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Doug Niemeir

Farm News - USDA/Farm Service Agency

Editor's Note: Doug Niemeir is the County Executive Director for the USDA/Farm Service Agency. Doug may be reached by emailing him at Douglas.Niemeir@ks.usda.gov.

Marketing the harvest

Wednesday, November 23, 2011

The commodity markets continue to be a puzzle as we settle into the marketing year for the 2011 harvest. I am not convinced that anyone has a really good handle on what might transpire through these post-harvest months, but at least for now there have been no radical market crashes -- though there have been plenty of ups and downs.

According to Kansas Agricultural Statistics (KAS), the mid-October markets in the state averaged for wheat $6.60 -- $.41 per bushel higher than 2010; for corn $5.95 -- $1.48 better than last October; and for soybeans $11.70 -- $1.20 per bushel above the 2010 level. With markets not currently in "all-time high" ranges, but still up from last year, the farm community interprets current conditions as a generally positive factor.

So, when market prices are reasonably strong, marketing of the harvest is not quite as much of a nerve-racking chore as when the prices are very low -- like just a few years ago. No matter what the price level, producers do have some options when it comes to converting the harvest to cash in order to cover some of those expenses incurred while planting and caring for the crop.

The USDA commodity loan program has always offered (and still does) an alternative to immediate sale of a crop at harvest time allowing the producer to meet cash flow needs while maintaining ownership of the commodity for more advantageous marketing later. Will later marketing be favorable this year? I do not pretend to know that answer, but what we do know is that the commodity loan program remains in place and is available for use by area producers.

Commodity loans are available on either farm stored or warehouse stored production. Farm storage must be adequate to safely store the commodity through the nine-month loan term. For commodities in a warehouse, storage must be arranged for through the loan term. Also, the commodity must be stored in a licensed warehouse in order to qualify for the loan process.

The established rate can be loaned using the stored commodity as collateral to provide cash to the borrower for meeting those cash flow needs always there at harvest time -- fertilizer bill, fuel, seed, repairs, rent, operating loan repayment, the kids' new shoes, etc. The 2011 loan rates for Bourbon County are as follows: soybeans, $4.96 per bushel; corn, $2.04 per bushel; wheat, $3.11 per bushel; and grain sorghum, $3.42 per hundredweight.

Interest rates are based on the cost of funds that Commodity Credit Corporation (CCC) must pay the treasury. Rates are updated monthly; the November rate is 1.125 percent. This makes interest costs per month very low. Once a loan is disbursed, the interest rate is adjusted one time during the loan term -- on Jan. 1. To get the loan process started, a producer must retain ownership of the commodity and have it stored in an acceptable place -- a licensed warehouse or suitable farm storage bin. Loans quantities may be either certified or measured.

Once the loan is disbursed, it can be repaid without penalty any time during the nine-month loan term. The mortgaged commodity can be released (by request to our office) and sold to provide the needed cash for repayment of the loan whenever the market might provide the best advantage during the marketing period.

If market prices would happen to go below the loan rate or loan rate plus interest, the loan can be repaid at the posted county price (PCP) on the repayment date rather than principle plus interest. Anyone interested in an FSA commodity loan should contact their local FSA office for details.