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FSA: Rice loan rates to remain largely unchanged for 2006

U.S. producers appear to have dodged a bullet on the 2006 loan rates for long grain and medium/short grain rice thanks to some deft footwork by representatives of the two rice industry organizations.

But the groups say it's only a temporary reprieve and the loan rate issue — a move by USDA to have long grain and medium/short grain loan rates be more reflective of recent farm prices — will have to be revisited for the 2007 season.

USDA Farm Service Agency officials informed the organizations on March 22 that they would make only those adjustments in 2006 rice loans “that reflect average milling quality, maintaining the $1 per hundredweight (cwt) difference between long grain and medium/short grain whole kernel loan rates.”

The decision came after a meeting at USDA and a telephone conference call with rice farmers and their representatives in which FSA outlined proposals that could have lowered long grain loan rates by 39 cents per hundredweight or 18 cents per bushel and raised medium grain rates by $1.17 per hundredweight or 53 cents per bushel.

“Some of our rice producers who penciled out the changes said they would lose $20,000 to $25,000 this year,” said Reece Langley, senior director of government affairs for the USA Rice Federation. “These were guys from Texas and Louisiana who already had crops in the ground and couldn't do anything else.”

At press time, the Farm Service Agency had not announced the rice loan rates for 2006, but those rates are now expected to vary only a few cents per hundredweight from the 2005 loan rates. (The 2005 loan rates were announced on March 24 last year.)

The 2002 farm bill established the national average loan rate for rough rice at $6.50 per hundredweight. But the law also gives the secretary of agriculture authority to adjust the factors used to determine loan rates to more closely reflect market conditions.

The Farm Service Agency historically has maintained a $1 per hundredweight differential between loan rates for long grain and medium/short grain rice. For the 2005 crop, the whole kernel milled rice loan rates were $10.54 per hundredweight for long grain and $9.54 per hundredweight.

FSA uses value factors to work from those milled loan rates back to the loan rates for rough rice. The latter are further broken down by states. In Arkansas, for example, the 2005 loan rate for long grain rice was $6.61 per hundredweight; for medium grain, $6.04 per hundredweight; and for short grain, $6.07 per hundredweight.

In the 20 years since Congress authorized the marketing loan for rice, farm prices for long grain typically have been higher than those for medium grain rice.

“In the last few years, medium grain rice has been selling for more than long grain,” said Gibb Steele, a rice producer from Hollandale, Miss. “Since the government opened the Japanese market for us, it's really jumped up the medium grain market.”

A slide presentation prepared by the Farm Service Agency for use in its March 10 presentation showed that long grain prices have been higher than medium/short grain prices for only two years since 1998, an indication the loan rates should be adjusted, according to FSA officials.

“They've been doing this for other commodities since the passage of the 2002 farm bill,” said Langley. “Initially, those included pulses, dry peas and lentils, crops that had never had a loan rate before. They told us they intended to take this concept and apply it to other commodities.”

FSA has also made changes in the loan rate structure for wheat, establishing county loan rates by class for the crop beginning in 2002. Wheat producers were split in their reaction to the changes because of the loan rate fluctuations that resulted.

“I don't know of anyone in the rice industry who is in favor of the proposed changes,” said Chip Morgan, executive vice president of the Stoneville, Miss.-based Delta Council. “Even the growers in California, who would see their loan rates go up, are opposed because they believe we could quickly saturate the medium grain market.”

Langley said representatives of the USA Rice Federation, its producer arm, the U.S. Rice Producers Group, and the U.S. Rice Producers Association asked USDA to not make the change in 2006.

“We asked them to give us time to study it and determine if the changes should be made at all,” he said. “For 20 years, long grain prices have been higher than medium grain. If you try to react to the last three years, you could be making drastic changes in loan rates every year.”

Farm Service Agency officials, who had presented four different scenarios to the rice industry, including two “feathering in” the changes over three or four years, agreed to drop the proposal for 2006 but said they would continue developing it for next year.

Steele, chairman of the Mississippi Rice Council and a participant in the conference call, said changing the loan rates in 2006 could have been costly to growers who are still trying to figure out where they stand after 2005.

“It wouldn't have been 18 cents on every bushel (if the loan rates had changed) because not every grower would have been affected the same,” he said. “Most people didn't have the opportunity to update their yields after the 2002 farm bill, so they're getting paid on a 100-bushel yield when they're making 170 bushels per acre. We figure it would have cost some farmers about $14 per acre.”

Steele said many Delta rice producers were already hurting because of last summer's higher fuel and fertilizer prices. Then Hurricane Katrina knocked much of their rice on the ground, adding more costs at harvest and reducing yields. “Some growers had the lowest yields they've experienced since the new varieties came out.”

He said he and other rice industry leaders aren't angry with FSA. “We're thankful they gave us another year to work on this,” he said. “We don't want to poke them in the eye — we just want to work this out in an equitable manner.”

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