Wallaces Farmer

Time to Refocus Your Grain Marketing - No LDP This Fall

Although corn and soybean prices are now some of the highest ever, these are high risk times too.

October 9, 2007

5 Min Read

It used to be farmers talked about LDP's this time of year. But this fall market prices for corn and soybeans are too high for loan deficiency payments, so there are no USDA loan deficiency payments, or counter-cyclical payments either. However, there are direct payments. USDA is sending 78% of its annual direct payment to farmers right now. That money will be paid out to farmers beginning the week of October 8 by USDA Farm Service Agency offices across the country.

Without LDPs or CCPs this fall--what should you be doing? "Farmers this fall need to re-set their focus in grain marketing," says Steve Johnson, Iowa State University Extension farm management specialist in central Iowa. "Corn and soybean prices are way above the USDA loan rate now and there's no LDP. Farmers in recent years relied on collecting the LDP to have some money to pay bills. So how will they pay bills now?

"They are going to have to get their money from the marketplace," answers Johnson. "That's the reality of today, and that's what a lot of farmers want. They want to rely less on the federal government for income support and instead want to take more of their income from the marketplace."

These are higher risk times for farmers

Especially in a year like this one when farmers have good yields across Iowa--and compared to history we now also have very high crop prices--farmers this year are going to extract their income from the marketplace.

The futures markets are looking at $4 corn and ethanol demand is continuing to expand. Would Johnson be a little bit more aggressive on pricing corn? Or is he not at that point yet? "No, I'm not there yet," he answers.

Although many people thought when corn and soybean prices went up over the past year, grain marketing and making money in farming would become simpler--actually, it's just the opposite. These are times of higher risk.

"There is a lot more financial risk involved with these higher prices for grain and the higher costs of producing the crop," emphasizes Johnson. "Sure, farmers are handling a lot more money as they sell crops at these higher prices of $3.50 for corn and $9 for soybeans. But there is also considerably more risk. However, these are exciting times today in row crop agriculture—lets not lose sight of that."

Income tax will be big issue this year

Many farmers are going to have one of the better income years they've ever had. In 2007, a number of farmers sold their 2006 crop. In addition, the 2007 crop was priced early at some attractive prices by some farmers. "That's why income tax is going to be a big issue this year. Farmers this fall need to be sure they are in tune with income and expenses as they try to balance the two," says Johnson.

One of the strategies farmers might consider is using the marketing loan, he adds. With the old CCC loan, you only get the county loan rate. But the fact is, that money can be counted as a loan and you wouldn't have to count it as income this year. USDA is projecting farmers will have record net farm income this year, notes Johnson. So you need to get in tune now with where you are at on income tax—because you might be able to defer some income, he adds.

Meanwhile, your bills are coming in this fall and you need to pay those bills. "Beginning the week of October 8, FSA is going to be providing the direct payment from the farm program--to farmers. Roughly it will be about $22 to $25 an acre, depending on old crop corn and bean base acres. "But the point is that 78% of the direct payment will be paid out this week. Also farmers will soon be receiving checks from USDA's annual conservation payment—for the CRP program if you have Conservation Reserve Program acres.

USDA said last week that farmers will get on the average about $49 per acre across the country for CRP payment. Iowa is higher than that national average, because Iowa land is much more productive than a lot of the CRP land elsewhere. Many of these CRP contracts were negotiated in previous years. So perhaps the CRP contracts aren't as high as what you could get per acre for a cash rent payment if you rented the land out for corn or soybean production.

CRP payments also being mailed out

"I would say Iowa's average CRP payment will be much higher than the national average," adds Johnson. "I would say it is closer to $100 per acre for Iowa."

Some people this fall, they will be getting their last CRP payment. A lot of the CRP contracts expire in 2007. What advice does Johnson have for those people? "They've already thought through that, a year ago in June. That's when people who are in the CRP had to make decisions as to whether they want to extend or renew their contract. Those people have already decided their plans for their land that is coming out of the CRP program."

They've done the soil testing. There are also some environmental issues involved with bringing this land back into row crop production. That is the case whether it comes back into corn or soybean production or hay or pasture. "The challenge will be to make the best use of that CRP land from a soil conservation standpoint. There is a lot of land in the CRP in Iowa," says Johnson.

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