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1 1 (August 24, 2017)

handle is hein.crs/govcfzz0001 and id is 1 raw text is: 0 .;0 .. , S r. August 24, 2017 Farm Bill Primer: The Marketing Assistance Loan Program The Marketing Assistance Loan (MAL) program has been a significant feature of U.S. farm policy since the 1930s. The 2014 farm bill (Agricultural Act of 2014, P.L. 113-79) extended the MAL program for crop years 2014 through 2018. For details, see CRS Report R43448, Farm Commodity Provisions in the 2014 Farm Bill (P.L. 113-79). A MAL N,,s N ne,-or The MAL program-operated by the U.S. Department of Agriculture (USDA)-provides both a floor price and interim financing for certain commodities-referred to as loan commodities. A participating producer may put a harvested loan crop under a nine-month, nonrecourse loan valued at a statutory commodity loan rate (Table 1). Nonrecourse means that USDA must accept the forfeited crop pledged as collateral for full payment of an outstanding loan. If local market prices for the crop increase above the loan rate (plus interest), a producer may repay a MAL and reclaim the crop. If market prices remain below the loan rate, then other program options (described below) are available to producers, including repayment of the loan at a lower rate, forfeiture of the crop, or taking a loan deficiency payment (LDP) in lieu of a MAL. MAL program benefits are available on the entire crop produced, but no benefits are available for any crop losses. The list of eligible loan crops has expanded over the decades and now includes several field crops plus wool, mohair, and honey. (See Table 1 for a list of eligible commodities and their respective loan rates.) The mix of supported crops reflects historical policy goals and compromises. The most recent additions were pulse crops (dry peas, lentils, chickpeas) in 2002. MAL ogra,,m enefs Generally farm prices are lowest at harvest time, when supplies are plentiful (Figure 1). The MAL program offers producers several alternatives to selling their crops at the harvest-time market price. A MAL a & tin a ncingW The traditional option was to use the MAL program as a temporary operating loan to help meet cash flow needs for the farm while delaying sale of the crop until more favorable market conditions emerge. Thus, a producer puts a harvested loan crop under a nine-month, nonrecourse loan valued at the statutory commodity-specific loan rate. The loan uses the crop as collateral (in other words, the loan benefits are coupled to current production), and the loan rate, in effect, establishes a price guarantee. Then, as the market year progresses, use of the crop-whether as feed, food, industrial processing, biofuels feedstock, or export- reduces the available supply and steadily pushes prices higher. When market prices have increased above the loan rate (plus interest), a producer may then repay the loan and reclaim the crop. Figure I. Traditional Crop Cycle and Price Pattern (Hypothetical Example for Two-Year Period) Lci \ Zm p\ i.\ Year \ ei .. . . .. . .. . $suo \ / $...O ....... $1.50....... .. LS0 -: ....~~ ~~................ . . .................. .''i , i ...... ....... $0.00 Source: CRS. Note: Crop prices are generally lowest at harvest time when supply is greatest. Prices increase as post-harvest consumption reduces supply and then decline again as a new crop approaches harvest. During the 1950s, 1960s, and 1980s, market prices remained below loan rates for extended periods (Figure 2). This led to frequent loan forfeitures and large government stock ownership at relatively great cost to taxpayers, and it created an environment where farmers were growing crops based on relative loan rates rather than market prices. To lower costs and reduce government ownership of grains and oilseeds, additional program features were added beginning in the 1980s to avoid forfeiture of the crop under loan. Figure 2. Four Types of Additional MAL Benefits (Example of Extended Period of Low Market Prices) L*,ac Fam Price Pour n.otentia benefits under MAL; 1-Losn Dpeiency Paymnnls 4LDP) $3.002-Markein Loon Gains jMLG) -3- Comnmodity CtrtificaRto Echaogs *Sins% 4- Forfeiture Gains ... .. .. .... )) ,0 E . ... ... ... ... ................. . . . . . ............................... )r s (... ... ... $2.00 *.0 Li $k ~nt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Source: CRS. Notes: When USDA-announced prices are below the MAL loan rate, then four program benefits are available. .O 'T gogn, q \pop\\m -,\\mw-m ggmm g , q a S ' X

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