June 16, 1999

It now seems a foregone conclusion that USDA will announce a national daily rate for loan deficiency payments. Agriculture Secretary Dan Glickman said as much in a speech Tuesday. He explained the rationale in more detail that he had before but did not make a formal announcement of a revised program.

In an address Tuesday to the Commodity Club of Washington, Glickman said USDA is working on a "new plan...to address (LDP inequities) by establishing a single national rate" and to simplify the program. He said the single rate plan would address the issues of equity, efficiency, ease of understanding and enhanced income.

"Up until last year, that program was hardly used by farmers in the new covered commodities -- wheat, corn, soybeans, oats, barley and sorghum -- because it wasn't needed," he said. "But when prices declined sharply, LDPs became a lifesaver for many farmers." Last year more than 2 million applications for loan deficiency payments were processed, an increase of nearly 1,000% over 1997.

LDP rates in Texas for soft red winter wheat varied widely two weeks ago, Glickman said. In a circle about 75 miles around Dallas, LDP rates ranged from a low of 47 cents to a high of 95 cents with rates of 59 cents, 79 cents and 80 cents in counties in between. Along the Minnesota-Iowa border last fall during harvest, LDP rates for corn in Minnesota were regularly 6-8 cents higher.

"When we adjusted the formula to equalize the difference, there was a collective howl from folks in Minnesota who were flabbergasted that we would take this step, even though our formula in Minnesota had been running consistently below local market prices," Glickman said. A single national rate would address these inequities, he added.

Because USDA pays benefits according to where the grain is stored and with varying rates form county to county in effect, the resulting system caused inefficiencies, Glickman continued. Farmers would transport their crops to the point where they could get the higher rate. A national rate plan won't provide the incentive to transport grain in ways that results in "a multitude of transportation inefficiencies."

Under the new system, farmers won't be perplexed by the LDP formula. "A simplified plan means they can focus their energies on what they know best, farming, leaving the LDP program to take care of itself," he said.

Depending on budget considerations, the new plan would "pump more dollars into the farm economy at a time that they are sorely needed through an increased rate," he said. USDA expects the plan could cost an additional $400 million or more, Glickman added.