CHICAGO, Illinois (Reuters) – A sudden big jump in loan deficiency payment rates for U.S. Midwest corn farmers has shifted harvest activity to corn from soybeans and set off a rush to cash in on the rates, grain dealers said.
LDPs, which are guaranteed payments from the United States Agriculture Department that farmers can claim when their county cash crop prices fall below the government’s loan rate, can provide farmers an extra cash bonus.
According to USDA daily calculations, corn LDPs in the Midwest on Sept. 23 were running as high as 30 cents per bushel. The oddity was that the large amount was not, as usual, reflecting the spread between actual cash prices and the USDA’s self-calculated posted county prices for grains.
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By contrast, USDA was not posting any LDPs on soybeans.
“They’re wondering, ‘do I combine my beans that are ready, or do I forget the beans and combine corn and make sure I get this LDP?’ ” said Greg Johnson, a grain merchandiser with the Andersons in Champaign, Ill.
Another USDA option, its loan program, makes the government the buyer of last resort for key crops. With prices below the loan rate, farmers can put their crops up as collateral for loans the government pays out. If prices don’t rise, the farmer can simply decline to repay the loan and suffer no penalty.
“The government has always encouraged farmers to take the LDPs. They don’t want the grain to go under loan,” Johnson said.
That could be especially true this year when storage costs are expected to rise and rail cars could be more difficult to source as U.S. farmers harvest the biggest corn crop in history – about 11 billion bu., up eight percent on last year’s record.
