2018 Farm Bill Primer: Marketing Assistance Loan Program

2018 Farm Bill Primer: Marketing Assistance Loan Program

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April 3, 2019
2018 Farm Bill Primer: Marketing Assistance Loan Program
Background
the market year progresses, use of the crop—whether as
The marketing assistance loan (MAL) program has been a
feed, food, industrial processing, biofuels feedstock, or
significant feature of U.S. farm policy since the 1930s. The
export—reduces the available supply, which tends to push
2018 farm bill (Agricultural Improvement Act of 2018, P.L.
prices higher. When market prices have increased above the
115-334) extended the MAL program for 2019 through
loan rate (plus interest), a producer may then repay the loan
2023 but with upward adjustments to the loan rates for
and reclaim the crop.
selected crops (Table 1). For details, see CRS Report
Figure 1. Traditional Crop Cycle and Price Pattern
R45525, The 2018 Farm Bill (P.L. 115-334): Summary and
Hypothetical example for two-year period
Side-by-Side Comparison.
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
Note: Crop prices are general y lowest at harvest time when supply
available to producers, including repayment of the loan at a
is greatest. Prices general y increase as post-harvest consumption
lower rate, forfeiture of the crop, or taking a loan deficiency
reduces supply then decline again as a new crop approaches harvest.
payment (LDP) in lieu of a MAL. MAL program benefits
During the 1950s, 1960s, and 1980s, market prices
are available on the entire crop produced, but no benefits
remained below loan rates for extended periods (Figure 2).
are available for any crop losses.
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
Figure 2. Four Types of Additional MAL Benefits
(dry peas, lentils, and small and large chickpeas) in 2002.
Example of extended period of low market prices
MAL Program Benefits
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.
MAL as Interim Financing
The MAL program provides 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

Source: CRS.
a price guarantee through the nonrecourse feature. Then, as
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Notes: When USDA-announced repayment prices are below the
Under the 2014 farm bill, the MAL program offered greater
MAL loan rate, then four program benefits are available.
price protection for peanuts, cotton, and sugar crops than
Repayment Prices Announced by USDA
for pulse crops (dry peas, lentils, and chickpeas), rice,
USDA regularly announces alternative loan repayment
wheat, and feed grains (corn, sorghum, barley, and oats).
prices that may vary above or below MAL loan rates with
The adjustments made to MAL loan rates under the 2018
market conditions. For example, USDA announces daily
farm bill were intended to address these apparent inequities.
posted county prices—that is, terminal prices adjusted for
More Information
transportation costs from the county to the terminal—for
For details on how the MAL price protection varies across
operating grain and oilseed MAL repayment provisions.
program crops, see CRS Report R44914, Farm Safety-Net
Producers may compare the repayment prices announced by
Payments Under the 2014 Farm Bill: Comparison by
USDA for their localities with the statutory MAL loan rates
Program Crop. For details on the farm safety net, see CRS
for each eligible commodity before selecting from among
In Focus IF10191, Overview of Farm Safety Net Programs.
the potential MAL program benefits.
Table 1. MAL Loan Rates by Commodity
For cotton and rice, USDA collects international reference
2014 Farm Bill
prices, which are converted to a U.S. location by adjusting
2018 Farm
for transportation costs. These “adjusted world prices” are
Loan
% of
Bill Loan
announced weekly for operating the cotton and rice MAL
Commodity
Unit
Rate
MYAPc
Rate
repayment provisions.
Special MAL Loan Repayment Benefits
Wheat
$/bu.
$2.94
60%
$3.38
When repayment prices are below the statutorily fixed loan
Corn
$/bu.
$1.95
55%
$2.20
rate, a producer can opt for an LDP in lieu of a MAL or, for Sorghum
$/bu.
$1.95
59%
$2.20
a crop under loan, select from three alternate repayment
Barley
$/bu.
$1.95
39%
$2.50
options (Figure 2).
Oats
$/bu.
$1.39
57%
$2.00
1. LDP. Rather than taking a MAL when the USDA-
Upland cottona
$/cwt
$52.00
79%
$52.00
announced repayment price is below the loan rate, farmers
may request an LDP with the payment rate equal to the
ELS cotton
$/cwt
$79.77
58%
$95.00
difference between the loan rate and loan repayment rate.
Rice, long-grain
$/cwt
$6.50
57%
$7.00
2. Marketing loan gain (MLG). A participating farmer
Rice, medium-grain
$/cwt
$6.50
40%
$7.00
with a crop under loan can repay the loan at the USDA-
Soybeans
$/bu.
$5.00
54%
$6.20
announced repayment price and pocket the difference
Other oilseedsb
$/cwt
$10.09
58%
$10.09
(between the loan rate and the repayment rate) as an MLG.
3. Commodity certificate exchange. A farmer may use
Peanuts
$/cwt
$17.75
84%
$17.75
commodity certificates—paper certificates with a dollar
Peas, dry
$/cwt
$5.40
45%
$6.15
denomination that may be exchanged for commodities in
Lentils
$/cwt
$11.28
41%
$13.00
USDA inventory—to repay a MAL loan at the lower
Chickpeas, large
$/cwt
$11.28
36%
$14.00
USDA-announced price and keep the associated price gain. Chickpeas, small
$/cwt
$7.43
30%
$10.00
4. Forfeiture. A producer can forfeit the pledged crop to
USDA at the end of the loan period. The producer may
Wool, graded
$/cwt
$115.0
79%
$115.00
keep any price gains associated with forfeiture.
0
Wool, ungraded
$/cwt
$40.00
NA
$40.00
Eligibility Criteria and Payment Limits
Mohair
$/cwt
$420.0
84%
$420.00
Producers must meet eligibility requirements to participate
0
Honey
$/cwt
$69.00
32%
$69.00
in the MAL program—these include actively engaged in
Sugar, raw cane
$/cwt
$18.75
72%
$19.75
farming criteria and conservation compliance provisions.
Under the 2018 farm bill (§1703), MAL benefits are no
Sugar, refined beet
$/cwt
$24.09
74%
$25.38
longer subject to annual payment limits. (This includes
Source: NA = not available; MYAP = market-year average farm
price; MAL loan rates: 2018 farm bil (P.L. 115-334, §1202); farm
MLG and LDP benefits as well as any gains under
prices: USDA, National Agriculture Statistics Service.
commodity certificates and forfeiture.) Payment limit issues
Notes: bu. = bushel, cwt. = 100 lbs., ELS = extra long staple.
are discussed in more detail in CRS Report R44739, U.S.
a. The MAL loan rate is the average MYAP for upland cotton for
Farm Program Eligibility and Payment Limits.
the preceding two years but within a range of $45/cwt. and
Current MAL Program Status
$52/cwt.
b. Sunflower seed, rapeseed, canola, safflower, flaxseed, mustard
The 2018 farm bill raised MAL loan rates for several
seed, crambe, and sesame seed. The percentage share of average
program crops, including barley, corn, grain sorghum, oats,
farm price represents a weighted average of other oilseeds.
extra-long-staple cotton, sugar, rice, soybeans, dry peas,
c. MAL loan rates are compared with the five-year (2014-2018)
lentils, and small and large chickpeas (Table 1). The MAL
Olympic average (minus high and low price years) farm price
program’s usefulness as a risk management and marketing
received. Adjusted world prices, reported by USDA, are used in
tool varies widely across program crops depending on the
lieu of farm prices for comparison of cotton and rice loan rates.
relationship between farm prices and the statutory loan
rates.
Randy Schnepf, Specialist in Agricultural Policy
IF11162
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2018 Farm Bill Primer: Marketing Assistance Loan Program

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