LDP VS. CCC LOAN
In the past month there have been some very favorable opportunities to request a loan deficiency payment (LDP) on corn produced in 2005. The LDP on corn in Minnesota has been over 40¢/bu. in the past few weeks. One question many growers have contemplated on un-priced 2005 corn is whether they should take the LDP at harvest time and price the grain later, or utilize the CCC loan program at county Farm Service Agency (FSA) offices after harvest.
The CCC grain that is under loan can either be stored on the farm or at a grain elevator, and can be released at some later point during the 9-month CCC loan period in order to be sold for a more favorable price. Every bushel of corn and soybeans produced is eligible for either a LDP, or can be put under a CCC loan at the county FSA office, but not both. Some producers fear the loss of fall income by not utilizing the CCC loan program, and are bypassing some very favorable LDPs at harvest-time.
If everything is equal, the LDP amount and the results of using the CCC loan program should be the same on a given day. The daily “posted county price” (PCP) is used to determine both the LDP rate and the CCC loan release price on a given day. So, the net gain from a CCC loan release at the PCP and the LDP on a given day would be equal.
The difference comes because most producers do not want to release the CCC loan until sometime in the future, and there is a risk that the PCP could increase by that time, thus lowering the net gain. The same reduction would occur if a producer delays collecting a LDP after harvest and the PCP on that grain increases, causing lower daily LDP levels. Of course, there is always the possibility that the PCP on corn could decrease after harvest, causing both LDPs and gains from the release of CCC loans to increase.
One disadvantage of taking a LDP at harvest and marketing the grain later is that there is less total dollars available at harvest, compared to receiving the proceeds from the CCC loan. For example, in Blue Earth County, the 2005 corn loan rate is $1.83/bu., and the corn LDP on Oct. 24 was $.47/bu. Recently, there have been opportunities to lock-in a local corn price of $1.90-$2/bu. for summer 2006. When combined with a LDP of $.40/bu. or more, it results in a pretty good net corn price.
Producers need to analyze their farm business cash flow needs and grain marketing plan to determine if collecting a LDP or utilizing a CCC loan best fits their management plan on their un-priced 2005 corn after it’s harvested. For more information and details on procedures for LDPs and CCC loans, producers should contact their county FSA offices. “LOCKING-IN” A PCP
Producers that are concerned about PCPs increasing after harvest may request form CCC-697 at county FSA offices, which is used to “lock-in” a PCP for 60 days on a given amount of eligible bushels that are under a CCC loan. Producers are not required to exercise the locked-in PCP if there are more favorable PCPs at the end of the 60-day period. Producers may only exercise the lock-in once in a marketing year on each bushel of grain produced. The lock-in can provide a safety net for producers that want to use a CCC loan on corn or soybeans after harvest to generate some cash flow revenue, but want to take advantage of the current favorable PCPs in a couple of months. The “lock-in” can’t be used for LDPs. Again, producers should contact county FSA offices regarding procedures and rules associated with utilizing a “lock-in”. HARVEST UPDATE
The corn harvest in southern Minnesota is continuing at a very nice pace, with over half of the 2005 corn crop harvested as of Oct. 24. Corn yields continue to be good to excellent, with many “whole-field” corn yield exceeding 180 bu./acre, and a few exceptional fields topping 200 bu./acre. Some fields that were significantly impacted by dry weather in early July, severe summer storms, or the heavy rainfall in September are having lower corn yields.
The moisture content of most corn hybrids has been running in the 14-17% moisture range. This has allowed growers to place much of the later harvested corn directly into storage without additional drying, or to sell corn directly out of the field without moisture deductions. The natural dry-down of the corn in the field is saving most producers $20-$30/acre in drying costs.
By far the biggest challenge with the 2005 corn harvest has been finding adequate storage space for all the harvested corn. The combination of a large amount of carry-over 2004 corn in many areas and greater than expected 2005 corn yields, along with reduced grain exports through the Gulf after the September hurricanes, has filled both on-farm and grain elevator storage to capacity. We are already seeing large amounts of corn piled on the ground in many communities, and are likely to see much more before the harvest is complete. Producers need to remember to properly aerate any corn on the farm that will be placed in temporary storage more than a few days to avoid significant storage losses. The dollar loss from corn storage problems can be significant if not properly addressed.
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 email@example.com.