Minding Ag's Business
More Farmers Using USDA's Marketing Assistance Loans
Demand for marketing assistance loans through USDA's Commodity Credit Corporation is the highest it's been in a decade. Their resurgent popularity is just another way to illustrate how tough it's getting in the farm economy, especially when you consider the national average loan rate is $1.95 per bushel on corn and $5 per bushel on soybeans.
In 2017, farmers put 990 million bushels of corn under loan, just shy of the 1.07 billion under loan in 2008. It's true for soybeans, too. Farmer put 146 million bushels under loan last year compared to 189 million bushels in 2008. (See the tables below for historical context.)
Farmers often use marketing assistance loans as short-term financing to fund input purchases for the next growing season.
P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]
"If things don't turn around in 2019, I think you'll see them even more widely utilized next year because it is fairly straightforward and you don't have to be approved by a bank," South Dakota farmer and DTN contributing analyst Tregg Cronin said. "The sad part is the loan rates are set from 20-25 years ago and don't reflect the cost of production in 2018 agriculture at all. If those loan rates were actually reflective of what it cost to produce a crop in 2018, I think you'd have even more guys using them because a lot of the time USDA is the cheapest source of interest."
He said it's a sign of the times. Back in 2012-14, most farmers were flush with cash amid high commodity prices. If they needed cash to buy input, they sold grain. But now that crop prices well below the cost of production and cash reserves under strain, more farmers are relying on various forms of credit.
According to the Federal Reserve Bank of Kansas City, repayment rates for farm loans have declined in every quarter since the second quarter of 2013, and the outstanding balance on operating loans has increased. The average variable interest rate on operating loans has climbed to nearly 6.25%.
While CCC loan rates are also on the rise, they're substantially lower. In January 2018, USDA charged 2.625% interest on commodity loans. The interest rate for January 2019, if the Federal Reserve follows through with its plan for two more increases to the Federal Funds Rate, would be 3.875%.
These two types of credit are obviously quite different. Like Cronin said, you don't have to be approved by a bank for a CCC marketing assistance loan, only the Farm Services Agency. Farmers can take CCC loans any time after harvest (but before the end of May) and have nine months to repay it. There are a number of ways to repay, including cash, a loan deficiency payment or the commodity that was used as collateral.
You can find a refresher on marketing assistance loans from USDA here: https://www.fsa.usda.gov/…
Unfortunately, CCC marketing assistance loan rates are established in the Farm Bill, and neither the House nor Senate updated those figures in their version of the bill. While it's possible the conference committee could address the issue, it may prove too expensive, especially with reform to the SNAP program sucking up all the political capital negotiators have at their disposal.
CORN, Crop Year 2017 | |||
Loans Made | |||
Crop Year | Count | Quantity | Amount ($) |
2017 | 16,576 | 990,603,894.09 | 1,892,435,573.14 |
2016 | 15,282 | 880,144,099.60 | 1,681,368,390.02 |
2015 | 14,045 | 746,067,615.63 | 1,422,028,462.18 |
2014 | 11,402 | 574,224,649.32 | 1,102,248,163.63 |
2013 | 8,862 | 460,149,050.95 | 821,800,803.20 |
2012 | 7,748 | 368,135,401.58 | 675,046,482.69 |
2011 | 13,212 | 574,224,056.22 | 1,050,953,851.72 |
2010 | 17,083 | 801,128,284.69 | 1,455,091,446.66 |
2009 | 25,107 | 934,355,095.14 | 1,707,057,488.80 |
2008 | 30,563 | 1,074,094,575.20 | 2,052,025,958.88 |
SOYBEANS, Crop Year 2017 | |||
Loans Made | |||
Crop Year | Count | Quantity | Amount ($) |
2017 | 8,979 | 146,239,774.35 | 729,018,510.56 |
2016 | 6,882 | 104,985,571.69 | 523,486,339.14 |
2015 | 8,614 | 124,140,652.93 | 617,140,842.07 |
2014 | 6,192 | 80,052,650.87 | 400,760,461.24 |
2013 | 3,918 | 49,178,953.15 | 230,849,153.46 |
2012 | 4,912 | 58,455,771.99 | 284,078,121.72 |
2011 | 8,600 | 98,483,801.29 | 476,107,472.09 |
2010 | 9,203 | 108,358,066.08 | 519,217,949.46 |
2009 | 12,908 | 123,504,417.02 | 598,695,877.58 |
2008 | 20,866 | 189,041,828.45 | 942,111,986.38 |
Follow Katie Dehlinger on Twitter @KatieD_DTN
(KD)
© Copyright 2018 DTN/The Progressive Farmer. All rights reserved.
Comments
To comment, please Log In or Join our Community .