Producers Hit LDP Payment Limit In 2005

The excellent corn yields combined with relatively high loan deficiency payment (LDP) levels this fall have resulted in more corn and soybean producers reaching the $75,000 maximum payment limit per producer on total LDP payments set by USDA. Many growers in southern Minnesota had total farm corn yields of 180-200 bu./acre.

Because of the extremely low cash corn prices this fall, LDP rates have been $.40-.50/bu. during most of October. All raised bushels of corn or soybeans are eligible to receive a LDP or to be placed under a 9 month CCC loan at county Farm Service Agency (FSA) offices. A producer that had corn yields that averaged 190 bu./acre, and had an average LDP of $.48/bu., would receive $91.20/corn acre as an LDP payment, and would hit the $75,000 LDP payment limit with 822 acres of corn in 2005. If that same producer also received some LDPs on soybeans, wheat, or other crops, they would hit the LDP payment limit with even a smaller number of corn acres.

Producers that hit the $75,000 payment limit can still get the same financial advantage that exists with a LDP by putting the grain under CCC loan at the county FSA office, and then releasing it immediately with commodity certificates. The use of commodity certificates is not counted toward the $75,000 LDP payment limit.

County LDP Rate Problems
No area of the U.S. has been impacted harder by the grain storage issues this fall than counties in southeast Minnesota and adjoining areas of northeast Iowa and western Wisconsin.

The virtual shutdown of the Gulf Port grain export markets in September and October, as a result of the strong hurricanes in the Gulf Coast, combined with a large amount of carry-over 2004 corn and soybeans in this part of Minnesota, has lead to extremely low cash corn and soybean prices in the region. The low local grain prices are the result of the widest basis between local cash corn and soybean prices and the Chicago Board of Trade (CBOT) prices in history, exceeding 70-80 cents/bu. on some days.

In addition to the low prices and grain movement issues this fall, producers in southeast Minnesota have also been negatively impacted by posted county prices (PCPs) that do not reflect the changed pattern in the Gulf grain marketing complex. As a result, several southeast Minnesota counties have PCPs that are artificially higher than is reflected by local cash grain prices, and have resulting loan deficiency payments (LDPs) that are lower than they should be.

Hurricane Katrina and the other Gulf hurricanes greatly affected grain movement and export markets in some parts of the U.S. in the fall of 2005, including southeast Minnesota. The result was a spread of $.20-.30/bu. in cash corn and soybean prices at local grain elevators during much of October across southern and western Minnesota, with the lowest local cash grain prices being consistently in southeast Minnesota. However, until Oct. 27, the differential between the county loan rate and the PCP, and the resulting LDP, was the same in all Minnesota counties. When yield, cost of production, and other factors were equal, it left southeast Minnesota crop producers at a disadvantage.

Change in PCPs and LDPs
Through some excellent collaborative effort by Congressman Gil Gutknecht, State FSA Director John Monson, several county FSA Directors, and USDA officials in Washington, DC, the PCP and LDP problem in Southeast Minnesota was identified.

It was clear that there was a pretty distinct line in Minnesota where corn and soybean markets were having an unusual negative impact from the grain shipping problems in the Gulf Ports. As a result, USDA announced that beginning Oct. 27, 13 counties in southeast Minnesota will use the Gulf Coast market to determine the daily county PCP, rather than the Pacific Northwest (PNW) market that will continue to be used in the rest of the counties in Minnesota. This will result in a LDP in those 13 counties that is 5-7 cents/bu. higher than the rest of Minnesota, when justified. The southeast Minnesota counties with the potentially higher LDP rates are: Dakota, Dodge, Fillmore, Goodhue, Houston, Mower, Olmsted, Ramsey, Rice, Steele, Wabasha, Washington and Winona.

In an ideal world during low grain prices, the daily LDP for corn or soybeans in a given county plus the local cash price for corn or soybeans should be within a few cents of the county CCC loan rate. However, in 2005 that scenario in Minnesota has become somewhat distorted due to differences in the local grain marketing situations, especially in southeast Minnesota.

Even after the LDP adjustment of $.06/bu. on Oct. 28, many southeast Minnesota locations were still below the county loan rate when the daily LDP and local cash corn price were added together, while other locations in southern and western Minnesota exceeded county loan rates with the combination of the daily LDP and local cash corn price.

However, by Nov. 4, the Gulf Port markets had changed enough to bring the corn basis at grain elevators in southeast Minnesota back in line with local grain prices in other parts of Minnesota. As a result the PCP differentials and the resulting LDPs for corn, were again the same in every county in Minnesota, but the improved PCP differential for southeast Minnesota remained in effect for soybeans.

This situation will be monitored by the state FSA office and adjusted as necessary. Local cash corn and soybean markets in Minnesota are changing due to development of new Ethanol and Soybean processing plants, livestock expansion, and other issues. USDA and FSA officials will need to continually monitor these changes in order to make appropriate adjustments in county CCC loan rates, and in the calculation of county PCP’s and LDPs, in order to keep a level playing field for all corn and soybean producers in the future.

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.