Iowa Public Television


LDPs Enter Marketing Strategies for Corn, Beans

posted on October 1, 2004

Superb weather in the grain belt has some cash grain merchants calling the harvest 20 percent complete already.

But more pertinent than the pace of the harvest is the yield. In its September crop production report, USDA called for average yields of 149.4 bushels per acre for corn ... and 38.5 bushels per acre for soybeans.

If those estimates are even close to being accurate, it signals a huge harvest for both crops. And that means producers will be employing nearly every marketing tool available to them, including government Loan Deficiency Payments.

LDPs Enter Marketing Strategies for Corn, Beans Since its enactment under the 1985 farm law, the LDP or Loan Deficiency Payment has been a critical part of harvest-time marketing strategy.

Here's how it works:

The LDP is a special government subsidy that is offered to farmers once local market prices, also known as the Posted County Price, fall below the USDA crop loan rate. For soybeans, that loan rate for the 2004 crop year is set at $5.00.

The collapse in cash prices at local elevators has made soybeans eligible for Loan Deficiency Payments. Producers who accept the LDP must agree to NOT place their crop in the government's commodity loan program. That eliminates the potential of the USDA owning large stocks of cheap cash grain.

Though farmers are required to harvest their crop before claiming the LDP, they are NOT required to sell the crop. But analysts warn farmers who take the LDP and store their crop in hopes of gaining on a later price rally become speculators ... and lose the price protection offered by the program.

Even so, taking the LDP often helps farmers with harvest-time cash flow problems. And the prospect of a huge harvest makes large LDPs in 2004 appear likely.

This week, the highest soybean LDPs were seen in Florida, Georgia and the Carolinas, where farmers are dealing with the aftermath of repeated hurricanes.

According to USDA, LDPs also are available for corn, milo, spring wheat, and barley producers.

Tags: agriculture corn crops loans marketing markets news