Farm Bill Primer: The Marketing Assistance Loan Program

Farm Bill Primer: The Marketing Assistance Loan Program

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August 24, 2017
Farm Bill Primer: The Marketing Assistance Loan Program
Background
reduces the available supply and steadily pushes prices
The Marketing Assistance Loan (MAL) program has been a
higher. When market prices have increased above the loan
significant feature of U.S. farm policy since the 1930s. The
rate (plus interest), a producer may then repay the loan and
2014 farm bill (Agricultural Act of 2014, P.L. 113-79)
reclaim the crop.
extended the MAL program for crop years 2014 through
Figure 1. Traditional Crop Cycle and Price Pattern
2018. For details, see CRS Report R43448, Farm
Commodity Provisions in the 2014 Farm Bill (P.L. 113-79).
(Hypothetical Example for Two-Year Period)
A MAL Is Nonrecourse
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

Source: CRS.
rate, then other program options (described below) are
available to producers, including repayment of the loan at a
Note: Crop prices are generally lowest at harvest time when supply
is greatest. Prices increase as post-harvest consumption reduces
lower rate, forfeiture of the crop, or taking a loan deficiency
supply and then decline again as a new crop approaches harvest.
payment (LDP) in lieu of a MAL. MAL program benefits
are available on the entire crop produced, but no benefits
During the 1950s, 1960s, and 1980s, market prices
are available for any crop losses.
remained below loan rates for extended periods (Figure 2).
This led to frequent loan forfeitures and large government
Eligible Loan Commodities
stock ownership at relatively great cost to taxpayers, and it
The list of eligible loan crops has expanded over the
created an environment where farmers were growing crops
decades and now includes several field crops plus wool,
based on relative loan rates rather than market prices. To
mohair, and honey. (See Table 1 for a list of eligible
lower costs and reduce government ownership of grains and
commodities and their respective loan rates.) The mix of
oilseeds, additional program features were added beginning
supported crops reflects historical policy goals and
in the 1980s to avoid forfeiture of the crop under loan.
compromises. The most recent additions were pulse crops
(dry peas, lentils, chickpeas) in 2002.
Figure 2. Four Types of Additional MAL Benefits
MAL Program Benefits
(Example of Extended Period of Low Market Prices)
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 as Interim Financing
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
Source: CRS.
market year progresses, use of the crop—whether as feed,
Notes: When USDA-announced prices are below the MAL loan
food, industrial processing, biofuels feedstock, or export—
rate, then four program benefits are available.
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Repayment Prices Announced by USDA
More Information
USDA regularly announces alternative loan repayment
For details on how the MAL price protection varies across
prices that may vary above or below MAL loan rates with
program crops, see CRS Report R44914, Farm Safety-Net
market conditions. For example, USDA announces daily
Payments Under the 2014 Farm Bill: Comparison by
posted county prices—that is, terminal prices adjusted for
Program Crop. For details on the farm safety net, see CRS
transportation costs from the county to the terminal—for
In Focus IF10191, Overview of Farm Safety Net Programs.
operating grain and oilseed MAL repayment provisions.
Producers may compare the repayment prices announced by
Table 1. MAL Loan Rates by Commodity
USDA for their localities with the statutory MAL loan rates
for each eligible commodity before selecting from among
MAL Loan
% of Avg.
the potential MAL program benefits.
Commodity
Unit
Rate
Farm Pricec
For cotton and rice, USDA collects international reference
Wheat
$/bu.
$2.94
60%
prices, which are converted to a U.S. location by adjusting
for transportation costs. These “adjusted world prices” are
Corn
$/bu.
$1.95
55%
announced weekly for operating the cotton and rice MAL
Sorghum
$/bu.
$1.95
58%
repayment provisions.
Barley
$/bu.
$1.95
37%
Special MAL Loan Repayment Benefits
Oats
$/bu.
$1.39
39%
When USDA-announced repayment prices are below the
statutorily fixed loan rate, then a producer can opt for a loan
Upland cottona
$/cwt.
$52.00
99%
deficiency payment (described below) in lieu of a MAL or,
ELS cotton
$/cwt.
$79.77
58%
for a crop under loan, select from four alternate repayment
options (Figure 2).
Rice, all
$/cwt.
$6.50
66%
1. LDP. Rather than taking a MAL when the USDA-
Soybeans
$/bu.
$5.00
52%
announced repayment price is below the loan rate, farmers
Other oilseedsb
$/cwt.
$10.09
56%
may request a LDP with the payment rate equal to the
difference between the loan rate and loan repayment rate.
Peanuts
$/cwt.
$17.75
87%
2. Marketing Loan Gain (MLG). A participating farmer
Peas, dry
$/cwt.
$5.40
45%
with a crop under loan can repay the loan at the USDA-
announced repayment price and pocket the difference
Lentils
$/cwt.
$11.28
41%
(between the loan rate and the repayment rate) as an MLG.
Chickpeas, large
$/cwt.
$11.28
37%
3. Commodity Certificate Exchange. A farmer may use
commodity certificates—paper certificates with a dollar
Chickpeas, small
$/cwt.
$7.43
31%
denomination that may be exchanged for commodities in
Wool, graded
$/cwt.
$115.00
79%
USDA inventory—to repay a MAL loan at the lower
USDA-announced price and avoid any payment limit
Wool, ungraded
$/cwt.
$40.00
28%
associated with the gain.
Mohair
$/cwt.
$420.00
86%
4. Forfeiture. A producer can forfeit the pledged crop to
Honey
$/cwt.
$69.00
33%
USDA at the end of the loan period. Any price gains
associated with forfeiture are not subject to payment limits.
Sugar, raw cane
$/cwt.
$18.75
75%
Eligibility Criteria and Payment Limits
Sugar, refined beet
$/cwt.
$24.09
75%
Producers must meet eligibility requirements to participate
Source: MAL loan rates: 2014 farm bill (P.L. 113-79; Section 1202);
in the MAL program and are subject to annual payment
farm prices: USDA, National Agriculture Statistics Service.
limits (with the noted exceptions of any gains under
commodity certificates and forfeiture). Commodity
Notes: bu. = bushel, cwt. = 100 lbs., ELS = Extra Long Staple
certificates and payment limit issues are discussed in more
a.
detail in CRS Report R44739, U.S. Farm Program
The marketing loan rate for upland cotton is the average of the
farm price received for upland cotton for the preceding two
Eligibility and Payment Limits.
years but within a range of $45/cwt. and $52/cwt.
Current MAL Program Status
b. Other oilseeds include sunflower seed, rapeseed, canola,
Since 2006, market prices for many program crops have
safflower, flaxseed, mustard seed, crambe, and sesame seed. The
moved significantly above MAL loan rates. The MAL
percentage share of average farm price represents a weighted
program’s usefulness as a risk management and marketing
average of other oilseeds.
tool varies widely across program crops depending on the
c. Adjusted world prices are used in lieu of farm prices for
relationship between farm prices and the statutory loan
comparison of cotton and rice loan rates.
rates. (Loan rates are expressed as a percentage of average
annual farm prices for the 2014-2016 crop years in Table
Randy Schnepf, Specialist in Agricultural Policy
1.) For example, since 2014 the MAL program has offered
greater price protection for peanuts, cotton, and sugar crops
IF10714
than for pulse crops (dry peas, lentils, and chickpeas) and
feed grains (corn, sorghum, barley, and oats).
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Farm Bill Primer: The Marketing Assistance Loan Program

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