Commodity Price Assumptions in FSA Farm Loan Programs: Rules, Regulatory Requirements, and Policy History

Overview

This article summarizes the rules and regulatory requirements governing how commodity price assumptions are established and used in farm operating plans and cash-flow budgets for FSA Farm Loan Programs. It is intended as a factual reference for farm borrowers, agricultural lenders working with FSA guaranteed loan programs, and Extension professionals who assist clients with FSA loan applications.

The scope covers direct farm loans, where FSA makes and services loans directly through Farm Loan Officers assigned to local service centers, and guaranteed farm loans, where FSA guarantees loans made by approved commercial lenders. Direct Farm Loan Programs include Farm Ownership (FO), Operating (OL), Emergency (EM), and Conservation Loans (CL). Guaranteed Farm Loan Programs include FO, OL, and CL. Both programs use cash-flow budgets and farm operating plans as the primary mechanism for evaluating loan feasibility, and both are subject to price assumption requirements discussed below.

1 – What Is a Planning Price and Why It Matters

A planning price is the price assumption applied to a commodity in a farm operating plan or cash-flow budget submitted in connection with an FSA farm loan application or servicing action. Planning prices appear on both sides of the budget: output prices reflect what the farm is expected to receive for commodities it sells, and input prices reflect what the farm is expected to pay for seed, fertilizer, chemicals, fuel, feed, and other operating inputs.

The planning price matters because FSA loan feasibility is determined by whether the projected cash inflow is sufficient to pay all projected cash outflow. If the price assumptions used in that projection are significantly different from what the farm ultimately receives or pays, the feasibility determination at loan approval may not reflect the farm’s actual repayment capacity. For this reason, FSA’s regulations and handbook guidance impose standards on what price assumptions are acceptable and who is responsible for setting them.

2 – The Regulatory Framework

2.1 The Definition of a Feasible Plan

The core regulatory standard across FSA Farm Loan Programs is the concept of a feasible plan used to support loan approval and servicing actions. Under 7 C.F.R. § 761.2, a feasible plan means a cash-flow budget or farm operating plan indicating that there is sufficient cash inflow to pay all cash outflow. Where a loan approval or servicing action exceeds one production cycle and the planned cash-flow budget or farm operating plan is atypical due to an interest-only or otherwise unequal installment, cash or inventory on hand, new enterprises, carryover debt, atypical planned purchases, important operating changes, or other reasons, a cash-flow budget or farm operating plan must be prepared that reflects a typical cycle. If the request is for only one cycle, a feasible plan for only that production cycle is required for approval.

This definition applies across loan types: direct operating loans, direct farm ownership loans, direct emergency loans, direct conservation loans, and the guaranteed loan programs for operating, ownership, and conservation purposes. Feasibility is always evaluated against the full projected budget, which means price assumptions for both revenues and expenses are within scope.

2.2 Direct Loan Requirements: Farm Operating Plan

For direct loans, the governing provision is 7 C.F.R. § 761.104, which requires that the farm operating plan be based on accurate and verifiable information. Historical information will be used as a guide, and positive and negative trends, mutually agreed upon changes and improvements, and current input prices will be taken into consideration when arriving at reasonable projections. The regulation does not prescribe a single price forecasting method but establishes that projections must be reasonable and grounded in verifiable data.

Section 761.104(d) further provides that “unit prices for agricultural commodities established by the Agency will generally be used.” This is the direct regulatory basis for FSA planning prices in direct loan feasibility determinations. The provision establishes that Agency-established unit prices are the default input to the farm operating plan, while retaining flexibility through the “generally” qualifier for documented alternatives such as forward contracts, borrower-specific price histories, or other verifiable sources discussed later in this paper.

The cost components that belong in the farm operating plan are defined at 7 C.F.R. § 761.2 under the term “Essential family living and farm operating expenses” and are incorporated into § 761.104 operating plans by cross-reference. The defined categories include household operating expenses; food, including lunches; clothing and personal care; health and medical expenses, including medical insurance; house repair and sanitation; school and religious expenses; transportation; hired labor; machinery repair; farm building and fence repair; interest on loans and credit or purchase agreement; rent on equipment, land, and buildings; feed for animals; seed, fertilizer, pesticides, herbicides, spray materials, and other necessary farm supplies; livestock expenses, including medical supplies, artificial insemination, and veterinarian bills; machinery hire; fuel and oil; taxes; water charges; personal, property, and crop insurance; auto and truck expenses; and utility payments. This confirms that the operating plan must account for input costs as well as commodity revenues.

2.3 Guaranteed Loan Requirements: Financial Feasibility

For guaranteed loans, the governing provision is 7 C.F.R. § 762.125, which requires that the applicant’s proposed operation project a feasible plan. For standard eligible lenders (SELs), the projected income and expenses used to determine a feasible plan must be based on the applicant’s proven record of production and financial management. For Certified Lender Program (CLP) lenders, projections must be based on the applicant’s financial history and proven record of financial management. For applicants without a proven history, a combination of actual history and other reliable sources agreeable to the lender, applicant, and Agency will be used. Preferred Lender Program (PLP) lenders follow their internal procedures on financial feasibility as agreed to by the Agency during PLP certification.

The regulation establishes the feasibility requirement and the source hierarchy for projections, while leaving the specific commodity price forecasting method to the lender, subject to Agency review. The detailed operational standard that lender price forecasts be “reasonable and defensible,” with sources documented by the lender and acceptable to the Agency, is contained in the 2-FLP Guaranteed Loan Making and Servicing Handbook rather than in the CFR itself, as discussed in Section 3.

The regulation also requires that the cash-flow budget analyzed in the feasibility determination represent the predicted cash flow of the operating cycle. This means the budget must be forward-looking, based on expected conditions for the period the loan will cover, rather than exclusively backward-looking historical averages.

2.4 Resolving Disagreements About the Farm Operating Plan

For direct loans, 7 C.F.R. § 761.104(g) addresses what happens when the Agency believes the farm operating plan is inaccurate or cannot be verified. In that circumstance, the Agency will discuss and try to resolve the concerns with the applicant or borrower. If an agreement cannot be reached, the Agency will make loan approval and servicing determinations based on the Agency’s revised farm operating plan. This provision establishes both a procedural commitment to work toward agreement and a substantive fallback: verifiable documentation determines the outcome when positions differ. In practical terms, borrower-proposed commodity prices and input costs that depart from Agency-established unit prices are subject to this standard, which is why documentation quality is the principal factor separating an accepted alternative projection from one that is revised by the Agency.

For guaranteed loans, feasibility remains the lender’s determination, subject to Agency concurrence under § 762.125. Agency review in that setting centers on whether the lender’s documented price sources are acceptable and whether the resulting forecast is consistent with current market conditions.

3 – Guaranteed Loans: Requirements for Price Forecasts

3.1 The Standard

The 2-FLP Guaranteed Loan Making and Servicing Handbook operationalizes the § 762.125 feasibility requirement by directing that lenders use commodity price forecasts that are reasonable and defensible, document the sources used, and use sources acceptable to the Agency. The handbook frames the standard in purpose-oriented terms: price forecasts should provide an accurate projection of the commodity prices the borrower will receive during the operating cycle. This “reasonable and defensible” standard is a handbook requirement that operationalizes the broader CFR feasibility standard; it is not itself a regulatory definition at § 762.125.

3.2 Acceptable Source Categories

The 2-FLP Handbook identifies examples of acceptable commodity price forecast sources for SELs. These include:

• Land-grant university price forecasts
• Other published prices
• Forward contracted prices
• Futures prices
• Price histories for specialty crops or other commodities

This list is descriptive rather than exhaustive. The underlying standard remains reasonableness, defensibility, documentation, and Agency acceptability. Where a source meets that standard and is appropriately documented, the Agency’s review focuses on whether the forecast is defensible given current market conditions.

3.3 FSA Planning Prices and Guaranteed Lenders

Guaranteed lenders are not required to use FSA planning prices in their cash-flow budgets. A lender’s price forecasts are evaluated against the § 762.125 feasibility standard and the handbook operationalization of that standard (reasonable, defensible, documented, and acceptable to the Agency) rather than against any specific FSA-published price list. The Agency retains discretion to determine whether a lender’s documented source is acceptable, particularly where prices appear inconsistent with current market conditions.

4 – Direct Loans: Farm Operating Plan Requirements

4.1 Developing the Farm Operating Plan

FSA’s 3-FLP Direct Loan Making Handbook describes the farm operating plan as the primary tool for documenting a farm’s financial position, projected cash flow, and repayment capacity. Consistent with § 761.104(c), farm operating plans used for loan-making decisions are developed to reflect a typical production year for the operation, based on accurate and verifiable information with historical information used as a guide.

The Direct Loan Making Handbook includes feasibility review criteria that address whether the farm and other income included in the plan is realistic. This places commodity price assumptions as the primary driver of projected farm income squarely within the scope of the feasibility review. Similarly, projected input costs must be realistic and not understated in ways that inflate apparent margins.

4.2 FSA Planning Prices in Direct Loan Administration

Section 761.104(d) provides that “unit prices for agricultural commodities established by the Agency will generally be used” in developing the farm operating plan. FSA implements this provision operationally by delegating the establishment of planning prices to State Offices, and by directing field staff and borrowers to contact the State Office for the current planning price list applicable to their State. This decentralized implementation reflects a longstanding feature of FSA direct-loan administration: national regulations establish the reasonableness and verification standard, and State Offices establish the operational planning prices used to implement it.

Individual State Offices have developed different approaches to setting planning prices, ranging from quarterly-reviewed price bulletins drawing on futures and historical data to more informal consultations among senior State loan officers. Allowable adjustments to statewide planning prices (for local basis, seasonal timing, grade differentials, and documented contracts) are typically specified in the State’s published planning price list or an associated State supplement. A borrower or lender seeking clarification on what prices are currently in use for a specific commodity should contact the relevant State FSA office directly.

4.3 Emergency Loan Benchmark Prices: A Distinct Process

For production-loss calculations under FSA Emergency Loans, the Direct Loan Making Handbook specifies a separate price-setting procedure. Benchmark prices used in production-loss calculations are established by the State Executive Director on an annual basis, drawing on average monthly market prices for the previous calendar year from USDA NASS’s Agricultural Prices report. When state-level NASS monthly data are unavailable, the handbook provides for use of national NASS prices or other reliable sources identified in the handbook. The State Executive Director issues a State supplement listing unit prices for commercially produced commodities in the State for use in production-loss calculations during the applicable calendar year.

This emergency-loan procedure is separate from the planning prices used for routine loan feasibility, but it provides an example of an existing FSA approach that relies on standardized annual updates, identified data sources, and State-issued pricing guidance.

5 – Side-by-Side Comparison: Direct and Guaranteed Frameworks

The table below summarizes how the direct and guaranteed loan frameworks compare on the specific question of commodity price assumptions. The entries are drawn from the CFR and handbook citations discussed in Sections 2 through 4.

Element	Direct Loans	Guaranteed Loans
Feasibility definition	7 C.F.R. § 761.2	7 C.F.R. § 761.2
Operative regulation for price assumptions	7 C.F.R. § 761.104	7 C.F.R. § 762.125
Governing FSA handbook	3-FLP Direct Loan Making	2-FLP Guaranteed Loan Making and Servicing
Standard applied to projections	Accurate and verifiable; historical data used as a guide; trends, agreed changes, and current input prices incorporated into reasonable projections	Feasible plan based on applicant’s proven record of production and financial management (SEL); financial history and proven record (CLP); internal procedures (PLP); other reliable sources for applicants without a proven history
Role of Agency-established unit prices	§ 761.104(d): Agency-established unit prices “will generally be used” in the farm operating plan	Not required; lender selects sources subject to Agency acceptance
Examples of acceptable price sources	State FSA planning prices; forward contracts; documented borrower price histories; NASS and other verifiable data	Land-grant university price forecasts; other published prices; forward contracted prices; futures prices; price histories for specialty crops or other commodities (per 2-FLP)
Where planning prices are established	State Office, via a State planning price list and associated State supplements	Not applicable; lender’s forecasts are reviewed by FSA against the handbook standard
Dispute resolution on the operating plan	§ 761.104(g): Agency discusses concerns with the borrower; if no agreement, Agency makes determinations based on the Agency’s revised plan	Feasibility is the lender’s determination subject to Agency concurrence; Agency review centers on acceptability of documented price sources

6 – What Counts as an Acceptable Price Source

6.1 For Guaranteed Loans

For guaranteed loans, acceptability is evaluated against the CFR feasibility requirement and the 2-FLP Handbook’s operational standard: the source must produce forecasts that are reasonable, defensible, and documented. The handbook’s enumerated source categories (land-grant university forecasts, published prices, futures, forward contracts, and price histories) describe the kinds of sources the Agency has previously identified as acceptable, not a closed list. A lender using a credible State agricultural lender association price survey or a major commodity trading firm’s published outlook would generally satisfy the standard if the source is documented and the resulting forecast is consistent with current market conditions.

6.2 Contracted and Proven Prices

Where a borrower has forward-contracted a portion of production, the contracted price is an acceptable basis for planning that portion of revenue, provided the contract is documented. Use of contracted prices with reliable counterparties is commonly reflected in State planning price lists and State supplements. The provision reflects the regulatory standard’s focus on accuracy and verifiability: a confirmed contract price is more verifiable than a forecast price.

6.3 Input Cost Sources

For input prices, the regulatory standard is the same: current input prices must be incorporated into the farm operating plan under § 761.104(c)(2), and information must be accurate and verifiable under § 761.104(c). Acceptable sources include NASS Agricultural Prices data for the relevant State and input category, Extension enterprise budget cost estimates, local supplier quotes, and the borrower’s own documented cost history where that history is reliable. As with output prices, no single national source is mandated, but the projection must be defensible.

7 – State-Level Administration and the Role of State Offices

The current administrative structure for FSA planning prices places operational responsibility at the State Office level. National regulations and handbook guidance establish the standards (reasonableness, accuracy, documentation, and Agency acceptability) but do not prescribe a single national price list or methodology. Within the national framework, State Offices establish their own planning price lists, update frequencies, and allowed adjustments.

This decentralized structure is reflected throughout FSA administrative materials for direct lending: planning prices are determined by State Offices, and field staff are directed to their State Office for current price lists. Individual States have developed different approaches, ranging from quarterly-reviewed price bulletins based on futures and historical data to more informal consultations among senior State loan officers.

State Offices are authorized to issue State supplements that implement price-related procedures, consistent with national policy. Allowable adjustments to statewide planning prices (for local basis, seasonal timing, grade differentials, and documented contracts) are typically specified in the State supplement or the published State planning price list. A borrower or lender seeking clarification on what prices are currently in use for a specific commodity should contact the relevant State FSA office directly.

8 – What Borrowers and Lenders Should Know

8.1 For Farm Borrowers

Planning prices are not legally binding price predictions. They are administrative price assumptions used to evaluate whether a proposed farm operating plan is feasible under a set of reasonable market conditions. If a borrower has contracted prices, documented forward sales, or a strong recent price history with a reliable marketing channel, those facts are relevant and can be presented to the loan officer as the basis for an alternative price assumption, subject to documentation requirements.

Input cost estimates in the farm operating plan carry the same documentation standard as output price assumptions. A borrower with supplier quotes, custom farming contracts, or documented input purchase history consistent with the planned operation can present those as the basis for input cost projections.

If a borrower and FSA disagree about the reasonableness or verifiability of proposed price assumptions, § 761.104(g) provides that the Agency will discuss and try to resolve the concerns with the borrower, and that if agreement cannot be reached, the Agency will make its determinations based on a revised plan. The practical implication is that documentation quality matters: well-supported alternative prices are more likely to be accepted, and poorly supported ones are more likely to be revised.

8.2 For Guaranteed Lenders

Guaranteed lenders are not required to use FSA planning prices. The obligation under § 762.125 and the 2-FLP Handbook is to use price forecasts that produce a feasible plan, are reasonable and defensible, documented, and acceptable to the Agency. Where a lender’s documented price sources produce forecasts consistent with current market conditions, the Agency’s review is generally deferential to the lender’s judgment. The risk to the lender arises when forecast prices are materially inconsistent with observable market conditions and the documentation is insufficient to explain the discrepancy.

For input costs in guaranteed loan cash-flow budgets, the same reasonableness standard applies. Input cost estimates that are significantly lower than current market prices for major inputs (fertilizer, seed, fuel) without supporting documentation are subject to Agency review and revision.

8.3 For Extension Professionals

Extension professionals assisting clients with FSA loan applications should note that the 2-FLP Handbook explicitly identifies land-grant university price forecasts as an acceptable source category for guaranteed loan price projections. Extension enterprise budget cost estimates and planning price publications are legitimate references for both output prices and input costs in farm operating plans, provided they are documented (source, date, and commodity identified) in the loan file.

The distinction between using Extension materials as a reference and citing them as the controlling price authority matters: loan feasibility determinations remain the Agency’s or the guaranteed lender’s responsibility, and Extension price publications serve as supporting documentation rather than binding administrative prices.