Loan Deficiency Payments--WPost Ag Series

The Post's second article on agriculture programs is here: Growers Reap Benefits Even in Good Years. It's again well done, with some graphics that should be noted. The farm programs are so complex you almost have to draw pictures, and even then people will misinterpret what you write.

Today's article covers the loan deficiency program, focusing on corn. The following is of no interest to anyone, being too inside baseball. My memory, which gets worse daily and more cynical weekly, is that the cotton and rice people started "marketing assistance loans" and "loan deficiency payments" in the 1985 farm bill, partially to evade payment limitations. (Nonrecourse loans under the old loan and purchase program weren't subject to payment limitation because the hope was that the farmer would be able to pay them off. So you come up with "marketing assistance loans", which kick in when market prices fall below loan rates (roughly).

Again, this is outside my expertise even when I knew anything, but this is how it evolved. Say the loan rate for cotton is $.55 a pound. In the old days the farmer would harvest the cotton and then take out a CCC price support loan, getting $.55. If market prices never got above $.50 at the end of the loan period the farmer would forfeit the cotton to CCC and keep the $.55. When the marketing assistance program came in, the farmer had a new option--redeeming the cotton for $.50 and keeping $.05 in "marketing assistance loan" benefits. That meant CCC didn't have to worry about disposing of surplus, which meant that the next year we wouldn't require (as big) an reduction in planted acreage. But the net effect was to revert to the 1930's--a two price system where we'd dump surplus cotton on the world market. (That's my cynicism.)

But where do "loan deficiency payments" come in? To simplify operations, instead of going through a loan process on paper, just allow the farmer to pick a date, then compute the $.05 payment and give it to him. So "loan deficiency payments" were "in lieu" of marketing assistance loans. But still outside payment limitation. (They aren't now, but they were for years. And even when Congress instituted limitations, they came up with a separate amount.)

An irony--Al Gore trumpeted his "reinventing government" program--I think the only two programs ended under it were the wool/mohair and honey programs. Of course, Congress always has the last word, so when attention strays, guess what? That's right, welcome to the honey, wool, and mohair loan deficiency payment programs.