May 3, 2002

Consider New Loan Rates for 2002 Planting Decisions, Farm Management Specialist Says

With a new bill likely to be passed by Congress and signed by the President in early May, producers need to look at marketing loan rates when making final planting decisions, says a farm management specialist at North Dakota State University.

"This farm bill changed all of the commodity loan rates from the level they were set at under previous legislation and also added marketing loan benefits for three pulse crops -- lentils, field peas and small chickpeas," says Dwight Aakre of the NDSU Extension Service. In effect, the marketing loan is a benefit that results in a payment of the difference between the loan rate and the price for that commodity in the marketplace when the price is below loan.

Aakre says the national average loan rates have been spelled out in the legislation. However, the actual loan rate available in each county is determined by USDA, and those rates will not be determined for several days or weeks.

"Producers need to make decisions now, so the current best estimate for county loan rates would be to adjust the loan rate available in your county last year by the difference in the national average loan rates for last year and the national average rates under the new farm bill," Aakre says. The differences are: wheat up 22 cents, corn up 9 cents, barley up 23 cents, oats up 14 cents, minor oilseeds up 30 cents per hundredweight. and soybeans down 26 cents. Loan rates for pulse crops were not available in 2001 and therefore no comparison can be made. At this time it is unknown where local loan rates will be relative to the national averages for pulse crops.

"Loan rates are a factor in deciding what to plant primarily when the market price is expected to be lower than the loan rate," Aakre explains. "That’s the likely situation for most commodities for 2002 unless a significant weather-induced production shortfall develops in a major producing area of the world."

Most producers have minimum and maximum acreage levels of each crop or groups of crops that are primarily determined by rotation concerns. But within these ranges producers base decisions on the number of acres planted to each crop on the level of return over direct or variable costs. Aakre notes that in recent years there has been significant growth in soybean acres in North Dakota – a trend that may continue in 2002.

"However, producers should look over their budgets closely and make any adjustments to expected prices and or loan rates. The reduction in the soybean loan rate will likely mean about $8- $10 less return over direct costs per acre for soybeans while increases in all other loan rates will likely add $5- $10 return over direct costs per acre for all other commodities affected by loan rates," he says.

This farm bill. called The Farm Security and Rural Investment Act of 2002, will be in effect for the six-year period from 2002 through 2007. This farm bill, similar to previous farm bills, contains legislation covering much more than the farm program or commodities legislation. There are 10 titles or major subject areas covered by this legislation. They include 1) Commodities, 2) Conservation, 3) Trade, 4) Nutrition, 5) Credit, 6) Rural Development, 7) Research, 8) Forestry, 9) Energy and 10) Miscellaneous. What is commonly referred to in rural communities as the farm program is primarily in the Commodities title.

According to Aakre, during the next six years there will be three types of government payments available to farmers producing crops covered by the legislation. These payments will be direct (fixed) payments, counter-cyclical payments and marketing loans. The commodities produced in this area that are included are wheat, feed grains, soybeans, minor oilseeds, pulse crops and sugar beets.

"The direct and counter-cyclical payments are decoupled from production," Aakre explains. "So they don’t need to be a factor in deciding which crops to plant this spring. In fact, these payments will be made even if a producer chooses to idle the land for the entire season." The payments are based on a mathematical formula of historical acreage and yields on each farm. Producers will have an opportunity to update the crop bases and yields used to determine these payments. Details of that process are not yet available.

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Source: Dwight Aakre, (701) 231-7378, daakre@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu

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