Loan Deficiency Payments versus Countercyclical Payments: Do We Need Both for a Price Safety Net?

Chad Hart and Bruce Babcock

Center for Agricultural and Rural Development (CARD) Publications from Center for Agricultural and Rural Development (CARD) at Iowa State University

Abstract: The federal government currently runs two major price support programs in agriculture, the marketing loan and countercyclical payment (CCP) programs. While these programs are both targeted at providing producer price protection, they have different political and financial costs associated with them. We outline these costs and project the effects of various loan rate changes on these programs for eight crops (barley, corn, cotton, oats, rice, sorghum, soybeans, and wheat) for 2005. Loan rate changes affect the price support programs by changing the payment rate producers receive when payments are triggered. We find that the crop's relative price strength versus its loan rate and the relationship between CCP base production and 2005 expected production have the largest influence on how loan rate changes affect outlays from the price support programs for the various crops. Of these crops, cotton is the only one that would be relatively unaffected by loan rate shifts. Corn and soybeans would see the largest declines in overall expenditures from price support programs if loan rates were decreased. Oats and soybeans would experience the largest percentage losses. However, the results also show that the federal government could maintain an agricultural price support structure at a lower cost than it is currently paying. The reduction in cost often comes in situations where the current array of price support programs overcompensates producers for price shortfalls. This shift would also likely find greater acceptance under the World Trade Organization (WTO) agriculture guidelines than would the current structure. For an administration that is looking to rein in deficit spending while at the same time negotiating new WTO guidelines, moving to lower loan rates could be an answer.

Keywords: agricultural loan rates; agricultural marketing loan program; agricultural price supports; countercyclical payments (CCPs); loan deficiency payments (LDPs). (search for similar items in EconPapers)
Date: 2005-02
New Economics Papers: this item is included in nep-agr and nep-fmk
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.card.iastate.edu/products/publications/pdf/05bp44.pdf Full Text (application/pdf)
https://www.card.iastate.edu/products/publications/synopsis/?p=573 Online Synopsis (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ias:cpaper:05-bp44

Access Statistics for this paper

More papers in Center for Agricultural and Rural Development (CARD) Publications from Center for Agricultural and Rural Development (CARD) at Iowa State University Contact information at EDIRC.
Bibliographic data for series maintained by ().