Best Time to Take The Sunflower LDP
Saturday, September 1, 2001
filed under: Marketing/Risk Management
The Best Time to Take the Sunflower LDP
The best time to take the loan deficiency payment (LDP) and sell the crop are analyzed in a new study by North Dakota State University.
LDP rates for select crops and locations in North Dakota during 1998-2001 were analyzed to: 1) compare LDP rates by location; 2) Evaluate the time series of LDP rates to identify patterns for developing marketing strategies; and 3) Evaluate the implications of LDP rates on marketing strategies.
In the study, LDP rates were collected for the major crops produced in Cass, Ward and Stark Counties in North Dakota. They were collected primarily for Thursdays and Fridays, and averaged for each month. The analysis focused on two strategies: The timing of taking the LDP in lieu of a CCC loan; 2) Securing a loan and repaying it at the posted county price where the PCP may be locked in for 60 days. (Details on this procedure are available at your local Farm Service Agency office) The study authors note that the strategies described should be evaluated with current information and caution, since relatively few years were analyzed, and since policies are subject to change.
The highest LDP rates for oil sunflower occurred at or shortly after harvest during two out of three years. For the 1998 crop, rates climbed considerably during 1999. In contrast, the highest rates occurred during October and November for the 1999 and 2000 crops. Since LDP rates and market prices move inversely, the most profitable strategy during the three years was to take the LDP at harvest. The best selling strategy was to sell off the combine during 1998 and 1999. Storage into the summer of 2001 was profitable for the 2000 crop.
USDA uses prices for traditional linoleic sunflower in determining LDPs, because that is the majority of seed that is crushed in the U.S., according to Larry Kleingartner, executive director of the National Sunflower Association. “If NuSun seed makes the NuSun grade, that premium goes back to the producer over and above the LDP. If it doesn’t make the NuSun grade, it goes into the regular crush. Same for high oleic, hulling types or seed for birdfood,” says Kleingartner. The confection sunflower LDP is also based on the linoleic price, with a $3/cwt ceiling. Since it’s established nationally, the LDP price pattern for sunflower is about the same in the Northern Plains as it is in the High Plains, with some variation by county.
Kleingartner does not anticipate any change in the way LDPs are calculated for sunflower, even as NuSun acreage expands. “They take the lowest value that’s quoted at the crushing plant. That’s what all these types will fall into if they don’t make a particular grade,” he says. “It all goes back to the basic common denominator, and that’s what the LDP needs to be based on. Otherwise, it skews the market for basic sunflower.”
Following is the LDP analysis for other crops:
Hard Red Spring Wheat
Spring wheat LDP rates were the same in Cass and Stark, which were higher than in Ward during 1998-2001. The highest LDP rates occurred during August-September. The highest was in August 2000, followed by August 1999 and September 1998. Marketing strategies that captured the LDP near harvest were the most profitable. The most profitable time to sell the crop was November.
LDP rates for durum varied depending on the time period. During August 1998- November 1999, Ward did not have an LDP while Cass and Stark had a few small LDP rates during September, February and March. Cass and Stark had the same rates which were higher than in Ward. During August 1999-May 2000, the monthly average LDP reached a high during November/December and stayed there during the balance of the period for all three locations. Beginning in December 1999, the LDP was about the same at all three locations. During August 2000-Apri12001, the highest LDP rate occurred during August-September as would be expected. This rate was also the highest for the study period.
Future marketing strategies that capture the LDP during harvest may be the most profitable. It would appear that USDA made differential adjustments during September- December 1999, since the LDP rate increased while the durum price received by producers also increased, and the rates at all three locations converged.
Storage into December-January was generally profitable during 1998-2001. Historical seasonal price patterns favor November-December.
Hard Red Winter Wheat
The pattern for hard red winter LDP rates was identical for the three locations, although their rates differed. Stark had the highest rates followed by Ward and Cass. Seasonal peaks occurred at different times each year. LDP rates were the highest at harvest in 1998. During 1999, the rates peaked in July and again during October-December. In 2000, the LDP rates were the highest in January-May and again during harvest in August. A strategy of locking-in the PCP at harvest for 60 days would have been appropriate, since the marketing loan gain rates were the highest either at harvest or about two months later. Storage was profitable into October for the 1998 crop, May for the 1999 crop and January for the 2000 crop.
The LDP rates for corn were generally the highest during the summer in the year following harvest for the 1998 and 1999 crops. They were the highest during July 1999 for the 1998 crop and during August 2000 for the 1999 crop. For the 2000 crop, they were nearly the highest at harvest. The LDP rates were also substantial at harvest during 1998 and 1999. Taking the LDP at harvest would have been the most profitable for all three years when marketing decisions are examined. Selling off the combine would have been the most profitable for the 2000 crop. For the 1998 and 1999 crops, storage until May was more profitable than selling off the combine.
The barley LDP rates were the same at the three locations. The August-September rates were generally the highest. Capturing the LDP at or shortly after harvest was the best strategy. Cash sales during October-December were generally the best for feed and malting barley. Harvest sales of feed barley may have been the best in 1998 depending on the timing of harvest.
The highest LDP rates for soybeans varied considerably. They were the highest during July 1999 for the 1998 crop, during November 1999 for the 1999 crop, and during April 2001 for the 2000 crop. For the 1998 crop, they were significantly lower at harvest than at their highs. However, capturing the LDP at or shortly after harvest was the best strategy considering marketing decisions. Selling off the combine was the best marketing strategy for 1998, since prices declined considerably during the balance of the marketing year. Storage was profitable for the 1999 crop until May and for the 2000 crop until December.
The situation for canola was similar to that for oil-sunflowers except for the 1998 crop. The most profitable time to sell that crop was January. Tracy Sayler
Rule Change For LDPs by Fax
Fax LDP application rules have changed for 2001 crops. Form FSA-237, Facsimile Signature Authorization and Verification, must be on file in county offices on the date a faxed LDP application is received in order to receive the LDP rate for that date. If the FSA-237 is not on file, the faxed LDP application is not valid on the date filed.
Prior to the change, FSA could accept a faxed application without an FSA-237 on file and the LDP rate was locked in on the date the fax was received. Payment in crop year 2000 was made after the successful completion of the FSA-237.
Producers who correctly completed FSA-237s for crops harvested during the crop year 2000, and have not made changes in their records, do not have to file a new FSA-237 for crop year 2001. Consult with your local FSA office for more details on the fax rule change.