Some ABCs on Commodity Loans and LDPs

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Selley, Roger
Agricultural Economics
article description
The objective of the loan rate has been to provide eligible producers the equivalent of a minimum price. When the market price remains below the loan rate a nonrecourse loan accomplishes this objective by allowing the producer (borrower) to forfeit the grain provided as security and cancel a loan that was made at the loan rate. The grain must be in storage under loan for 9 months before forfeiture is an option. The net result with forfeiture is the producer realizes the loan rate (accrued interest is forgiven) less storage costs. The marketing/promotion assessment is also deducted from the loan proceeds, as is a loan service fee plus any bin measurement fees. If the market price rises above the loan rate the producer can repay the loan at anytime, plus accrued interest and market or feed the grain.