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Agriculture
AN EIGHTH DISTRICT PERSPECTIVE
SUMMER 1987

Marketing Loan Program Boosts Rice Exports
Declining farm exports have been one of the farm sector’s
most publicized problems in recent years. Rice exports
peaked in the 1980/81 crop year and then steadily declined
through 1985/86. In 1986/87, however, rice exports are
projected to increase 36 percent. Much of the gain in rice
exports is attributed to the farm policy tool of marketing
loans which took effect in 1986. In addition to being notable
for its unique farm policy aspects, rice is of interest because
it is one of the major crops in the Eighth District.
The Eighth District produces large shares of the nation’s
com, soybean, wheat, sorghum and tobacco crops. The
District, however, holds its largest share in the nation’s rice
production. In 1986, the Eighth District accounted for more
than half of all rice produced in the United States. Arkansas,
the single most important rice-producing state in the country,
accounted for 41 percent of U.S. rice production while
Mississippi and Missouri contributed 8 percent and 2.6
percent, respectively, of national production in 1986.
California and Louisiana are the second and third most
important rice-producing states. In 1985, rice was the twelfth
most valuable crop in the United States and the seventh most
important agricultural export.
On an international scale, the United States produced only
1.3 percent of the world’s rice but was the second most
important exporter of rice; the United States accounted for
18.6 percent of all international rice trade in 1986. Thailand
is the leading rice exporter with 33.7 percent of the rice trade.
In the 1986/87 crop year, 59.5 percent of U.S. rice production
is projected to be exported.

The Marketing Loan
Program
The single most important factor in the U.S.
increase in rice exports is the lower price for
rice brought about by the marketing loan
program. The 1985 Farm Bill adopted
marketing loans for rice and cotton because
it was felt that the traditional price support
loan program kept U.S. commodity prices



above world market levels and led to reduced exports. Under
the traditional loan program, which is still used for many
crops, farmers turn their crops over to the government’s
Commodity Credit Corporation (CCC) when the market
price is below the support price (also known as the loan
rate). In return, farmers are paid an amount equal to the
support price multiplied by the number of bushels (or other
units). These payments are considered a loan to the farmer.
If the market price later rises above the loan rate, a farmer
can redeem the crops by paying off the CCC loan plus
interest and then selling on the market. If the market price
does not rise above the price support level, the farmer can
keep the loan proceeds and surrender the crop to the CCC.
The CCC then must store the crop until the market price
rises to the release price (which is above the price support
level) at which the CCC inventories can be sold on the
market. Because of the CCC inventories, domestic market
prices are unlikely to fell below the support prices, regardless
of world price levels.
The rice marketing loan allows farmers to repay rice
support loans at either the initial loan rate or the higher of
the prevailing world market price for rice or one-half of the
announced support loan rate for rice. In 1987, for example,
rice farmers will receive CCC support loan payments of
$6.84 per hundredweight (cwt) but will be able to repay the
loan for as little as $3.42/cwt and then sell their rice on the
open market.
In addition to the price support loan that guarantees
farmers a minimum price of $6.84, farmers are guaranteed
a total price of $11.66/cwt through the target price mechanism.
Farmers receive direct payments to make up
the difference between the loan rate of $6.84
and the target price of $11.66. These payments
are known as deficiency payments. To receive
the benefits of the program, however, farmers
are required to reduce their rice acreage by
35 percent. Despite the required acreage
cutback, the United States Department of
A griculture estimates that 92 percent

SUMMER 1987

FEDERAL RESERVE BANK OF ST. LOUIS

U.S. RICE EXPORTS AND RELATIVE PRICES
U.S. RICE EXPORTS
MILLION METRIC TONS

U S. PRICE GAP OVER THAI PRICE
DOLLARS

3.0

2.7

2.6
2.5
2.4
2.3

2.2
2.1

2.0

of rice acreage was enrolled in the program in the 1986/87
crop year.
The marketing loan program took effect in April 1986 and
its consequences were quickly apparent. The average market
price received by farmers fell from $7.60/cwt in March 1986
to $3.86/cwt four months later. The price fell because the
marketing loan program allowed large quantities of rice to
reach the open market rather than remain unavailable in CCC
storage.
From 1980 to 1985 the U.S. share of the rice export market
fell from 23 percent to 17 percent. This year, however, the
export share is projected to be 20 percent. Much of the initial
market share loss can be attributed to the large price gap
between U.S. rice and rice from Thailand. In the summer
of 1985, for example, the price of U.S. rice was more than
twice the price of comparable quality rice from Thailand.
The graph above shows how U.S. rice exports fell as the
price of U.S. rice rose relative to the price of rice from
Thailand in the 1980s, and also how exports quickly

rebounded as the relative price fell sharply in 1986 due to
the marketing loan provisions.

Program Costs
While the rice program has been successful in increasing
rice exports, the cost of the program is substantial. According
to the USDA, costs for the program in the 1986/87 crop year
have been estimated at more than $900 million. This amount
includes $545 million in deficiency payments to farmers,
$370 million for the cost of the marketing loan program plus
other costs for storage and administration. One means of
gaining perspective on these costs is to compare the total
cost of die program ($915 million) to the total amount of
rice produced (134 million cwt) in the 1986/87 crop year.
This indicates that each hundredweight of rice produced costs
the government $6.83; almost twice the current market value
of the commodity.
—Kenneth C. Carraro

Agriculture—An Eighth District Perspective is a quarterly summary of agricultural conditions in the area served by the Federal
Reserve Bank of St. Louis. Single subscriptions are available free of charge by writing: Research and Public Information Department,
Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, Missouri 63166. Views expressed are not necessarily official
positions of the Federal Reserve System.
Digitized 2for FRASER


FEDERAL RESERVE BANK OF ST. LOUIS

SUMMER 1987

EIGHTH DISTRICT AGRICULTURAL DATA
Percent Change
A p r.
1 98 7

A v e ra g e
fo r 1 9 8 6

Y e a r-T o -D a te
1987*

S a m e M on th
Y ear Ago

2.5%
1.7

3.6%
5.5

Prices and Costs1

M ar.
1 987

CONSUMER PRICE INDEX (% change)
Nonfood
Food

0.5%
- 0 .4

PRODUCTION COSTS FOR FARMERS (% change)
Agricultural machinery and equipment
Mixed Fertilizers
Other Agricultural chemicals
Gasoline

0.1
1.1
0.6
-0 .1

- 0 .2
0.5
0.3
5.5

0.0
- 0 .9
0.3
0.9

0.1
- 0 .3
0.4
- 4 .3

0.1
3.1
- 0 .3
24.1

0.5
- 0 .8
0.3
3.6

PRICES RECEIVED BY FARMERS (% change)
All products
Livestock
Crops

0.8
- 1 .4
3.0

1.6
3.5
0.0

3.2
2.0
5.9

- 0 .5
0.3
- 1 .4

6.6
6.4
9.1

4.9
14.5
-6 .1

FEEDER CATTLE
Wholesale price - Kansas City ($/cwt.)

$71.13

$72.90

$73.38

$62.79

12.9

21.5

FEEDER PIGS
Wholesale price - So. Missouri ($/head)

$54.98

$56.00

$51.66

$45.61

8.3

29.3

0.5%
0.4

M ay.
1987

0.3%
0.9

0.1%
0.3

BROILERS
Wholesale price - 12-city (4/lb.)

48.534

48.644

50.534

56.904

1.2

- 7 .4

TURKEYS
Wholesale price - New York,
8-16 lb. young hens (C/lb.)

60.344

58.334

55.264

71.924

-1 9 .0

-1 7 .6

CORN
Wholesale price - No. 2, yellow - St. Louis ($/bu.)

$ 1.65

$ 1.74

$ 1.93

$ 2.08

14.2

- 2 4 .6

SOYBEANS
Wholesale price - No. 1, yellow - Central Illinois ($/bu.)

$ 4.92

$ 5.12

$ 5.52

$ 5.23

11.3

1.5

WHEAT
Wholesale price - No. 1, hard winter Kansas City ($/bu.)

$ 2.90

$ 2.90

$ 3.02

$ 2.93

12.7

-1 1 .2

LONG-GRAIN RICE
Wholesale price - Arkansas ($/cwt.)

$11.88

$11.63

$11.50

$13.78

- 3 .2

-1 3 .2

-1 8 .5

10.8

COTTON
Average price received by U.S. farmers (C/lb.)

50.004

52.604

64.804

54.674

Percent Change
U.S. Exports
Corn (mil. bu.)
Soybeans (mil. bu.)
Wheat (mil. bu.)
Rice (rough equivalent, mil. cwt.)
Cotton (thou, bales)




M ar.
1 98 7

A pr.
1 987

M ay.
1987

A v e ra g e
fo r 1 9 8 6

145.0
67.8
73.6
5.4
633.0

185.0
53.9
N.A.
N.A.
N.A.

N.A.
N.A.
N.A.
N.A.
N.A.

89.8
65.3
82.1
6.3
252.4

Y e a r-T o -D a te
1987*

66.7%
-3 8 .9
26.7
17.4
16.4

S a m e P erio d
Y e ar Ago

219.0%
-3 3 .0
- 0 .5
54.3
236.7

3

Non-Real-Estate Farm Debt Outstanding
PCAs1
3
2

Banks
O u ts ta n d in g

P e rc e n t C hange

O u ts ta n d in g

P e rc e n t C h an g e

($ m illio n s)

3 /8 6 - 3 /8 7

3 /8 5 - 3 /8 7

($ m illio n s)

3 /8 6 - 3 /8 7

$28,792
2,024
364
393
970
271

-1 4 .9 %
-1 6 .3
-9 .1
-3 0 .7
-1 6 .6
-1 2 .5

-2 4 .7 %
-2 4 .2
-1 6 .4
-3 0 .3
-3 1 .8
-1 9 .8

$10,423
NA
157
176
117
203

-1 9 .2 %
NA
-2 6 .5
-2 7 .8
-5 2 .0
-1 6 .1

United States
Eighth District4
Arkansas
Kentucky
Missouri
Tennessee

3 /8 5 - 3 /8 7

-3 7 .5 %
NA
-4 7 .0
-4 5 .9
-6 7 .3
-3 4 .8

Agricultural Bank Loan Performance5

3 /8 7

United States
Eighth District4
Arkansas
Kentucky
Missouri
Tennessee

4.8%
7.0
5.5
7.0
5.4
4.8

P e rc e n t o f Farm L oans

P e rc e n t o f N e t

. O v e rd u e at

L o an L o sses at

A g ric u ltu ra l Banks

A g ric u ltu ra l B anks

3 /8 6

3 /8 5

6.1o/o
7.1
8.5
6.3
8.3
5.8

6.8%
8.6
6.9
6.9
8.6
6.3

3 /8 7

3 /8 6

3 /8 5

.280/0
.21
.10
.11
.36
.00

.40%
.28
.24
.17
.37
1.00

.34o/o
.30
.42
.13
.44
.27

Agricultural Production Loan Interest Rate6
PCAs

Banks

Eighth District Average

5/87

5/86

10.1%

10.8%

3/87

3/86

11.1o/o

11.8%

1 The consumer price index components are seasonally adjusted. All other data are not seasonally adjusted.
2 Percent change from December of previous year, based on the most recent month available.
3 Source: Farm Credit Banks of Louisville and St. Louis, Farm Credit Administration.
4 Includes all of AR and parts of IL, IN, KY, MO, MS and TN.
5 Agricultural banks are defined as those with more than 25 percent of total loans in agricultural loans.
6 Interest rate data are for different dates. PCA rates are weighted averages for Arkansas and Missouri, not adjusted for stock purchase requirements.
Source: Farm Credit Banks of St. Louis.





Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102