The commodity markets, though down some from earlier in the fall, remain strong as this year's harvest progresses. According to the National Agricultural Statistics Service (NASS), the average Kansas corn price was $7.45 per bushel in August, dropped to $6.87 in September, then bounced back to $7.20 in October. So as harvest time price trends go, that's not bad!
Soybeans averaged $16.60 per bushel in August, dropping to $14.40 in September, then to an average of $14.10 for October. No bounce back up for soybeans; but you know, my dad would tell me that you had better figure out how to make it on $14 soybeans. (He actually said that many times about $8 soybeans.)
Though markets are not currently at "all-time high" levels, but still very strong, most farm community observers interpret current market conditions as a positive factor.
So when market prices are reasonably strong, marketing of the harvest is not quite as nerve-racking 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 the 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 -- the fertilizer bill, fuel, seed, repairs, rent, operating loan repayment, the kids' new shoes, etc. The 2012 loan rates for Bourbon County are as follows: soybeans, $4.96 per bushel; corn, $2.04 per bushel; and grain sorghum, $3.41 per hundredweight.
Interest rates are based on the cost of funds that Commodity Credit Corp. (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 9-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.