Bill Opens Up Marketing Gains

Marketing Loans Would be Decoupled From Farm Program Payment Caps

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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A section of the spending bill reopens the 2014 farm bill by changing the terms and conditions for marketing loans in the commodity title. (DTN photo illustration by Nick Scalise)

OMAHA (DTN) -- A provision in the must-pass federal spending bill before Congress would remove marketing-loan gains from farm-program payment caps.

Congress will vote in the next couple of days on a bill to fund the government through 2016 as well as another bill to provide businesses and families an array of tax breaks. The bills were negotiated in detail to create enough votes to satisfy different constituencies.

The spending bill has several policy riders for agriculture repealing country-of-origin labeling, banning horse slaughter and placing restrictions on how USDA and the U.S. Department of Health change national dietary guidelines.

A section of the spending bill also reopens the farm bill by changing the terms and conditions for marketing loans in the commodity title. The provision requires USDA to revert to the rules under the 2008 farm bill. This effectively decouples marketing loans from the $125,000-per-person payment cap established under the 2014 farm bill for commodity programs such as Agricultural Risk Coverage and Price Loss Coverage.

The 2008 farm bill did not have payment caps for gains on marketing loans, such as loan deficiency payments. The language in the spending bill reverts to the 2008 farm bill and reestablishes commodity certificates, which were used by farmer cooperatives with commodities suffering from depressed prices to take advantage of those unlimited gains on loans.

Loan rates are too low for farmers in most crops to take advantage. The national loan rate for corn is $1.95 a bushel. It's $5 a bushel for soybeans and $2.75 a bushel for wheat.

The move in the spending bill was considered critical to help the cotton industry, which is reeling from a decline in prices. The bill would allow unlimited marketing-loan gains for the 2015 crop year.

"It brings generic certificates back into the mix," said Tom Sell, who lobbies for cotton cooperatives.

The loan rate for cotton is 52 cents a pound, but the loan-deficiency payment for cotton is pegged to the difference between the loan rate and the Adjusted World Price, which is 49.04 cents a pound. The gain on marketing loans right now for cotton is 2.96 cents a pound.

Sell said the reality is that the cotton farmers are struggling, recognized by the hearing last week in the House Agriculture Committee where producers and bankers stressed their concern. The decline in the industry wasn't anticipated in the run up to the 2014 farm bill when cotton groups gave up commodity payments.

Sell noted that when prices are at or near a loan rate, flexibility on the use of loans for a cooperative can make a big difference. "For commodities that use marketing loans, it's designed to help with more orderly marketing," Sell said.

Sell added, "It's only in the worst of circumstances when this would become relevant. This ag economy is not fun and not one anyone anticipated when this (farm) bill passed."

Cotton marketing cooperatives relied heavily on marketing loans in years of low prices. Co-ops took out more than $4.7 billion in such loans for farmers' crops in 2005 and nearly the same amount in 2006. The use of loans has dwindled for most crops, but are still used heavily in cotton cooperatives.

Forfeitures are relatively limited when the loans were used heavily. Of the $2 billion in marketing loans for upland cotton last year, only about $13,000 was forfeited.

The change in marketing loans comes as the cotton industry and at least 100 members of Congress also are lobbying Agriculture Secretary Tom Vilsack to declare cottonseed as an eligible oilseed. That would allow farmers to collect Price Loss Coverage payments for cottonseeds.

Some groups and farm-bill observers lashed out at the action on marketing loans in the spending bill. The National Sustainable Agriculture Coalition said commodity certificates were eliminated in 2009 after being abused. The coalition said the language in the spending bill would only help large operations that needed a way around the payment cap.

"As a result, the nation's very largest cotton operations will be able to collect unlimited subsidies through this certificate mechanism, without any benefit accruing to the majority of cotton farms that are not in any jeopardy of reaching the statutory limit. This rider is a blatant end-run around the policy set by the 2014 Farm Bill, a giveaway to mega farms, and a shameful perversion of the annual appropriations process," NSAC stated.

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Chris Clayton