The FSA makes Commodity Credit Corporation (CCC) loans to eligible farmers using the stored crop as collateral. Loans to producers are usually "nonrecourse". That is to say, when market prices are higher than the loan rate, a farmer may simply pay off the loan and market the commodity. However, if market prices are below the loan levels, a producer can forfeit or deliver the commodity to the government to discharge the loan obligation in full. Thus, commodity loans promote orderly marketing by providing farmers with income while they hold their crops for later sale.
Secondly, farmers get price protection with the option of forfeiting the commodity to the CCC as a sufficient-value repayment. A marketing loan provision allows producers to repay nonrecourse loans at less than the announced loan rates whenever the world price for the commodity is less than the loan rate. Marketing loans are available for feed grains, wheat, oilseeds, upland cotton and rice. Also, producers who are eligible to obtain a marketing loan and who agree to forgo obtaining a loan, may receive a loan deficiency payment--the difference between the loan rate and the loan repayment rate.
The price support loan is seasonal and can be repaid with interest anytime through maturity. For wheat and feed grains, the Farmer-Owned Grain Reserve offers producers the opportunity to extend the crop loan for longer periods. Storage payments are made for grain placed in the Reserve
For most commodities, loans are made directly to producers on the unprocessed commodity through FSA county offices. Loans and purchases are also made through cooperative marketing associations or processors. For example, price support loans for eligible tobacco growers are available through the applicable tobacco growers' associations. For tobacco, marketings in excess of a quota are subject to penalty and are ineligible for a loan.
Two levels of price support loans for peanuts are available: a higher price support level for peanuts grown within the farm poundage quota, and a lower support level for additional peanuts grown on farms with a quota or on farms without a quota.
Price support loans on oilseeds and rye are available and producers do not face acreage limitations on these commodities.
For wheat, feed grains, rice, and cotton, an income support payment is provided by deficiency payments. The program participant receives a direct payment, based on the difference between a "target price" set by law and the higher of either the basic loan rate or the national average market price.
In most cases, to qualify for payments, commodity loans, and purchases, a farmer must participate in the acreage reduction, allotment, or quota programs in effect for that particular crop. For example, deficiency payments are made to those who join in the acreage reduction for the crop year. Reducing their production acreage by an established ratio, participants help to keep commodity production in line with anticipated needs. The land they are holding from production must be protected from erosion. In recent years, farmers have been given the flexibility to shift program crop plantings, as well as options for oilseeds, industrial, and experimental crops.
Through incentive payments to producers, price support is available for shorn wool and mohair and for the sale of unshorn lambs. This program brings the national average price received by all producers up to the support level required by law. Producers who get a higher market price also get a higher incentive payment, thus encouraging producers to improve the marketing and quality of wool and mohair.