Bill to Extend Payment Limitations Being Considered

July 22,1999

Rep. Bill Barrett (R-NE) is drafting a bill designed to double the payment limitation on marketing loan gains and loan deficiency payments for one year. Barrett says he's concerned that small and medium-sized farmers will exceed the limit with a few as 700 acres of corn and 500 acres of soybeans. If that happens, they'll have to forfeit the grain to USDA, forcing an increase in stocks.

Barrett has asked agriculture Secretary Dan Glickman to tell him how many farmers face the loan gain limit for both 1998 and 1998 crops and USDA's projections of potential forfeitures. "It appears to me that there is a real possibility that small and medium-sized farmers will likely be hitting this limit," says Barrett. His bill would increase the limit to $150,000 from the current $75,000 only for 1999 crops. He also asked Glickman if the Clinton Administration will support the bill.

That would allow producers to continue marketing commodities rather than forfeiting them to USDA to satisfy the loans. In the 1987 budget reconciliation act, payments were limited to $250,000 per person -- $50,000 in deficiency and diversion payments (which are no longer made) and $200,000 for loan gains and loan deficiency payments. The 1996 farm bill then applied a $40,000 limit to the new "freedom to farm" payments. It also applied the current, separate $75,000 limit to loan deficiency payments and marketing loan gains.

Regulations do allow some farms to receive one full payment limit plus half of two others, depending on how their businesses are organized. This regulation – the so-called "three-entity rule" – means that some farms can really get as much as $230,000 – double the $40,000 "freedom to farm" payment limit (or $80,000), plus twice the $75,000 limit on loan deficiency payments (or $150,000). However, many farms have not set up their operations to take advantage of this feature.

Earlier the National Cotton Council expressed concern that many farmers could exceed the loan limit this year. "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."