Agricultural Lending

Commodity Credit Corporation

The Commodity Credit Corporation (CCC) is a government-owned and operated corporation created in 1933 to help stabilize and support farm prices and income, and to help maintain balanced supplies and the orderly distribution of agricultural commodities. The CCC’s operations for the Department of Agriculture include commodity price support and inventory management programs, donations, and sales of government-owned stocks for humanitarian or commercial uses, and foreign market development and export credit guarantee programs.

Among the many programs administered by the CCC, the Export Credit Guarantee programs and the Commodity Price Support Loan and Purchase Program should be of most interest to banks and examiners.

Export Credit Guarantee Programs. The export guarantee programs are intended to encourage U.S. financial institutions to provide financing where they would be unwilling to extend credit in the absence of the CCC guarantee. Under the Export Credit Guarantee Program (GSM-102), which was instituted in 1980, the CCC guarantees, for a fee, payments due U.S. exporters under deferred payment sales contracts of up to 36 months. The guarantee provides protection against defaults due to commercial as well as noncommercial risks. The Intermediate Export Credit Guarantee Program (GSM-103) was implemented in 1986. The program is similar to the GSM- 102 program, but provides the CCC guarantee to exporters for commodities sold on credit terms in excess of three years, but not more than 10 years. Documentation requirements for both the GSM-102 and GSM-103 programs are very specific and require strict adherence to perfect the CCC guarantee.

Commodity Price Support Loan and Purchase Program. Governmental price support is undergoing significant change. The Farm Bill includes material changes regarding crop subsidies. Among other things, the Farm Bill phases out crop subsidies over the next seven years. Eligible farmers will get fixed, sliding-scale payments through 2002. The effect of these changes will eliminate price protection for several crops and pose greater risk from market prices to farmers.

Price support is achieved through CCC loans, target price deficiency payments, and purchases of selected commodities at announced levels. The price support loan program gives producers an opportunity to obtain operating cash and remove their crops from the market for potential later sale. Producers are guaranteed at least the support price for the commodity they have pledged as collateral for the loan.

CCC price support loans are nonrecourse loans. If market prices are above support levels, producers may market their commodity and pay off their loans with interest. If market prices fail to rise above support levels, producers can deliver the commodity to the CCC and discharge their obligation. When the producer also has operating loans from another lender, the lender would be required to sign a lien waiver in favor of the CCC.

Most farm program payments to producers may be assigned to a lender. However, price support loans, purchase agreement proceeds, and payments made in the form of Commodity Certificates are not assignable.

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