Marketing Assistance Loans And Loan Deficiency Payments

Marketing Assistance Loansand Loan Deficiency PaymentsOverviewMarketing assistance loans (MALs) and loandeficiency payments (LDPs) are marketing toolsavailable during harvest or shearing.Marketing assistance loans provide interimfinancing at harvest time to help agriculturalproducers meet cash flow needs without havingto sell their commodities when market pricesare typically at harvest-time lows. This enablesproducers to delay selling the commodity untilmore favorable market conditions emerge. Storingproduction at harvest (or at shearing for wool andmohair) allows more orderly commodity marketingthroughout the year.How it WorksA nonrecourse marketing assistance loan canbe redeemed by repayment, or by deliveringthe agricultural commodity that was pledged ascollateral to the Commodity Credit Corporation(CCC) as full payment for the loan upon maturity.Recourse marketing assistance loans are alsoavailable for commodities that may be of lowerquality due to an element such as high moisture,commodities harvested as other than grain,or for contaminated commodities that are stillwithin merchantable levels of tolerance. RecourseMAL’s can only be repaid at principal plus accruedinterest.Under certain circumstances, producers may repayat less than the loan rate (principal) plus accruedinterest and other charges.Alternatively, LDP provisions specify that in lieu ofsecuring a MAL, producers may elect to receive anLDP. An LDP is the difference the producer wouldhave received if a loan was repaid at the lowermarket price, a direct benefit that does not need tobe repaid.MAL repayment and LDP provisions are intendedto minimize potential delivery, storage, and relatedcosts of agricultural commodities to CCC. Theprovisions also are designed to avoid discrepanciesin marketing loan benefits across states andcounties and to allow U.S. produced commoditiesto be marketed freely and competitively.Who is Eligible?To be eligible for a MAL or LDP, a producer must: Comply with conservation and wetlandprotection requirements; Submit an acreage report for all cropland on allfarms as applicable; Have and retain beneficial interest in thecommodity until the MAL is repaid or CCC takestitle to the commodity; and Meet adjusted gross income limitations(described in a later section).

Eligible CommoditiesEligible commodities include wheat, corn, grainsorghum, barley, oats, upland cotton, extra-longstaple cotton (eligible for MAL only), long grainrice, medium grain rice, soybeans, other oilseeds(including sunflower seed, rapeseed, canola,safflower, flaxseed, mustard seed, crambe andsesame seed), dry peas, lentils, small chickpeas,large chickpeas, graded and nongraded wool,mohair, unshorn pelts (eligible for LDP only), honeyand peanuts.Commodities harvested as other than grain mayalso be eligible for a LDP.The commodity must: Have been produced, mechanically harvestedor shorn from live animals by an eligibleproducer and be in storable condition; Be merchantable for food, feed or other uses,as determined by CCC; and Meet specific CCC minimum grade and qualitystandards for MALs.Beneficial InterestA producer retains beneficial interest in thecommodity if the producer retains both: Control of the commodity - the producerretains the ability to make all decisionsaffecting the commodity, including movement,sale and the request for a MAL or LDP.Title to the commodity - the producerhas not sold or delivered the commodity orwarehouse receipt to the buyer. If delivered,the title may be considered as transferredbefore the producer receives payment for thecommodity. For example, title is consideredtransferred if a producer executes an option topurchase without a provision stating that titleand control remain with the producer until thebuyer exercises the option to purchase, and theoption to purchase expires at the earlier of:1. The maturity of any CCC loan securedby such commodity;2. The date CCC claims title to suchcommodity; or3. Another date provided in the option.Once beneficial interest in the commodity is lost,the commodity loses eligibility for a MAL or LDPand remains ineligible even if the producer laterregains beneficial interest.If the commodity is delivered to a buyer, processor,feedlot or mill that rejects the commodity becauseminimum standards are not met, beneficial interestshall not be considered lost if the commodity isreturned to the producer. The commodity is notconsidered rejected if the producer receives areduced contract price.Availability DatesProducers may obtain MALs or receive LDPs on allor part of their eligible production anytime duringthe loan availability period which runs from whenthe commodity is normally harvested (or sheared)until dates specified in Table 1.Marketing Assistance LoansLoan RatesThe 2018 Farm Bill sets national loan rates at thelevels shown in Table 2.County and regional loan rates are based on eachcommodity’s national loan rate, and: Vary by county or region, and; Are based on the average prices andproduction of the county or region wherethe commodity is stored.Loan Premiums and DiscountsLoan premiums and discounts are determinedaccording to the grade and quality of a specific2FARM PRODUCTION AND CONSERVATION FSA NRCS RMA Business CenterSeptember 2020

quantity of the commodity pledged as loancollateral. Premium and discount schedules varyby commodity and are applied to the loan ratein the county where the commodity is stored.On a per-unit basis, premiums are added to anddiscounts are subtracted from the loan rate onlywhen the MAL is forfeited to CCC. This is for all loancommodities except cotton and peanuts for whichpremiums and discounts are applied at the time aloan is made.InterestThe interest rate charged on a commodity loan isset at one percentage point above CCC’s cost ofborrowing on Jan. 1.Accrued interest is the amount of interest thataccumulates while a loan is outstanding, startingwith the day the loan is made. Accrued interestis calculated by multiplying: (i) the applicableinterest rate times, (ii) the ratio of the number ofdays under loan (starting with the initial day andcontinuing through the day prior to the day a loanis repaid) to the number of days in a year (i.e., 365)times, (iii) the loan principal. Table 3 provides anexample of how accrued interest is calculated.Loan RepaymentMALs mature on the last day of the ninth calendarmonth following the month in which the MAL isapproved, except all seed cotton loans mature onMay 31 the year following when the cotton wasplanted. A producer may repay an outstandingMAL: Before maturity period by repaying the MAL, or; Upon maturity by settling or forfeitingthe commodity to CCC. The commodity istransferred to CCC to repay the loan.For all loan-eligible commodities except extra-longstaple (ELS) cotton or any recourse loan, a producermay repay a MAL any time during the loan periodat the lesser of the: Loan rate plus accrued interest and othercharges, or; Alternative loan repayment rate as determinedby CCC.For wheat, feed grains and oilseeds, the CCCdetermined alternative loan repayment rateis often referred to as the posted county price(PCP). PCPs are established and available at eachlocal USDA Service Center. PCPs are based uponmarket prices at appropriate U.S. terminal markets,adjusted to reflect quality and location. PCPs areannounced daily for wheat, feed grains, soybeans,canola, flaxseed and sunflower seed, and weeklyfor other oilseeds.For peanuts, CCC determines national postedprices (NPP) for four types of peanuts andannounces them weekly. For dry peas and lentils,CCC determines and announces regional postedprices weekly. For wool and large and smallchickpeas, CCC determines and announces an NPPweekly. For honey, CCC determines and announcesthe national survey price monthly. For long andmedium grain rice and upland cotton, a producermay repay a MAL any time during the loan periodat the lesser of the: Loan rate plus accrued interest and othercharges, or; Adjusted world price (AWP).The AWP is the prevailing world market priceadjusted to U.S. quality and location. SeparateAWPs for long grain, medium grain rice and uplandcotton are announced weekly.3FARM PRODUCTION AND CONSERVATION FSA NRCS RMA Business CenterSeptember 2020

Commodity Certificate ExchangeCommodity certificates are available to producersto exchange collateral pledged to CCC for a MAL.Commodity certificates will be available forsale at USDA Service Centers to producers withoutstanding nonrecourse MALs. The exchange ratewill be the AWP for upland cotton or rice, the NPPfor peanuts, or the PCP for other commodities, asapplicable on the date the commodity certificateis purchased. Realized gains from the certificateexchange gains equal the amount by which theloan rate exceeds the repayment rate.For further information, see the CommodityCertificate Exchange (CCE) fact sheet at www.fsa.usda.gov/factsheets, contact a local USDA servicecenter or visit the FSA website at www.fsa.usda.gov/pricesupport.Marketing Loan GainsOther RequirementsProduction EvidenceA producer who repays a MAL at less than the loanrate plus accrued interest and other charges, orreceives an LDP, may be subject to a spot check andmust provide production evidence acceptable toCCC, such as evidence of sales, warehouse receipts,or load summary or assembly sheets.Adjusted Gross Income LimitationProducers or legal entities whose average AGIexceeds 900,000 are not eligible for marketingloan gains or LDP payments; but are eligible forMALs that must be repaid at principal plus interestto repay the loan or exchanged with a commoditycertificate exchange if the lower alternativerepayment rate is below the established loan rate.A producer receives a marketing loan gain if theMAL is repaid at less than the loan principal. Themarketing loan gain rate equals the amount bywhich the applicable loan rate exceeds the MALrepayment rate.Payment LimitationsCommodity loan gains received from thecommodity certificate exchange are not subjectAdjusted Gross Income (AGI) provisions.More InformationLoan Deficiency PaymentA producer who is eligible to obtain a MAL, but whoagrees to forgo the MAL, may obtain an LDP undercertain market conditions. The LDP rate equals theamount by which the applicable loan rate wherethe commodity is stored exceeds the effective MALrepayment rate for the respective commodity. TheLDP amount equals the LDP rate times the quantityof the commodity for which the LDP is requested.Table 4 provides an example of how MLGs andLDPs are calculated.LDPs and marketing loan gains available forcrop years 2019 through 2023 are not subject topayment limitation, including actively engaged infarming.To learn more about commodity certificates,visit fsa.usda.gov/pricesupport or contact yourlocal FSA office. To find your local FSA office, visitfarmers.gov/service-center-locator.4FARM PRODUCTION AND CONSERVATION FSA NRCS RMA Business CenterSeptember 2020