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Elevator operators worry about widening loan plan

By KEVIN WALKER
Michigan Correspondent

WASHINGTON, D.C. — Grain elevator operators are concerned that they could be undercut by the expansion of a government loan program.

The subsidy program, called the Farm Storage Facility Loan (FSFL) Program, lends out money from the federal government so producers can build storage facilities for eligible commodities. The 2008 farm bill expanded the program and now the Farm Service Agency (FSA) is in the midst of making rules to administer it.

“We don’t know yet what the FSA’s stance is going to be; that’s what this discussion is all about,” said Randall Gordon, a spokesman for the National Grain and Feed Assoc. (NGFA), which represents grain elevator operators and other businesses in the commodity supply chain.

Gordon said that grain elevator operators, who’ve already put their own private capital on the line to build a business, are afraid that the expanded program will undercut them.

The FSFL Program, which was re-established in 2000, provides a loan term of seven years and a maximum loan amount of $100,000 to help farmers build or upgrade on-farm storage bins. The 2008 farm bill makes several important changes to the program, according to an entry in the Federal Register.

These changes include an increase in the maximum loan amount to $500,000, an increase in the loan period to 12 years as well as inclusion of hay and biomass as eligible commodities.
The farm bill gives the USDA authority to implement the program in ways it deems appropriate, so it has a lot of latitude to make rules regarding the program.

In a letter sent to program administrators last month, Chairman of the NGFA Bryce Wells – he’s also the Chairman of the Country Elevator Committee expressed – his concerns and made suggestions.

“The NGFA historically has opposed government-subsidized storage programs, believing they represent bad policy,” Wells stated.
Among other reasons for this, Wells cited the tendency of farmers to store their commodities for a longer period of time on-farm than they would if it were kept at a commercial grain elevator, thus increasing the risk of damage to the grain.

But, Wells wrote, since the program exists and the 2008 farm bill expands it, he hopes that the government will focus on giving loans to producers who need to store unconventional crops, such as renewable biomass and hay.

Since renewable biomass is something relatively new, Wells believes that it’s more appropriate for the government to help them with construction of storage facilities. He also said in his letter that there currently isn’t enough storage capacity for hay.
In his letter Wells acknowledged that some loans will be provided for storage of grain and oilseed crops. As such, he asks administrators to allow producers to use loan money from the program to build storage facilities off-farm, possibly in a partnership or some other arrangement with commercial elevator operators.

“(T)his approach would enable U.S. government policy to contribute to, not undermine, one of U.S. agriculture’s strongest competitive advantages – its world-class commercial grain storage, marketing and distribution system,” Wells wrote.

Commercial operators can’t use FSFL Program money. According to a USDA fact sheet on the program, “facilities built for commercial purposes and not for the sole use of the borrower are not eligible for financing.”

Joann Roehm, co-owner of John Marion Grain Elevator in Saline, Mich., said she’s not able to partner with a producer on a storage facility because of regulations, so she hasn’t thought a lot about it.
“I’ve often wondered why they give money to farmers to store grain and not to people in the business,” she said. “Farmers don’t know how to do it. I don’t think it’s in the best interests of the farmers for them to store it.”

She said that farmers store grain on-farm in the hopes that the price will go up later. They believe that storing their commodity on-farm is free, but it isn’t, she said. For example, they have to run fans through their bins and that costs money. She said that “we have a lot of tools” to keep bugs out and make sure the grain doesn’t deteriorate in quality.

6/3/2009