Strategy Changes for Marketing Corn, Beans

The LDP has faded this fall, so more farmers will want to use USDA's marketing loan program for 2006 crop.

The strategy for marketing corn and soybeans has changed this fall, notes Steven Johnson, Iowa State University Extension farm management specialist.

Last fall many farmers were taking loan deficiency payments (LDPs) on corn and soybeans. This fall the corn LDP has disappeared with the improvement in futures prices and a little better basis. However, we do have a soybean LDP.

Johnson says many farmers now will use the marketing loan to generate cash, as well as to manage the risk of lower prices and to extend the time frame for which cash marketing decisions need to be made. "I anticipate that a large number of corn bushels could end up under loan," he says. That may not happen until later in the harvest when farmers know the volume of bushels they have.

For tax purposes, many farmers may count the marketing loan as income and wait until after January 1 to use the loan program.

How a marketing loan works

The key to being successful when using a marketing loan strategy for your crop is to understand how the loan program works. The program is administered by USDA's Farm Service Agency (FSA), so you need to contact your county FSA office if you have questions.

"Farmers need to watch the posted county price (PCP) each day as they progress through harvest," says Johnson. "That PCP is the ultimate repayment price the farmer can lock in with a marketing loan rather than by taking an LDP, thus creating a marketing loan gain."

The PCP is established each day for each county and subtracted from the county loan rate to determine the LDP. To lock in the PCP, a farmer must establish a marketing loan on specified bushels through the county FSA office. Then a lock-in of the PCP can be started on all or a portion of the bushels under loan.
You must complete form CCC-666 at the FSA office to establish a marketing loan and it may take FSA a few days to do a lien search on the bushels, he notes.

Aim to lock-in a marketing loan gain

The next step requires filling out a second form. To lock in a marketing loan gain similar to an LDP, you have to complete form CCC-697 at the FSA office once the loan funds have been dispersed. A lock-in request can be filed for a specific bushel amount only once, and it is valid for up to 60 days.

This fall the market is offering incentives to store corn and soybeans. However, farmers using commercial storage may want to consider other options, says Johnson. He recommends putting soybeans under loan at the FSA office using form CCC-666. Once the loan funds are dispersed, you try to time the 60-day lock-in with the lowest PCP and complete form CCC-697 at the FSA office. This can only be done on the specified bushels.

If futures prices increase or if the basis narrows (both are likely to occur after harvest) Johnson says farmers then may sell the beans in commercial storage and pay off the marketing loan at the lower PCP. Farmers may waive the interest on the loan and also avoid long-term commercial storage costs by using this marketing strategy.

Develop a marketing loan strategy

If you are considering using the USDA marketing loan for soybeans and especially if you are trying to time a low in the posted county price, and a 60-day lock-in, here's what Johnson recommends.

Notify your county Farm Service Agency office of your intent and request a lien search begin.
Plan on conducting self-measurement of soybean bushels or use warehouse receipts to estimate number of bushels going under loan.

Get to the FSA office and sign form FSA CCC-666.

Once the marketing loan proceeds have been advanced to you by FSA, then the 60-day lock-in of the posted county price can be requested. You do this by completing the other form at the FSA office, CCC-697.

"You have to complete one form first, then you go back and do the other form," sums up Johnson. "Using this marketing loan strategy, you try to time the lowest posted county price with a big up day on November soybean futures, which likely means that the posted county price will increase the following day."

He advises that you work with your local FSA office on any questions or concerns you have about the marketing loan and the 60-day lock-ins. "Get yourself in position, there are real dollars to be made," says Johnson.

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