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Loan repayments and their effect on farmers

There are two things every farmer I know appreciates – harvesting a good crop and making a profit while doing it. While we are at the whims of nature for the quality and quantity of the crops, profitability is where we must have a say. Without profitability, family farms cannot repay their loans, take care of their families or contribute to their communities.

The current farm bill has about three years left, and the U.S. Congress will start work on the next bill in about a year. This is the time when agricultural producers should plan what we want and must have in the next farm bill.

If we want to raise the price of grains, we should ask Congress to modify the USDA’s loan policy for crops. Higher grain prices will eventually lead to higher prices for meat and dairy products.

First, I propose that loan repayment funds should remain with the USDA. The current system funnels loan repayments straight into the general fund. It is logical that those loan repayment funds remain with the USDA, because Congress allocates a budget each year, for the loan program.

By doing so, the fund would grow over time, because of interest accumulation and this line item would not have to be addressed every farm bill. Farmers would act as one anothers’ bankers, with the USDA acting as the intermediary.

Second, the time frame for loan repayment should be extended. Currently, loans must be paid back within nine months. The payback schedule should be longer, perhaps 18 months. This would allow the next year’s harvest to be completed.

Presently, grain companies know loans are due just ahead of harvest. They have no incentive to raise prices, which puts them in a position of financial power over producers. These multi-national companies only have to wait and let the grain come in, because farmers need to repay those loans.

Extending the loan period would allow farmers to wait until the second crop-year harvest to sell, resulting in less grain funneled into the market during the first crop-year. Grain companies would then be motivated to pay more than the loan rate, to convince farmers to sell. This should move markets up and put more dollars in farmers’ pockets.

Third, loan deficiency payments (ldp) should be eliminated. Currently, farmers are put in a position to accept the price a grain company offers them, with the idea they will be subsidized by the USDA for grain sold at a price below the loan rate. LDPs sound like a great way to make sure farmers are staying profitable. However, this is not always the case.

We must develop a formula for family farms to be profitable, free of gimmick-laden approaches. Producers would rather receive honest buyer prices for their products, instead of government subsidies.

Making the changes I suggest will reduce farm subsidies. This will save U.S. taxpayers millions of dollars annually.

The general public dislikes corporate welfare. Raising loan rates will force grain companies to pay fair prices. Right now, the system pays farmers, but only because multi-national companies refuse to pay a fair price to them. They understand politicians will bail out producers. Even though payments go directly to farmers, voters consider it corporate welfare.

Politicians have allowed this system of under-payment to family farmers to grow worse through the years. The practice must stop. We must ensure the next farm bill contains legislation allowing a profitable family farm system.

Then, farmers can produce the food and fiber this country needs to be secure, and multi-national corporations pay what the grain is truly worth.

Schultz is the vice president of the National Farmers Organization. He and his wife, Wendy, operate a cow/calf ranch in Raynesford, Mont.