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Effects of Marketing Loans on U.S. Dry Peas amd Lentils / ERR-58
Economic Research Service/USDA
The Role of Marketing Loans
in Acreage Expansion
Dry pea and lentil producers benefi t from marketing loans through loan defi -
ciency payments (LDPs) or marketing loan gains (MLGs) when the weekly
loan repayment rate is less than the loan rate. Since the LDP or MLG equals
the difference between the loan rate and the loan repayment rate, the loan rate
becomes the effective expected grower price when the expected price is low.
Marketing loans have an impact on acreage whenever the expected grower
price is lower than the loan rate because farmers make their planting deci-
sions, in part, based on the expected grower price, not the actual market price
received by farmers. Marketing loans played an important role in acreage
expansion for dry peas during 2003-05 and for lentils in 2003. In 2003, dry
pea producers expected to receive marketing loan benefi ts of $1.18 per cwt
in North Dakota and $0.63 in Montana—20 percent and 11 percent of the
effective expected grower price (fi g. 5). Growers in traditional pea-producing
States—Washington and Idaho—were not expecting to directly receive an
increase in the expected grower price attributed to marketing loans for the
2003-05 crops, even though marketing loans offered them downside price
risk protection.
However, the marketing loan benefi t was lowered to $0.29 per cwt for
North Dakota producers in 2004 and to $0.68 in 2005. The expected grower
prices for peas in North Dakota in those 2 years were considerably higher
than for 2003 and were below the loan rates by a smaller amount. Thus, no
direct increase in the expected grower price was expected by Montana pea
producers for 2004 and 2005 because the expected grower prices—$6.79
and $6.37 per cwt—were greater than the loan rates. In the case of lentils
in 2003, growers expected to receive a marketing loan benefi t of $2.58 per
cwt in North Dakota and $0.36 in Montana—accounting for 22 percent and
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