98-744 - Agricultural Marketing Assistance Loans and Loan Deficiency Payments
13-Dec-2000; Jasper Womach; 5 p.
Abstract: Marketing assistance loans for the major crops were designed to facilitate orderly marketing by providing short-term financing so that farmers could pay their bills right after harvest and spread their sales over the entire marketing year. However, the persistence of very low commodity prices transformed the loan program into a major vehicle of farm income support. Marketing loan program benefits (primarily loan deficiency payments, LDPs) to farmers amounted to about $5.9 billion in 1999, and will exceed $6.5 billion in 2000. Such levels of use and high costs have revealed several administrative problems and given rise to several policy issues. Some policy makers have favored broadening the scope and enhancing the benefits of the program to achieve greater farm income support. Anticipated adverse market impacts have discouraged adoption of these proposals to date. A persistent policy issue is the payment limitation on marketing loan gains. Support provisions in the 1996 farm bill (P.L. 104-127) (1) for wheat, feed grains, cotton, and rice includes two primary elements - (1) annual fixed production flexibility contract payments, and (2) the continuation of marketing assistance loans. Soybeans and minor oilseeds, while not eligible for production flexibility contracts, can utilize marketing assistance loans. It was anticipated that contract payments, averaging about $5 billion per year, would serve as farm income support, and marketing assistance loans would facilitate orderly marketing at little or no federal cost. Unanticipated and persistently low market prices altered the outcome. The contract payments have been supplemented with emergency ¨market loss payments¨ in 1998, 1999, and 2000. In addition, the marketing loan program has become a major source of ¨counter-cyclical¨ farm income support, amounting to $1.792 billion in 1998, an estimated $5.894 billion in 1999, and $7.651 billion is forecast for 2000. (2) This report explains the design and operation of marketing assistance loans and examines some of the administrative and policy problems that have arisen.
Topics: Agriculture, Economics & Trade