Farmers' Response to the Commodity Credit Corporation's Loan Program

Ronald R. Miller, William H. Meyers and Michael A. Lancaster

Journal of Agricultural and Applied Economics, 1978, vol. 10, issue 2, 157-164

Abstract: The Commodity Credit Corporation (CCC), established by Executive Order in 1933 and granted a federal charter in 1948, is authorized to extend nonrecourse loans to farmers who use agricultural commodities from the most recent harvest as collateral. The loan program was designed to foster a more orderly marketing procedure and stabilize agricultural prices and income, but farmers also use this program as both a residual market and a speculation and marketing aid. The amount loaned to a farmer equals the quantity of the commodity pledged as collateral times a fixed per unit value (loan rate) which is announced prior to the production period. Eligibility of a farmer for a CCC loan may require compliance with USDA allotment or set-aside programs and storage of the commodity in a CCC approved facility. The CCC's commodity demand via the loan program is perfectly elastic at the loan rate and farmers can supply as much as they desire. When the loan matures the farmer can either repay it with interest or default on both principal and interest, in which case the CCC assumes ownership of the pledged commodity.

Date: 1978
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