It’s been overshadowed by the shutdown and subsequent reopening of the federal government, but an announcement made by USDA that it would stop processing commodity loans could cost producers and merchants significantly.

As Congress was in the middle of its futile, last-ditch effort to fund the government Sept. 30, USDA said it would reduce loans and stop loan processing as part of its effort to accommodate the automatic funding reductions known as the sequester program and the shutdown of the government.

USDA’s Farm Service Agency said commodity loans "would be subject to sequester reductions of 5.1 percent and loan-making for all commodities would be suspended Oct. 1.” The agency said in its Sept. 30 announcement the loans were targeted to resume in mid-October, but, since then, FSA has not moved to re-open the program.

Senator letters

A group of 14 senators, including Republicans Thad Cochran of Mississippi and Saxby Chambliss of Georgia, have now written Agriculture Secretary Tom Vilsack asking for an explanation of the moves to reduce commodity loan rates and suspend the loan program.

The letter said growers, merchants and marketing cooperatives were unable to make any contingency plans to mitigate the adverse impact of the last-minute announcement made on Sept. 30 without warning or consultation with Congress or the private sector.

“The decision to apply sequestration and delay loan processing just as harvest across much of the Sunbelt is gearing up is particularly damaging because it was made without warning,” the letter said. “This meant growers, marketing cooperatives, private merchandising firms and agribusinesses were unable to make any alternative plans to mitigate the financial hardship imposed by the decisions.”

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The letter said the decision was surprising since sequestration was not applied to marketing assistance loans made for the 2012 crop or for the 2013 crop entered into the loan before Oct. 1. (A higher percentage of the nation’s corn and soybean crops compared to cotton and peanuts was harvested before Oct. 1.)

“The sudden and unexpected decision to reduce loans and stop loan processing has a significant impact on the availability of working capital, orderly marketing, and in some cases, results in unrecoverable income losses for farmers who forward-contracted their crops,” said National Cotton Council Chairman Jimmy Dodson, a South Texas cotton producer.

No budget savings

“The action will result in little if any budget savings to the government since loans are repaid fully with interest.”

Dodson noted that the announcement also lacked clarification of how loan redemptions would be calculated, further confusing the market and creating uncertainty. He said the fact the 2012 crop loans were not reduced by sequestration, which calls into question USDA’s selected use of any statutory flexibility. Earlier this year, USDA made the decision to reduce direct payments by a greater percentage than required in order to not claw back SURE and MILC payments.

Dodson said the NCC will continue to work with members of Congress and other commodity organizations to urge USDA to reconsider its decision and to resume loan processing as quickly as possible as peak harvest approaches and the adverse impacts worsen.

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The USDA announcement said the programs, which provide interim financing for agricultural commodities to be stored after harvest and sold throughout the year when unaffected by harvest-season pressure on prices, are subject to sequester reductions of 5.1 percent. With commodity loan programs operating on a crop year basis and Sept. 30 marking the end of the federal fiscal year, adjustments will occur for the 2013 crop year as follows:

            • Loan-making for all commodities will be suspended on Oct. 1 and are targeted to resume mid-October.

            • Loan repayment and loan servicing for all disbursed commodity loans will continue.

            • Beginning in mid-October, the 2013 crop loans, and if applicable, loan deficiency payments (LDPs) will receive 5.1 percent reductions.

            • Re-pledged 2012 crop sugar loans are not subject to sequester.

            • 2013 crop loan rates are not affected.

Commodity loans issued by FSA, marketing associations and loan servicing agents are all subject to these reductions.

Copies of the senators’ letter are on the NCC’s website.