Closing Out 2005 CCC Crop Loans

A considerable amount of corn and soybeans that were raised in 2005 were placed under a CCC marketing loan at county Farm Service Agency (FSA) offices. Many of these nine-month loans will be maturing at the end of July, August or September. Many producers have been hoping that a summer grain market price rally will allow some higher net prices on this stored grain. It is always a good idea for producers to review and be aware of 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. Repaying The CCC Loan Principal Plus Accrued Interest

This CCC loan close-out option is utilized when crop prices are higher than the repayment of the CCC loan principal, plus the accrued interest. This option is most likely the only option for 2005 soybeans that are currently stored under a CCC loan, unless there is a significant drop in soybean market prices in the next couple of months. This could also be the likely option for the 2005 corn that is still under CCC loan, if corn market prices are steady, or move higher, in the coming months. Daily PCP and LDP rates for all counties in every state are available on several web sites, including the National FSA web site at: http://www.fsa.usda.gov

2. Release The Grain At The Posted County Price (PCP)

This is the method that will be used to release the current corn that is under CCC loan, if corn market prices are lower than current levels in the next couple of months. This method could also be used on 2005 soybeans that are under CCC loan, if soybean prices decline significantly in the next few weeks. Grain may be released at the PCP on a given day. For example, 2005 corn that was placed under CCC Loan at $1.83/bu. in November 2005 could be released at a PCP of $1.75/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). Be ready to react if the PCP drops. Remember that current grain markets are highly volatile, and any advantage to releasing 2005 corn or soybeans that is still under CCC loan at or below the PCP may be short-lived, and may only involve a few cents per bushel. Don’t get too greedy.

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 as an option. 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 can use FSA Form CCC-697, "Request To Lock-In A Market Loan Repayment Rate" at county FSA offices to lock-in a PCP for 60 days. Form CCC-697 and the instructions are available online at: http://www.fsa.usda.gov

(On the left side click on Price Supports; then click on Forms and scroll to CCC697)

The locked-in price may be exercised on any date after it is initiated, up until the expiration date. Form CCC-697 expires 14 days before the CCC loan matures, so a producer has a two week window to exercise a daily PCP to release grain under loan, if the daily PCP is lower than the locked-in PCP.

Bottom Line On Releasing CCC Grain Loans:

Producers should contact their FSA office well in advance of the CCC loan maturity dates to gain a better understanding of how to use Posted County Prices. FSA offices can also answer questions about CCC loans, and potential LDPs, for grain that will be harvested in the fall of 2006. FSA staff can help producers understand the rules and procedures for CCC marketing loans, PCPs, LDPs, etc.; however, they can’t advise producers on the best grain marketing alternatives for their grain in storage or in the field.

Remember To Call Before You Haul

In other words contact your county FSA office to receive a marketing authorization before hauling or delivering grain that is still under loan, to avoid penalties for CCC loan violations.

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.