SOUTHERN JOURNAL OF AGRICULTURAL ECONOMICS DECEMBER, 1978 FARMERS ' RESPONSE TO THE COMMODITY CREDIT CORPORATION'S LOAN PROGRAM

granted a federal charter in 1948, is authorized Although much has been written about the to extend nonrecourse loans to farmers who history, administration, and effects of the use agricultural commodities from the most re- Commodity Credit Corporation's loan pro-cent harvest as collateral. The loan program gram, little quantitative research on loan was designed to foster a more orderly market- activity has been reported. Recent studies by ing procedure and stabilize agricultural prices Chennareddy and Holmes [1, 2] provide some and income, but farmers also use this program empirical relationships but do not include an as both a residual market and a speculation underlying behavioral model or economic and marketing aid. The amount loaned to a rationale. In this section, a behavioral model is farmer equals the quantity of the commodity derived in which profit maximizing behavior pledged as collateral times a fixed per unit on the part of producers is assumed. value (loan rate) which is announced prior to Figure 1 is a representation of marketing the production period. Eligibility of a farmer for a CCC loan may require compliance with FIGURE 1. FARMER'S MARKETING USDA allotment or set-aside programs and ALTERNATIVE