With AWP Headed Up, Locking In LDP Rates
on Modules Requires Extra Diligence

Friday, January 14, 2005                           ByShawn Wade

      Rallying world prices and anupsurge in the Adjusted World Price has many growers pondering whether or notto lock-in the LDP rate on cotton still in modules.

      While there are no clearsigns that the recent price surge will find the support necessary to translateinto a steady increase in the AWP in the coming months, this week’s (January14-20) 2.16 cent decrease in the Loan Deficiency Payment (LDP) payment rate iscertainly getting a lot of grower attention.

      The Adjusted World Price ineffect for the week of January 14-20 has been announced by the Secretary ofAgriculture at 36.16 cents which translates into an LDP payment rate of 15.84cents per pound. This is down 2.16 cents from last week’s LDP rate of 18 centsper pound.

      A continuation of this trendcould prevent producers who don’t have all their cotton ginned from gaining thelevel of LDP benefits they might have otherwise been able to receive underdifferent circumstances.

      A big 2004-crop, and anextended harvest and ginning season, has created the possibility that asteadily increasing AWP calculation could cause the current high LoanDeficiency Payment rates to disappear.

      That is why the option tolock-in the higher LDP rate has attracted the interest of producers in recentdays. The module lock-in process is fairly straightforward, but producers needto understand that they must stay on top of the process once the modules thatwere locked-in start getting ginned.

      Modules that are pledged ascollateral for a recourse Seed Cotton Loan are eligible for the Module Lock-inoption.

      Using the Module Lock-inprovision of the Marketing Loan Program is not a common practice for growers onthe High Plains. If a decision is made to lock-in the current LDP rate on a setof modules there is one important concept that must be at that top of a growerslist to avoid unnecessary complications later on.

Beneficial Interest Must Be Maintained

      For purposes of the marketingloan program a producer is required to have title, control and risk of loss inorder for the commodity to be eligible for benefits offered through themarketing loan program. By meeting all three of these requirements the produceris said to have “Beneficial Interest” in the commodity.

      For the producer, and thosewho market cotton on their behalf, it is important that a close accounting ofthe amount of LDP benefits are kept and that beneficial interest is nottransferred. Maintaining beneficial interest is the only way to insure thatcotton released when the LDP payment limit is reached can further utilizeremaining components of the marketing loan program.

      Producers who market cottonbefore they determine if it has received LDP benefits run the risk of thecotton being ineligible for any marketing loan benefits because beneficialinterest was transferred.

      The extra care taken to keeptrack of the LDP status of bales resulting from locked-in modules will insurethat loan benefits are not lost due to a loss of beneficial interest.

      Once a producer hits the$75,000 payment limitation subsequent bales from locked-in modules become fullyeligible for loan program participation other than the LDP program.

      One complicating factor,which FSA has established a procedure to handle, is how to deal with crop sharelandowner LDP’s payable as a result of the module lock-in request.

      When the producer operatorreaches the LDP pay limit maximum, subsequent bales will be divided accordingto the share information on file.

      The crop share landowner willcontinue to receive LDP payments on their share of the bales based on themodule lock-in rate until they reach their individual pay limit ceiling.

      The take home message foranyone who decides on the module lock-in option is to stay on top of their LDPpayment limit status and to be careful to market bales only after LDP benefitshave been paid.

      Getting too far ahead of theprocess could result in some bales being ineligible for loan benefits becausebeneficial interest was transferred too soon.

 

New SRA Limits Some Services Agents Can
Perform On Behalf of Producers

Friday, January 14, 2005                           ByShawn Wade

      New “Conflict of Interest”rules, included in the recently negotiated 2005 Standard Reinsurance Agreementbetween insurance providers and the USDA Risk Management Agency, will changethe way many crop insurance agents and producers do business in 2005.

      One of the most immediateimpacts of the new rules involves reporting 2004 crop yields to the insurancecompany for purposes of updating APH yield records.

      In the past, one of thestandard services provided by the insurance agent was the collection andrecording of yield data for the producer. Now agents are prohibited fromseeking yield information on behalf of the producer and it is the producer’sresponsibility to submit necessary yield data.

      To avoid problems, producersare encouraged to submit yield data, or give instructions to their gin to do soon their behalf, as soon as it becomes available on individual farms orinsurance units and not wait until all their cotton is ginned.

      This is especially importantthis year since some yield data might not become available until after theMarch 15 sales closing date for 2005 policies.