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Understanding CCC Loans for Ag Lenders

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Understanding CCC Loans for Ag Lenders-prepared for Total Training Solutions

Dr. Paul GormanElcel Solutions, [email protected] 507-420-0138

1Dr. Paul Gorman, Jan2016, [email protected] Phone

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Presentation Topics What is a CCC Loan Why Farm Producers Take CCC Loans CCC Loans as Loans (LAL) vs. CCC Loans

as Income (LAI). Accounting & Reporting CCC

Transactions Effects of LAL vs. LAI on Balance Sheets,

Income Statements, and Sch. F Tax FSA/CCC Loan Forms Lending Policies, Understandings, or

Covenants for Customers with CCC LoansDr. Paul Gorman, Jan2016,

[email protected] Phone 507-420-0138


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What is a CCC Loan

Dr. Paul Gorman, Jan2016, [email protected] Phone

507-420-0138

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The Commodity Credit Corporation(CCC) is a Government-owned andoperated entity that was created tostabilize, support, and protect farmincome and prices.

What is a CCC Loan?


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The CCC Charter Act, as amended,aids producers through loans,purchases, payments, and otheroperations….


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What is a CCC Loan?


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CCC has no operating personnel.Its price support, storage, andreserve programs, and its domesticacquisition and disposal activitiesare carried out primarily through thepersonnel and facilities of the FarmService Agency (FSA).

What is a CCC Loan?


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Crops eligible for CCC Loan programs,include those for wheat, corn,oilseeds, cotton (upland and extralong staple), rice, tobacco, barley, oats, grain sorghum, honey, peanuts,and sugar.


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What is a CCC Loan?


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Farmers may receivebasic nonrecourse commodity loanson most of these commodities at adesignated rate per unit (loan rate)by pledging and storing a quantity ofa commodity as collateral.

What is a CCC Loan?


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Nonrecourse loans are defined as loans for which producers have the option of either repaying the principal and interest or forfeiting (delivering) the collateral (thecommodity) to CCC in full settlement of the loan.

Settlement of the loan is then based on the loan rate and the associated quantity and quality of the commodity involved.


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What is a CCC Loan?


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Collateral Acquisition: If a producerdoes not redeem the commodity byloan repayment time, CCC takestitle and possession of the commodity that was pledged as collateral for the nonrecourse marketing assistance loan.

Why Farm Producers Take CCC Loans Low interest rates-currently 1.125% Provide temporary operating funds

(up to 9 months) while crop is held in storage for better commodity prices or until forward contract delivery.

Bring farm Schedule F tax profit to a positive number in lower income years so deductions, exemptions, or Sec 179 can be utilized & not wasted.


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Why Farm Producers Take CCC Loans

IRS allows the flexibility to treat CCC Loans as loans when received or as income when received.


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Why Farm Producers Take CCC Loans A low tax year income farmer will

“elect” to treat the CCC loan as crop “income” when received and crop buyback “expense” when repaid.

A higher tax year income farmer will treat a CCC loan as loan principal when received and loan principal & interest when repaid


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Why Farm Producers Take CCC Loans Past IRS-Farm tax filer who “elected” to

treat CCC loans as income could not change to loans as loans unless Form 3115-Change in accounting practice was filed and had IRS approval

Current IRS-Farm tax filer may move from LAL to LAI from year to year by filing an IRC 77 election or from LAI to LAL by Filing 3115 with automatic approval


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Charles Tumorg V1 Income Tax Return-sch F income


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Charles Tumorg V1 Income Tax Return-sch F expense


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Challenges in using farm tax records for CCClender analysis CCC as income is not tracked correctly

when activity crosses over year-end. CCC Loans treated inconsistently as

loans versus income at origination and repayment

CCC Loans treated inconsistently as loans versus income from year to year

Market gains & losses were a problem


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Challenges in using farm tax records for CCClender analysis

These changes can be made year by year but all covered commodity crops in any given year must be treated the same.

The producer cannot treat a corn loan as income and a wheat loan as a loan in the same year.


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Challenges in using farm tax records for CCC lender analysis A CCC Loan as Income will not show

up anywhere on the accounting balance sheet of the producer-only on the income statement & Sch. F

A CCC Loan as Loan will not show up anywhere on the accounting income statement of the producer or on his Sch. F-only on the balance sheet


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How Should Farm Accounting & Reporting handle CCC entries


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Challenges in using farm tax records for CCClender analysis A CCC Loan as Income will not show

up anywhere on the accounting balance sheet of the producer-only on the income statement & Sch. F

A CCC Loan as Loan will not show up anywhere on the accounting income statement of the producer or on his Sch. F-only on the balance sheet


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Challenges in using farm tax records for CCC lender analysis Most farm producers use cash-based

farm accounting software or Quickbooks/Sage products that provide good records for taxes but not for accrual/managerial reporting.

Most producers rely upon a free-standing balance sheet that is not tightly “wired” to the income statement.


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Challenges in using farm tax records for CCC lender analysis CCC transactions are infrequent and

farm producers forget whether they took CCC loans as loans or income

Producer<>tax preparer CCC communications are often inadequate

E.G.- CCC loan taken in Dec2013 as a loan and paid back as expense in July2014 (either error or intentional)


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Challenges in using farm tax records for CCC lender analysis

“Call before you Haul -FSA/CCC rule. Dec2013- Farmer takes CCC LAI on

10000 bu @ $1.84 to raise Sch. F July2014-He sells 10000 bushels @

$3.86/bu to local elevator. Elevator sends $1.86/bu check to CCC and gives farmer check for net $2.00/bu. Only the $2/bu is in farm computer records.


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Effects of LAL vs LAI on Balance Sheets: Current Ratio example CA =400000 CL =300000 WC=100000 CR =1:33Producer sells $200K crop, applies to

operating loan balance CA =200000 CL =100000 WC=100000 CR=2:1


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Charles Tumorg-narrative Charles & Fran Tumorg farm near

Promise, Minnesota. They own 460 acres of which 360 are tillable. They rent 1140 acres from four different landlords in the neighborhood. The home farm (80 acres with buildings) was purchased on a contract for deed from Mary Tumorg after the settling of his father’s estate.


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Charles Tumorg Case Study-balance sheet-CCC as Loan


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Charles Tumorg Case Study-balance sheet-CCC as Income


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Charles Tumorg Case Study-Income Statement Effects A farm lending client who treats CCC

Loans as Income would show $148800 more Sch. F income than the same client using CCC Loans as Loans.

Ag Lender loan analysis ratios and ratings can easily be misinterpreted

Critical concern if the farm customer moves often from LAI to LAL for tax purposes.


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CCC Forms

CCC Form 601 Note & Security Agreement

CCC Form 666 Farm Stored Loan Quantity Certification

CCC Form 677 Farm Storage Note & Security Agreement


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CCC Forms


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CCC Form 677


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CCC Form 677


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Lending Policies, Covenants, or Understandings with CCC Customers

1. CCC Loan proceeds in their entirety must be deposited in the lender customer farm business checking account and applied to current operating loans or other loans secured by the underlying physical crop commodity.

2. CCC Loan proceeds may be used for current farm expenses or owner living draws with lender approval after meeting lender’s requirements/understandings in #1 above.


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Lending Policies, Covenants, or Understandings with CCC Customers

3. “Call before you haul” requirements of CCC shall include concurrent notification to lender.

4. Form CCC-677 for all CCC Loans will be submitted with YE balance sheets

5. A copy of FSA-1099 shall be included with the customer’s submitted income tax return

6. A copy of the FSA/CCC final paid in full should be submitted by the borrower to the lender.

7. CCC crop intended to be “bought back” periodically for livestock feed should be included in borrower’s cash flow projections


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Q&A Time

Thank you for your attendance at my presentation.

You are welcome to submit questions and offer suggestions at anytime at my email address below or by phone at 507-420-0138.

[email protected]


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TTSWesley [email protected]

Thanks for participating!

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