June 17, 1999

USDA is considering national loan deficiency payment rates using the 1999 crops of wheat, feed grains and oilseeds. Agriculture Secretary Dan Glickman also told the House Agriculture Committee that 1999-crop wheat and corn county loan rates will continue at 1998-crop levels. Oilseed county loan rates "will continue to encounter difficult tradeoffs."

However, committee leaders cautioned against moving too quickly on a new national daily LDP rate. A "sweeping change" must be "fully examined for winners and losers," said committee Chairman Larry Combest (R-TX) and Vice Chairman Bill Barrett (R-NE). "It is possible that the uniform rate may be more equitable for farmers," said Barrett. "Also, the harvest distortion of posted county prices would no longer exist." But he had concerns.

One problem that might result is that a national rate "would be decoupled from the current cash market prices," Barrett said. "This...would necessitate our farmers re-thinking their marketing strategies, since the local cash price relationship may no longer exist."

Combest had four concerns: how a national LDP "would fit within the purposes of the marketing loans and LDPs"; how a national LDP rate would affect harvest-time prices; the "real potential" for increased forfeitures in some areas next year, and whether a national LDP would address the "underlying issue of loan rate inequities."

He told Glickman at the hearing Wednesday, "You have stated that there are some inequities across state lines and across county lines, and we agree with that. However, rather than create a whole new formula for calculating LDP payments rates, you have the option to adjust loan rates to more accurately track local cash markets...you have chosen not to make any substantial loan rate adjustments. Everyone -- FSA (Farm Service Agency) included -- seems to acknowledge that loan rates need to be adjusted. We are unsure whether this is the most appropriate change to make at this time."

Glickman said the administration "is continuing to examine this and other reforms as well as the process for handling the potential program changes." Even under a national LDP, he added, USDA's Commodity Credit Corporation "retains the authority to make additional adjustments to the LDP rate."

In most areas of the country and for most commodities, he said, there has been no harvest-time price decline. "Only in areas in which there are few local merchants has CCC occasionally encountered a situation in which cash prices `chased down' the posted county price. For example, CCC lowered the PCP to reflect the local market price, and the local merchant simply lowered the local cash price further."

That appears to have happened for corn in some Plains States, he added. "However, in most cases, no such influence has been observed by USDA." Nor should anyone expect increased forfeitures with a national rate. "USDA's analysis showed that, if a national LDP rate approach had been used last year, forfeitures would have been slightly lower."

Regarding winners and losers, Glickman said "everyone will continue to be assured of at least receiving their loan rate amount if the commodity is pledged as collateral for a loan." The targeted level of benefits is the loan rate, he added, and "that level will continue to be assured under the national LDP rate approach."