Yielding to the temptation to move too many peanuts onto cotton base acreage, now considered “generic” acres under the new farm law, could prove a market buster and increase program costs.
The temptation is real and, to some degree, understandable with a fairly good support option for peanuts and the current low price of cotton. But peanut oversupply threatens to make the move a risky one for the industry.
University of Georgia Extension economist Nathan Smith, speaking at the Texas Ag Forum in Austin, said peanut acreage likely will increase this year and noted that the industry probably can manage a 10 percent increase but a 15 percent bump would create a surplus similar to the oversupply of 2012. “A 25 percent increase would scare me,” he said, “and we would risk busting the market.”
Joe Outlaw, Texas AgriLife Extension economist, said some producers may switch out of cotton and to peanuts “just to chase a payment.”
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“Overplanting will drive prices down,” Smith said, “and lead to fewer acres needed to reach the payment limit of $125,000. That could mean excess program cost.”
“I’m more worried about 2016 than ‘15,” Smith said. “We could have a big carryover and no big increase in use, which could result in significant payments and risk to the program.”
Smith said a workable carryover would be 600,000 to 700,000 tons.
Separate payment limit
Under the new farm program, peanuts have a separate payment limit. He said the generic base created because cotton is no longer a covered commodity, “will allow flexibility to manage price and revenue risk based on planting to that generic base.”
Other changes could also occur, including altering rotation strategy. “Peanuts are grown in rotation with cotton,” Smith said. Corn is also a frequent rotation crop in Georgia. Growers may be reluctant to overplant peanuts and risk altering their rotation sequence.
West Texas peanut farmer Ricky Bearden said peanut producers can’t walk away from peanut production for a year and be sure to get the land back. “We have a lot invested in peanuts and we risk losing leased land.”
Smith said farmers are working through yield histories and production costs as they make decisions on program participation for 2015. He said peanut producers should have taken advantage of the opportunity to update yields before the Feb. 27 deadline. With the yield exclusion option, producers could eliminate eligible poor yields and increase their average production history (APH). In some cases, with the exclusion, peanut producers may improve average yields significantly.
Smith said other new provisions in the farm program for peanuts include the Agricultural Risk Coverage (ARC) and the Price Loss Coverage (PLC) programs and a new peanut revenue insurance program. “PLC seems to work best for most peanut farmers. Payment is subject to sequester.”
Loan rate remains at $355 a ton, the same as the 2008 farm program. The loan deficiency payment or the market loan gain “are not subject to payment limitations. More than 70 percent of peanuts have gone through the loan for the past three years,” he said.
Smith said price discovery for payment purposes “is the same as for other crops,” although peanuts have no futures market. “We have a model that works off four different commodities with futures contracts,” Smith said.