As the wool market struggles during the current worldwide pandemic, now might be a good time for wool producers to look into the Farm Service Agency’s Wool Loan Deficiency Payment Program.
The American Sheep Industry Association (ASI) sponsored the Wool Loan Deficiency Payment Program (LDP) in the 2002 Farm Bill and it hasn’t been used in over a decade. The loan is a tool for producers to utilize when the market is depressed at the time of year a producer sells their wool. The program offers the opportunity to store the wool and have loan proceeds help fund cash flow and expenses.
Peter Orwick, ASI Executive Director, told Northern Ag Network’s Leif Bakken, “This is pretty important for wool growers in the upper plains who shear in the spring because that is revenue coming in at a time when all the other money is heading out the door in expenses.”
How does a producer apply for a Wool LDP and how does it work?
There are two options for producers when they go to the Farm Service Agency (FSA) to get a Wool LDP.
The first is a primary loan function. Once a producer shears, they take the weight of the wool and a core test to the FSA office and they will set up and make the loan. Per the CARES Act, producer have 12 months to use the loan proceeds before it needs to be paid back.
Every week, the price is posted for wool based on the market. If, in that 12 months, the price is lower than the loan rate a producer pays back at the lower posted price or principle plus interest. If the market bounces back, then a producer can go into the office and pay off the loan and market the wool at the desired price.
The second option is for the very finest wool and the coarsest wool. Instead of taking the loan, a producer signs a form to forego any loan on the wool clip and FSA pays the difference in taking out the loan and turning around to repay it at the lower posted price.
Why use the Wool LDP?
“They haven’t found the bottom of this issue for demand worldwide,” Orwick says, “plus so much of the processing equipment (for wool) is located overseas.” He adds that, with the current strength of the U.S. dollar compared to foreign currencies it makes it tough to export wool, so the industry is practically at a standstill. ASI expects interest in the program as more wool is expected to be stored, at least in the short term. Orwick continues, “If the loan would help out with paying expenses for a few months or up to a year then this is something producers need to look at.”
Store Wool, Report Sales
Orwick also has a message for producers storing wool: store it properly.
“It’s important to put these wools up correctly. Stored wools properly prepared are going to do much better than dropping your quality improvement and preparation goals.” Orwick recommends whether a producer stores at home or in a warehouse, keeping moisture off is key. For the near term, he says producers should store their wool until we get better signals from the market.
He also encourages producers to do their part by reporting any wool sales they have made, to a warehouse or private treaty, to USDA reporters so the LDP program can be accurate and benefit all producers in the wool industry.
Producers with questions about the Wool LDP Program should contact their local FSA office.
Leif Bakken – Northern Ag Network 2020