Payment Limits Can Worsen an Already Bad Situation

July 20,1999

Farmers are limited to $75,000 in marketing assistance loan gains and loan deficiency payments, and that could cause additional problems this year. The National Cotton Council says the limitation hurts farmers more when prices are weak and can cause the next year's prices to decline even further as stocks build up.

"Limitations on gains associated with marketing assistance loans need to be revisited," says NCC President Ron Rayner. "These limits work at cross purposes with the intent of the marketing assistance loan and help make the United States a residual supplier of commodities in world markets."

The concern is that many producers may reach the loan gain limit this year, preventing loans from being redeemed at world market prices and severely limiting the ability of producers to market crops. Producers who reach the limit likely will forfeit their commodity to USDA, causing a buildup of stocks and depressing markets further.

NCC urged USDA to issue certificates in late 1998 because of loan limit concerns. The Step 2 amendment proposed by NCC after its February annual meeting also included authorization for commodity certificates. That could ease the impact of the loan gain limit by allowing certificate holders to redeem cotton at the world market price regardless of whether the producer of the cotton had reached the marketing assistance loan gain limit.

House Agriculture Committee Chairman Larry Combest (R-TX) has told committee staff to review the issue with committee members and USDA to find out what can and should be done to prevent a stocks buildup. Grain-state lawmakers have raised the issue, and NCC is working with other major commodity groups on solutions.

Congress is considering the use of marketing certificates for other commodities; increases in the existing limit or a waiver of the existing limit also are under consideration. It also appears that the use of the "cost reduction" authority of the Secretary of agriculture would not provide relief from the marketing loan limit.

Urban members of Congress may oppose attempts to address the loan gain limit problems. Urban interests often have supported payment limitations in the past.

Under prior farm bills, payment limitations were often thought to affect primarily cotton and rice growers since revenue per acre from these crops is normally higher and the growers tended to be larger. However, two factors may make payment limits a prime worry in the Corn Belt this year. First, many grain farmers have expanded over the past decade. In many Midwest states, operators who farm 2,000 or 3,000 acres are not as rare as they once were. Second, this year's LDPs will likely be larger than before, causing payment limits to trigger at lower levels of acreage.