Basically, when the price farmers will receive for their crops falls below the loan rate, they can repay their loans at a lower alternative repayment rate, also known as the posted county price. Farmers who do not choose to obtain marketing loans may still receive similar help from USDA when prices are low. In lieu of securing loans, eligible farmers may choose to receive payments for the difference between the alternative repayment rate and the loan rate. Farmers use commodity certificates to redeem their marketing assistance loans at a lower repayment rate. Changes to the Marketing Assistance Loan Program Had Only a Modest Impact on Total Payments

The increase in the payment limit and the introduction of commodity certificates had a limited impact on total payments made through the Marketing Assistance Loan Program in crop years 1999 and 2000. Because of the increase in the payment limit, 1999 payments for loan deficiency payments and marketing loan gains were 2.5 percent, or $170.7 million, more than they would have been otherwise. Commodity certificates also composed a small proportion of all program payments—$380 million of the $15 billion in marketing loan assistance payments made over the 2-year period. The cooperatives’ certificate gains were about the same as they would have been if they had chosen to obtain market gains or loan deficiency payments. That is, 47 farmers in 1999 and 100 farmers in 2000 received more than $150,000. While most farmers did not use the majority of the certificates to receive benefits in excess of the payment limit, a handful of farmers did so. Appendix II: Crops and Loan Quantities Redeemed With Certificates, Crop Years 1999 and 2000

Appendix III: Farmers, by State, Receiving More than $75,000 Due to Increase in the Payment Limit, Crop Years 1999 and 2000

In both crop years 1999 and 2000, less than 1 percent of farmers who received marketing loan benefits from USDA’s county offices received over $75,000 in market loan gains and loan deficiency payments combined.
What GAO Found

Under the Department of Agriculture's (USDA) Marketing Assistance Loan Program, the federal government accepts harvested crops as collateral for interest-bearing loans (marketing assistance loans) that are typically due in nine months. When market prices drop below the loan rate (the loan price per pound or bushel), the government allows farmers to repay the loan at a lower rate and retain ownership of their commodity for eventual sale. The difference between the loan rate and the lower repayment rate is called the "marketing loan gain." Conversely, farmers who do not have marketing assistance loans can also receive a benefit when prices are low called a "loan deficiency payment." The loan deficiency payment is equal to the marketing loan gain that the farmer would have received if he or she had a loan. Farmers may choose to obtain either a marketing loan gain or a loan deficiency payment--both of which are known as the marketing loan benefit. The increase in the payment limit and the availability of commodity certificates had only modest effects on the $15 billion in marketing assistance loan payments provided for crop year 1999 and for crop year 2000 through May 2001. Because of the increase in the payment limit, total payments over the two-year period were 1.9 percent more than they would have been under the previous limit, or an additional $261.1 million. Most farmers did not use commodity certificates to receive gains more than the payment limit, but a small number of farmers did benefit from the program. According to the best available data from USDA's county offices, 47 farmers used certificates to receive more than $150,000 in 1999, and 100 farmers did so in 2000.