June 9, 1999

Agriculture Secretary Dan Glickman says he'll decide by week's end whether to adopt a national daily rate for loan deficiency payments, a hotly debated option that two House members say can depress commodity prices.

After speaking in Kansas City, MO, to a group of USDA employees, Glickman said he would decide by the end of the week on the change that would affect wheat, feed grain and soybean producers nationwide, according to a REUTERS report. The payments now are made on a county by county basis.

Glickman also has another letter on his desk from House Agriculture Committee Chairman Larry Combest (R-TX) and Vice Chairman Bill Barrett (R-NE) who say a nationwide LDP rate, by itself, may not be "the best course of action."

Combest and Barrett say a national LDP "ignores the purpose of LDPs and marketing loans, which is to assist producers in the orderly marketing of commodities." To work correctly, the LDP rate "needs to take local market conditions into account," they add.

As an example of how price could decline, Combest and Barrett said if the government were offering a 20-cent LDP in an area where market prices generally are within 10 cents of a the loan rate, the government effectively would be pricing the producer's grain 10 cents below the local market price. The producer "has an incentive to take the 20 cent LDP and sell at the 10 cents higher market price."

But producers will respond to the incentive to sell and "soon grain buyers will have no incentive to maintain bids at 10 cents under the loan rate. Instead, local market prices will tend to fall toward the price indicated by the 20-cent LDP," said Combest and Barrett.

For the next crop year, they add, "there appears to be a potential for increased forfeitures in areas where a national LDP rate would be lower than current LDP rates." Creating a national daily LDP rate "will unnecessarily create losers without addressing the underlying problem with local loan rates."