November 2009

The 2008 Farm Bill reauthorizes nonrecourse marketing assistance loans (MAL) and loan deficiency payment (LDP) and makes them available for the 2008-2012 crops of wheat, corn, grain sorghum, barley, oats, upland cotton, extra-long staple cotton, long grain rice, medium grain rice, soybeans, other oilseeds (including sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed, crambe and sesame seed), dry peas, lentils, small chickpeas, large chickpeas, graded wool, nongraded wool, mohair, honey and peanuts.

The Fees and Warehouse Storage Credits Applicable to Cotton Loans and Transfers fact sheet provides additional information about MALs for cotton.

MALs and LDPs are marketing tools available to producers beginning upon harvest or shearing. The MAL provides an influx of cash when market prices are typically at harvest-time lows, which allows the producer to delay the sale of the commodity until more favorable market conditions emerge. Allowing producers to store production at harvest or shearing provides for a more orderly marketing of commodities throughout the year.

MALs for commodities are considered nonrecourse when the MAL can either be redeemed by the repayment of the MAL or by delivering the pledged collateral to the Commodity Credit Corporation (CCC) as full payment for the MAL at maturity. MAL repayment provisions specify, under certain circumstances, that producers may repay MALs at less than loan rate (principal) plus accrued interest and other charges. Alternatively, loan deficiency payment (LDP) provisions specify that, in lieu of securing a MAL, producers may elect to receive an LDP.

MAL repayment and LDP provisions are intended to minimize potential delivery of loan collateral to CCC, accumulation of CCC-owned stocks, storage costs, discrepancies in marketing loan benefits across State and county boundaries, and allow U.S. produced-commodities to be marketed freely and competitively. Accumulating CCC-owned stocks tends to make U.S.-produced commodities less competitive in world markets and can result in substantial storage costs to taxpayers.

To be eligible for a MAL or LDP, the producer must:

To be eligible for a MAL or LDP, the commodity must:

A producer retains beneficial interest in the commodity if both of the following remain with the producer:

Once beneficial interest in the commodity is lost, the commodity loses eligibility for a MAL or LDP and remains ineligible even if the producer later regains beneficial interest.

If the commodity is delivered to a buyer, processor, feedlot or mill that rejects the commodity because minimum standards are not met, beneficial interest shall not be considered lost by the producer if the commodity is returned to the producer.

The commodity is not considered rejected if the producer receives a reduced contract price for the commodity.

For further information see the FSA Fact Sheet on Beneficial Interest Requirements For MALs and LDPs, contact a local USDA Service Center, or visit the FSA Web site at www.fsa.usda.gov.

The 2008 Act sets national loan rates at the levels shown in Table 1.

Table 1. National Loan Rates, 2008-2012 Crops (per production unit)

County and regional loan rates are based on each commodity's national loan rate, and they:

MALs mature on the last day of the ninth calendar month following the month in which the MAL is approved. A producer may settle an outstanding nonrecourse MAL:

For all loan eligible commodities (except long and medium grain rice), a producer may repay a MAL any time during the loan period at the lesser of the:

For wheat, feed grains, and oilseeds, the CCC determined county market price is often referred to as the posted county price (PCP). PCPs are established and available at each local USDA Service Center. PCPs are based upon market prices at appropriate U. S. terminal markets, adjusted to reflect quality and location. PCPs are announced daily for wheat, feed grains, soybeans, canola, flaxseed and sunflower seed; and weekly for other oilseeds.

For peanuts, CCC determines national posted prices for four types of peanuts and announces them weekly. For dry peas, lentils and wool, CCC determines and announces regional posted prices weekly. For mohair, large and small chickpeas, CCC determines and announces a national posted price weekly.

For long and medium grain rice, a producer may repay a MAL any time during the loan period at the lesser of the:

The AWP is the prevailing world market price adjusted to U.S. quality and location. AWP's are announced weekly.

A producer realizes a marketing loan gain (MLG) if the MAL is repaid at less than the loan principal. The MLG rate equals the amount by which the applicable loan rate exceeds the MAL repayment rate.

Commodity certificates are available to producers to exchange for 2008 and 2009 crop collateral pledged to CCC for a MAL. Commodity certificates will be available for sale at USDA Service Centers to producers with outstanding nonrecourse MALs. The exchange rate will be the PCP or AWP (long and medium grain rice) on the date the commodity certificate is purchased. Realized gains from the certificate exchange, also called certificate exchange gains, equal the amount by which the loan rate exceeds the repayment rate. Commodity certificate exchanges will not be available when the exchange rate exceeds the applicable loan rate.

For further information, see the FSA Fact Sheet Commodity Certificates, contact a local USDA Service Centers, or visit the FSA Web site at: www.fsa.usda.gov.

Commodity certificates will not be available for exchange for any 2010 through 2012 crop MALs.

Loan premiums and discounts are determined according to the grade and quality of a specific quantity of a commodity that a producer pledges as loan collateral. Premium and discount schedules vary by commodity and are applied to the loan rate in the county where the commodity is stored. On a per-unit basis, premiums are added to and discounts are subtracted from the loan rate only when the MAL is forfeited to CCC.

The interest rate charged on a commodity loan is set at 1 percentage point above CCC's cost of borrowing from the U.S. Treasury at the time the loan is made as required by Section 163 of the Federal Agricultural Improvement and Reform Act of 1996 Act. Once a loan is made, the rate is fixed except the interest rate for loans outstanding on January 1 is adjusted to reflect CCC's cost of borrowing on January 1, plus 1 percentage point.

Accrued interest is the amount of interest that accrues while a loan is outstanding, starting with the day the loan is made. Accrued interest is calculated as: (i) the applicable interest rate times (ii) the ratio of the number of days under loan (starting with the initial day and continuing through the day prior to the day a loan is repaid) to the number of days in a year (i.e., 365) times (iii) the loan principal. Table 2 provides an example of how accrued interest is calculated.

Table 2. Accrued Interest Calculation Examples.

A producer who is eligible to obtain a MAL, but who agrees to forgo the MAL, may obtain an LDP. The LDP rate equals the amount by which the applicable loan rate where the commodity is stored exceeds the effective MAL repayment rate for the respective commodity. The LDP amount equals the LDP rate times the quantity of the commodity for which the LDP is requested. Table 3 provides an example of how MLGs and LDPs are calculated.

Table 3. Marketing Loan Gain/Loan Deficiency Payment Examples.

Does not include accrued interest at $0.03.

A producer who repays a MAL at less than the loan rate plus accrued interest and other charges or receives an LDP may be subject to a spot check and must provide production evidence acceptable to CCC, such as evidence of sales, warehouse receipts, or load summary or assembly sheets.

Producers may obtain MALs or receive LDPs on all or part of their eligible production anytime during the loan availability period. The loan availability period runs from when the commodity is normally harvested (or sheared for wool and mohair) until specified dates in the following calendar year. The final loan/LDP availability dates for the respective commodities are listed in Table 3.

Table 4. Final Loan/LDP Availability Dates by Commodity.

A person or legal entity with an average adjusted gross nonfarm income that exceeds $500,000 is not eligible for MLG's and LDP payments. However, the person or entity is eligible for a MAL, but the MAL must be repaid at principal plus interest, or a commodity certificate may be exchanged for the loan collateral.

For more information on AGI limitation, see the FSA Fact Sheet entitled, Adjusted Gross Income 2009 and Subsequent Crop Years, contact a local USDA Service Center, or visit the FSA website at www.fsa.usda.gov.

Beginning with the 2009 crop year and subsequent crop years, CCC will no longer limit payments on benefits associated with MAL or LDP programs.

MLGs and LDPs obtained on 2008 crops are subject to the payment limitation rules in effect for the 2008 crop.

A payment limitation for 2008 crop year on the sum of MLGs and LDPs is subject to a $75,000-per-person payment limitation as follows:

For more information on payment limitations see the FSA Fact Sheet Payment Eligibility and Limitations, or contact a local USDA Service Center, or visit the FSA website at www.fsa.usda.gov.

MAL rate will be reduced by 30 percent if production comes from a farm participating in the ACRE program. Alternative loan repayment rates will not be adjusted by 30 percent. See Fact Sheet titled ACRE program, or contact a local USDA Service Center, or visit the FSA website at www.fsa.usda.gov.

For more information about FSA programs, contact your local FSA office or USDA Service Center, or visit the World Wide Web at www.fsa.usda.gov

The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, age, disability, and where applicable, sex, marital status, familial status, parental status, religion, sexual orientation, genetic information, political beliefs, reprisal, or because all or part of an individual's income is derived from any public assistance program. (Not all prohibited bases apply to all programs.) Persons with disabilities who require alternative means for communication of program information (Braille, large print, audiotape, etc.) should contact USDA's TARGET Center at (202) 720-2600 (voice and TDD). To file a complaint of Discrimination, write to USDA, Director, Office of Civil Rights, 1400 Independence Avenue, SW., Washington, DC 20250-9410, or call (800) 795-3272 (voice) or (202) 720-6382 (TDD). USDA is an equal opportunity provider and employer.