Loan repayment rates for commodities

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COLUMBUS — USDA has began to use an improved and more stable system for determining non-recourse marketing assistance loan repayment rates and loan deficiency payment rates for wheat, feed grains, pulse crops, oilseeds, wool, mohair and honey.

“The new method will moderate fluctuations of the loan repayment rate,” said David Drake, acting state executive director for Ohio’s FSA.

“This decision reduces the effects daily market volatilities have on loan repayment rates and provides more certainty for producers who have taken advantage of marketing assistance loans or loan deficiency payments.”

Have the authority

The 2008 farm bill provides USDA the authority to establish a loan repayment rate that may be determined as the lesser of the loan rate plus interest and a rate based on: average market prices during the previous 30 days, or an alternative method the secretary may develop.

Effective April 15, for wheat, corn, grain sorghum, soybeans, barley, oats, canola, flaxseed and sunflower seed, USDA’s Commodity Credit Corporation (CCC) started determining and publishing daily loan repayment rates based on the average market prices during the preceding 30 days.

Also, CCC will announce each day a repayment rate based on the preceding five days. The new method will replace the current one, which is based on the previous day’s market rates.

The effective alternative repayment rate will be the lower of either the 30-day average or the five-day average.

The methods

The 30-day method will reflect a 30-day moving average of all terminal market prices for the crop, adjusted by the difference between the applicable national loan rate and the county loan rate.

The five-day method will reflect a five-day moving average of applicable terminal market prices adjusted by applicable county differential and terminal adjustments.

Drake said this new loan repayment method will minimize potential forfeitures, accumulation of CCC stocks, CCC storage costs, market impediments and discrepancies in benefits across state and county boundaries.

Then and now

Before April 15, the loan repayment rate for a county was based on the daily posted county price for the commodity, and this rate was adjusted by any premiums and discounts made to a non-recourse marketing assistance loan at the time the loan was made.

Now, for pulse crops (lentils, dry peas, small chickpeas — and starting with the 2009 crop year, large chickpeas), crambe, mustard seed, rapeseed, safflower, sesame seed, wool, mohair and honey, CCC will determine and publish loan repayment rates once a week based on average market prices during the preceding 30 days.

Alternative rate

CCC will also announce an alternative repayment rate using current methodology each week. The effective repayment rate will be the lower of either the 30-day average or the alternative repayment rate.

No alternative repayment rate will be available for honey.

Additionally, the 2008 farm bill removed the requirement for the secretary to establish loan and loan repayment rates based on feed grade for peas, and number 3 grade for lentils and small chickpeas.

Loan repayment rates for 2008 crop pulse marketing assistance loans will be based on U.S grade No. 1.

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