Texas farmer and president of the Western Peanut Growers Association Jimbo Grissom recently told a Senate panel that U.S. peanut producers support two provisions for a new farm bill — an equitable risk management tool and a “producer choice” crop program.
Grissom told the U.S. Senate Committee on Agriculture, Nutrition & Forestry that in addition to a viable crop insurance program, peanut producers need “a real choice between a new revenue program for peanuts and a target price program for peanuts.”
The hearing was entitled “Risk Management & Commodities in the 2012 Farm Bill.”
The “producer choice,” he said, should be between a counter cyclical-type program (with no direct payments) with a $534 per-ton target price and a $355 per-ton marketing loan, or a new revenue program based on the Rotterdam price with a price floor of $534 and a differentiation in peanuts yields between irrigation production and non-irrigated production with a $355 per-ton marketing loan.
Grissom, who farms in Seminole in west Texas, was speaking to the committee on behalf of the Southern Peanut Farmers Federation and the United Peanut Alliance.
The federation is comprised of the four Southeastern peanut-producing states of Alabama, Florida, Georgia and Mississippi, and the alliance is made up of the six peanut-growing states in the Virginia-Carolina region and the Southwest, including North Carolina, South Carolina, Virginia, New Mexico, Oklahoma and Texas.
Peanut producers are showing a united front, he said, in presenting a program that works for all three peanut-producing regions.
Before outlining the program proposal, Grissom told senators of the crop disasters experienced by peanut producers in 2011. Texas saw the worst drought in its history this past year, with dry conditions extending to Oklahoma and neighboring states. The Southeast also had drought problems last year.
“For the entire year, I received 1.2 inches of rain on my farm, and it fell at only two or three-tenths of an inch at a time.” Extreme heat and excessive heat accompanied the drought, he added, with 48 days of 100 degrees or higher and sustained winds of 60 miles per hour.
“Mine and many other peanut yields were cut by two-thirds, with fields normally producing 5,000 pounds per acre yielding only 1,700 pounds per acre.
“Clearly, we have never seen these extreme conditions in our area before — there is simply no precedent for this disaster.”
Reasons for not growing peanuts
There are several reasons, said Grissom, that Southwest farmers may not grow peanuts this year. First, available peanut contract prices must be equitable to other commodities grown in the region to compete for acres.
Most bankers, he said, are requiring peanut contracts upfront prior to making a loan for peanuts.
“In some instances, bankers have basically forced farmers to grow cotton rather than peanuts due to the insurance policy differences. Due to the insurance, growing cotton is considered a safety net for the bank’s risk in addition to the farmer’s risk. This is also the case in the Southeast region.
“After experiencing extreme drought during the 2011 growing season, the only reason I get to stay in business is because of my cotton crop insurance. The cotton insurance allowed me to pay back my operating expenses, but there was nothing left for my land or equipment payments.
“Under these circumstances, another year like this past one and it will not be economically feasible to produce peanuts due to the risk associated with the current lack of insurance that is available for peanuts.”
Local peanut infrastructure also is suffering, said Grissom.
“With a multi-year decline in peanut acreage on top of last year’s devastating peanut crop, many buying points, shellers, peanut equipment dealers and chemical companies are severely feeling the economic effects. Another year like 2011 and I am afraid we will not be able to sustain our local infrastructure.”
In light of these circumstances, producers would like to focus on building a host of risk management tools for peanuts, he said.
“There is a multi-peril crop insurance policy available for peanuts, but it is fatally flawed. Unlike the other major field crops, there is not a futures price or a pricing mechanism to establish the guaranteed price needed to develop effective peanut crop insurance policies.
“Based on research and meetings with futures market experts from Chicago and New York City exchanges, a peanut futures market will never exist.”
Currently, the system for peanut insurance forces growers to contract their crop before planting in order to get the highest coverage, he said. Without a peanut contract, a farmer could insure his peanuts for a maximum of only $500 per ton for the 2011 crop. With a contract, a farmer could insure peanuts for $600 per ton.
“We need equitable treatment with other crops in the insurance arena,” said Grissom.
Working toward these goals, he said, the nation’s peanut farmers came together two and a half years ago to begin work with private industry and RMA to develop a viable insurance program for peanuts.
“This new program is very much like the successful revenue insurance policies for cotton and corn as well as several other crops. This new peanut policy would take a farmers average production history and let the farmer insure a percentage of it according to what the farmer needs to have guaranteed.
“This part is not changed from the present program, but what is different is the fact the farmer will be assured to receive what the peanuts are actually worth if he has a shortfall in production.”
The farmer will receive payment on what the peanuts are worth at a certain period of time during the year, so farmers know whether they can afford to plant, he says.
Since the days of the quota system, peanuts have not had a price discovery method which would satisfy the needs of RMA and insurers to adequately develop much-needed risk management tools for peanuts, said Grissom.
“We believe the Rotterdam price is the solution to this price verification problem. After much research, the Rotterdam price is believed by industry experts to be the most workable pricing mechanism for our commodity.
“In fact, this price series was used by the U.S. government during the negotiations of the GATT agreement in regards to peanuts.”
Peanut grower concerns
Producers continue to have serious concerns regarding the 2012 farm bill and the possibility of peanuts again being excluded from options of risk management, Grissom told senators.
“Peanut growers currently rely on direct payments, the marketing loan program, and counter-cyclical payments as a safety net to use in obtaining loans from their bankers to plant a crop each year.
“If we had the choice, we would support the continuation of these programs at the current levels. However, faced with the prospect of significant cuts to the agricultural budget as part of current federal deficit reduction efforts, we understand that the Agriculture Committee needs to look at new farm program options.”
The absence of a crop revenue insurance policy for peanuts, he said, only serves to make the lack of risk management tools much worse. “Most of the commodity program options being discussed this year are predicated on the existence of crop revenue insurance as a foundation of the policy. That option is simply foreclosed for peanuts because RMA has not yet been able to clear a revenue policy for our crop.”
In addition to having a viable crop revenue insurance program in place by 2013, peanut producers need a choice between a new revenue program for peanuts and a target price program for peanuts, said Grissom.
Under both proposed choices — a counter cyclical-type program and a new revenue program — peanut farmers would continue to have a marketing loan program as it exists in the current farm bill in order to market their peanuts.
“This producer choice option is critical due to the difference in the economic environment for peanuts relative to the Midwestern corn and soybean farmers.
“Farmers can only sell to two major shellers and a few small shellers, which is an oligopoly marketing environment. Thus, peanut farmers are subject to potential major price swings. When prices become depressed which peanut farmers experienced in 2009, revenue insurance programs do not provide a safety net.”
A peanut revenue insurance program must be developed and made available to peanut growers beginning with the 2013 crop year, said Grissom.
“The price on which this program is based shall be the Rotterdam prices index as adjusted to reflect the farmer stock price of peanuts in the U.S. This price may be adjusted by USDA’s Federal Crop Insurance Corporation to correct distortions or anomalies that would undermine the program.”
Peanuts are unique in needing crop insurance that accounts for differences in the four peanut types — Runner, Virginia, Spanish and Valencia peanuts, said Grissom. “We support the Agriculture Committee’s inclusion of language in the farm bill ensuring that USDA adjusts the relative price for these four types of peanuts from the Rotterdam price.”
Once the necessary improvements to peanut crop insurance are in place, he said, any savings that are achieved from cuts to the ACRE program, direct payments and counter-cyclical payments should first be devoted to the implementation of a revenue insurance program that is as beneficial to peanut growers as the revenue insurance programs available to other commodities.
Any additional savings should be directed to a new farm level revenue “assurance” program for peanuts that is comparable to that of other commodities, so peanut growers have the same access to additional risk management tools beyond those provided in the new revenue insurance policy, said Grissom.
(Regardless of the outcome of the new farm bill, peanut growers have been known over the years to help themselves. As an example, the Georgia Peanut Commission recently announced $260,000 worth of funding for 2012-13 research projects. To see where that research is going, click here . You might also be interested in reading about how national peanut specialists see the coming season shaping up. For that see Peanut agronomists share forecasts for 2012 ).