For the sake of a news story, the Agricultural Stabilization and Conservation Service's Jerome Sitter recently walked a bushel of corn through the price-support maze. It works this way:
Before last year's corn crop was planted, then-secretary Bob Bergland announced a national average support price of $2.25 for a bushel of corn. Any farmer participating in the program knew before harvest that he could collect at least $2.25 for his corn. If the market price was higher, he would not need a loan from the government-run Commodity Credit Corp.
But, if the farmer could not get $2.25 at his local elevator, he notified CCC and got a loan for the support price of $2.25. The grain stayed in the farmer's control, however, and by January, with demand high and a relatively poor 1980 crop in the national granary, prices were moving up.
When the price of corn hit $3, the farmer decides to sell. He paid back the $2.25 loan, adding on about 20 cents interest, and kept the additional 55 cents from the sale. The $3, incidentally, may or may not have paid back his production costs, but that's another story.
Had the market stayed down and had he been a participant, the farmer could have received a target price payment -- a direct subsidy paid when average farm prices are below the announced target price, which is based on production costs instead of the old parity formula. Or he could have put his corn in the farmer-held reserve, a longer-term loan program aimed at giving growers more market power.
The other commodity loan programs work essentially the same way, although only peanut and tobacco growers share in the profits if their crop, after going on loan to the CCC, is sold for a price above the loan rate