $4.20 $4.20

Dry peas pound $6.33 $6.22

Lentils pound $11.94 $11.72

Small chickpeas pound $7.56 $7.43

The sum of LDPs and marketing

loan gains is subject to a $75,000-

per-person payment limitation for

each crop year as follows:

■ $75,000 total for wheat, corn,

grain sorghum, barley, oats,

upland cotton, rice, soybeans,

other oilseeds, dry peas, lentils,

and small chickpeas; and

■ $75,000 total for peanuts, wool,

mohair, and honey.

For more information on payment

limitations see the FSA Fact Sheet

Payment Eligibility and Limitations,

contact a local USDA Service

Center, or visit the FSA website at

www.fsa.usda.gov
Table 2. Corn Marketing Loan Gain/Loan Deficiency Payment Examples

Table 3. Final Loan/LDP Availability Dates by Commodity

Fact Sheet

Nonrecourse Marketing Assistance Loan and

Loan Deficiency Payment Program

Final Loan/LDP

Availability Date Commodity

January 31 Mohair, Peanuts, and Wool

March 31 Barley, Canola, Crambe, Flaxseed, Honey, Oats,

Rapeseed, Sesame, and Wheat

May 31 Corn, Dry peas, ELS cotton, Grain sorghum,

Lentils, Mustard seed, Rice, Safflower, Small

chickpeas, Soybeans, Sunflower seed, and

Upland cotton

Loan Repayment Rate Scenario Item Scenario 1 Scenario 2 Scenario 3

dollars per bushel

Loan rate

Loan rate plus interest

Posted County Price (PCP)

Lower of loan rate plus interest or PCP

Marketing Loan Gain or LDP rate

1.98

2.05

2.50

2.05

0.00

1.98

2.05

2.00

2.00

0.00

1.98

2.05

1.75

1.75

0.23

The United States Department of Agriculture

(USDA) prohibits discrimination in all its

programs and activities on the basis of race,

color, national origin, sex, religion, age, disability,

political beliefs, sexual orientation, or marital or

family status. (Not all prohibited bases apply to

all programs.) Persons with disabilities who

require alternative means for communication of

program information (Braille, large print,

audiotape, etc.) should contact USDA’s TARGET

Center at 202-720-2600 (voice and TDD).

To file a complaint of discrimination, write USDA,

Director, Office of Civil Rights, Room 326-W,

Whitten Building, 1400 Independence Avenue,

SW, Washington, DC 20250-9410 or call (202)

720-5964 (voice and TDD). USDA is an equal

opportunity provider and employer.

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