CLOSING OUT 2004 CCC CROP LOANS

A considerable amount of corn and soybeans raised in 2004 were placed under a CCC Marketing Loan at County Farm Service Agency (FSA) Offices. Many of these nine-month loans will mature at the end of July, August or September. Many producers have been hoping a summer grain market price rally will allow higher net prices on this stored grain. It’s always a good idea for producers to review the CCC loan close-out processes and procedures at County FSA Offices.

Producers that have grain stored under CCC Loan have three options at the end of the nine-month loan period. They are:

  1. Repay the CCC loan principle plus accrued interest.
  2. Release the grain at the posted county price (PCP).
  3. Forfeit and deliver the grain.

1. Repaying The CCC Loan Plus Accrued Interest
This option is the most likely for 2004 soybeans currently stored under a CCC Loan, unless there is a significant change in soybean market prices in the next couple of months. This may also be the best option for corn if market prices improve slightly in the coming months. The current PCP's for corn are almost at the county loan rates, and the PCPs for soybeans are about $1.50/bu. above county loan rates. PCPs for soybeans would have to drop to near county loan rates before any other CCC loan close-out option could be considered. This CCC loan close-out option is used when crop prices are higher than the repayment of the CCC loan principle plus the accrued interest.

2. Release The Grain At The Posted County Price (PCP)
Use this method to release the current corn that is under CCC Loan, if corn market prices decline in the next couple of months. Grain may be released at the PCP on a given day. For example, 2004 corn that was placed under CCC Loan at $1.82/bu. in November 2004, could be released at a PCP of $1.70/bu. in July 2005, and the producer could then sell or feed the corn. This CCC loan close-out option is preferable anytime the PCP per bushel is lower that the principal of the CCC loan plus interest. (County loan rate plus accrued interest per bushel on the CCC Loan.)

3. Forfeit And Deliver The Grain
With the advent of marketing loans and PCPs, forfeiture of grain under a nine-month CCC Loan is not often considered. Usually, there is a financial advantage with grain market prices to either pay back the loan plus interest, or to release the grain at the PCP. However, there might be certain situations when a producer might consider forfeiting the grain.

Producers should contact their County FSA Office well in advance of the CCC loan maturity dates to gain a better understanding of how to use PCPs. FSA offices can also answer questions about CCC Loans and potential LDP's for grain that will be harvested in the Fall of 2005. FSA staff can help producers understand the rules and procedures for CCC Marketing Loans, PCPs, LDP’s, etc.; however, they can not advise producers on the best grain marketing alternatives.

Generally, when using a PCP to release grain that is under CCC loan, there are only a few cents per bushel to be gained. Don't get too greedy! Take advantage of minimal market opportunities that are available, and avoid getting into "speculative" positions on grain that is stored under CCC Loan.

Editors note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at kent.thiesse@minnstarbank.com.