As we enter harvest season, we want to remind agricultural producers about commodity loans, which provide marketing options for producers as commodity prices fluctuate. In this Ask the Expert, Shayla L. Watson answers questions about how Marketing Assistance Loans (MALs) and Loan Deficiency Payments (LDPs) can provide financial support for producers, if needed at and after harvest. Shayla is the Program Manager for Marketing Assistance Loans (MALs) and Loan Deficiency Payments (LDPs) at the Farm Service Agency (FSA). She is responsible for providing national policy and guidance for both programs.
What are Marketing Assistance Loans?
The Marketing Assistance Loan program is a nine-month loan that provides producers interim financing at harvest time to meet cash flow needs without having to sell their commodities.
Don’t let the word “loan” mislead you, because this is not your typical loan program. These loans allow producers to store production on-farm or in warehouses so they can market commodities throughout the year as prices improve.
How are Marketing Assistance Loans repaid?
There are several options to satisfy an MAL. Most importantly, the program fluctuates as market conditions change.
Typically, borrowers pay principal plus interest. If the announced repayment rate is lower than the actual loan rate, borrowers repay at the lower rate and interest is forgiven. Borrowers can keep the difference, which is known as market gain. Producers can also forfeit or settle a loan by delivering the commodity to the Commodity Credit Corporation (CCC).
If market conditions allow for market gain, producers who do not have an MAL can choose to take a Loan Deficiency Payment or LDP. LDPs are in lieu of a loan - they allow producers to receive market gains without taking out and repaying a loan.
Does credit matter?
Your credit score is not a determining factor for approval. MALs and LDPs are based on the quality of the commodity and other general eligibility requirements that also apply to other farm program benefits. Because the quality of a commodity must be maintained throughout the life a loan, a commodity must be safely stored on-farm or in a warehouse.
How can I benefit from a Marketing Assistance Loan?
Many producers use their MAL to pay off other debts they have acquired prior to harvest like loans or lines of credit used to plant the commodity or to secure equipment early in the season. A producer can receive an MAL at a lower interest rate and repay other debts.
The MAL can be repaid when the commodity is sold when prices are higher allowing producers to control marketing. LDPs are direct benefits to producers instead of a loan, and do not have to be repaid.
How can I apply?
To apply, contact your local FSA County Office. Additional information must be provided depending on if the loan is farm or warehouse stored. Producers must also pay a service fee based on the quantity under loan.
Other eligibility criteria include:
- Compliance with conservation and wetland protection requirements;
- Depending on the commodity, submitting an acreage report for all cropland on all farms as applicable;
- Having and retaining beneficial interest in the commodity until the MAL is repaid or CCC takes title to the commodity; and
- Depending on the type of repayment or if receiving an LDP, meeting adjusted gross income limitations
The application and any supporting documentation must be received by the final loan availability date which varies by commodity.
What commodities are eligible?
MALs and LDPs cover many commodities and subclasses of commodities. The commodity must:
- Have been produced, mechanically harvested, or shorn from live animals by an eligible producer and be in storable condition;
- Be merchantable for food, feed, or other uses, as determined by CCC; and
- Meet specific CCC minimum grade and quality standards.
Eligible commodities include wheat, corn, grain sorghum, barley, oats, upland cotton, extra-long staple cotton (eligible for MAL only), 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 and nongraded wool, mohair, unshorn pelts (eligible for LDP only), honey and peanuts.
Where can I find more information?
Shayla Watson is a Program Manager with FSA. She can be reached at email@example.com.