How Commodity Loans and Loan Deficiency Payments Work for Farmers

What commodity loans and loan deficiency payments are

A commodity loan is a loan from the U.S. Department of Agriculture (USDA) that lets a farmer use their harvest as collateral without selling it when ready. The farmer borrows money at a set rate, stores the crop, and can repay the loan when prices rise — or forfeit the crop to the USDA if prices stay low. A loan deficiency payment (LDP) is a separate payment the USDA makes directly to the farmer when the market price of a crop falls below a set level, even if the farmer did not take out a commodity loan.

These programs exist because crop prices fluctuate based on weather, global supply, and market conditions that individual farmers cannot control. The commodity loan lets a farmer hold onto grain or cotton instead of selling at a loss during a price dip. The LDP compensates farmers when prices drop, whether or not they borrowed. Both programs cover the same crops: wheat, corn, soybeans, barley, oats, sorghum, rice, peanuts, cotton, and some others.

Key Takeaways

• A commodity loan lets you borrow money using your unharvested or stored crop as collateral, with repayment tied to crop prices rather than a fixed schedule.
• Loan deficiency payments are direct payments from the USDA when the market price of your crop falls below a government-set reference price, and you do not need a loan to receive them.
• You must be a farm owner, operator, or tenant with a share of the crop to use either program, and you must report your acreage and production to your local Farm Service Agency office.
• The USDA sets loan rates and reference prices each year based on crop type and market conditions, so the amount you can borrow or receive varies annually.
• You explore through your county Farm Service Agency office, which handles the paperwork, stores your crop information, and processes payments.

How commodity loans work step by step

When you harvest a crop covered by the program, you take it to a USDA-approved storage facility — usually a grain elevator, cotton gin, or warehouse. The facility issues a warehouse receipt showing what you stored and how much. You bring that receipt to your county Farm Service Agency (FSA) office along with proof of your interest in the crop (ownership, operating agreement, or lease showing your share).

At the FSA office, you sign a promissory note stating the loan amount, the interest rate (set by the USDA each year), and the loan term, which is typically nine months. The USDA deposits the loan funds into your account. You own the crop the entire time — you can sell it at any point and use the sale proceeds to repay the loan early, or you can hold it and repay when prices improve.

When the loan matures (usually nine months later), you have two choices. If the market price is higher than the loan rate plus interest, you sell the crop, repay the loan, and keep the difference. If the market price is lower, you can forfeit the crop to the USDA instead of repaying the loan in cash. The USDA takes ownership of the stored crop and sells it themselves. You owe nothing more.

How loan deficiency payments work

Loan deficiency payments do not require you to take out a loan. Instead, the USDA sets a reference price for each crop each year — this is the price level the government considers fair for that crop. If the actual market price falls below the reference price on a specific date (usually early in the marketing year), the USDA calculates the difference and pays you that amount per unit of crop you produced.

To receive an LDP, you report your acreage and expected production to your county FSA office before or shortly after planting, depending on the crop. You do not need to store the crop or take out a loan. You can sell your crop when ready at whatever price the market offers. Then, if prices drop below the reference price by the payment date, the FSA mails you a check for the difference, multiplied by your production quantity.

The payment is based on your actual production or your farm's historical average yield, whichever the program rules specify for that crop year. You must own, operate, or have a documented share of the farm where the crop was grown. The payment arrives weeks or months after the price trigger date, not when ready.

Loan rates and reference prices set each year

The USDA announces commodity loan rates and LDP reference prices each year before planting season. These rates are not fixed — they change based on crop type, market conditions, and USDA policy. For example, the corn loan rate in one year might be $1.95 per bushel, and the next year it could be $2.10 or $1.80 depending on global supply and demand.

You can find the current rates on the USDA Farm Service Agency website under "Commodity Loans" or by calling your county FSA office. The rates are the same nationwide for each crop, though some crops have regional variations. Knowing the loan rate before harvest helps you decide whether to store a crop and take a loan or sell when ready.

Who can use commodity loans and loan deficiency payments

You must be a U.S. citizen or permanent resident and have a legal interest in the crop — as the farm owner, operator, or tenant with a documented share. If you rent land, your lease must show what percentage of the crop belongs to you. If you own the land, you must be actively farming it or have a written agreement with the person who operates it.

You cannot use these programs if you are a sharecropper with no written agreement, or if someone else owns the crop outright and you are only hired labor. Corporations, partnerships, and trusts can use the programs if they meet the same ownership or operating requirements. There are no income limits or asset tests — the programs are open to any farmer who grows a covered crop and reports it to the FSA.

What you need to bring to the Farm Service Agency

For a commodity loan, bring your warehouse receipt (showing the crop type, quantity, and storage location), proof of your interest in the crop (deed, lease, or operating agreement), and your Social Security number or tax ID. You will also sign a promissory note at the FSA office.

For a loan deficiency payment, bring proof of your acreage and production — usually your crop insurance paperwork, FSA acreage report, or a signed statement from the elevator or gin showing how much you delivered. You will also need proof of your interest in the crop and your tax ID. Some FSA offices require you to report acreage before planting; others allow reports after harvest. Call your county office to confirm the important date for your crop.

Timing and payment schedules

Commodity loans are available as soon as you harvest and store the crop. You can explore any time during the nine-month loan period. Most farmers explore within a few weeks of harvest when they have the warehouse receipt in hand.

Loan deficiency payments are triggered on a specific date set by the USDA each year — usually in the fall for summer crops like corn and soybeans. The USDA compares the market price on that date to the reference price. If prices are lower, the payment is calculated and mailed to you within a few weeks, though processing can take longer during high-volume periods.

If you take a commodity loan and the market price rises before the nine-month term ends, you can repay the loan early and sell your crop at the higher price. There is no penalty for early repayment. If you hold the loan to maturity and forfeit the crop, the transaction is complete — you owe nothing and receive no further payment.

Frequently Asked Questions

Can I get both a commodity loan and a loan deficiency payment for the same crop?

No. If you take out a commodity loan, you cannot also receive an LDP for that crop in the same year. The programs are designed as alternatives: you either borrow against stored grain, or you sell when ready and receive a payment if prices drop. You choose one or the other based on your situation and the market outlook.

What happens if I sell my crop before the loan matures?

You can sell at any time. Use the sale proceeds to repay the loan in full, and you keep any profit above the loan amount plus interest. There is no penalty for early repayment. This is how farmers take advantage of price increases — they hold the crop under loan, prices rise, they sell, and they repay the loan and pocket the gain.

Do I have to store my crop at a specific facility?

No, but it must be a USDA-approved facility. Most grain elevators, cotton gins, and warehouses are approved. The facility issues the warehouse receipt you need to explore for the loan. If you are unsure whether a storage location is approved, ask your county FSA office or call the facility directly — they handle USDA loans regularly and know the requirements.

What if I do not have a written lease with my landlord?

You will need one to use either program. The FSA requires proof of your legal interest in the crop. A verbal agreement is not enough. If you farm land as a tenant, ask your landlord to sign a straightforward lease or crop-share agreement stating your percentage of the harvest. Many FSA offices have templates you can use.

How long does it take to get the money from a commodity loan?

Once you submit your process with the warehouse receipt and proof of interest, the FSA usually deposits the loan funds within one to two weeks. Processing time varies by office and how busy they are during harvest season. Call your county FSA office to ask about current wait times.