USDA economist says: '02 peanut program offers new opportunity

U.S. peanut producers, working under a revamped government program for the first time in nearly 70 years, need to change their mindsets when it comes to managing the 2002 crop.

“In the past, we thought about quota pounds, quota price and additionals price,” says Marshall Lamb, economist with the USDA National Peanut Research Laboratory in Dawson, Ga. “Now, we need to be thinking about payment acres, payment yields and bases.”

Lamb outlined the new peanut program recently to a standing-room-only crowd at the Wiregrass Regional Research & Extension Center in southeast Alabama.

On the price side, the new program consists of a loan rate ($355 per ton), a fixed payment ($36 per ton), target price ($495 per ton), base acreage (1998-2001 average), fixed payment program yield ((1998-2001 average), counter-cyclical program yield (1998-2001 average), and the quota buyout (11 cents per pound per year for five years or a 55-cent lump sum).

“Each of these should be considered in your marketing plan because they're going to affect you,” says Lamb.

Payment or base acres, he explains, is 85 percent of the four-year acres“actually planted” for the 1998-2001 period. This is prorated if you're a sharecropper, or if you've shared in the risk of producing and selling the crop.

“In 1998-2001, if you planted 100 acres in each year so that your average planted acres was 100, then 85 acres would be your payment acres.

“Understand that if there was a year when you didn't plant or you leased out, your payment acres will be reduced by that amount.”

Program or average yield, says Lamb, is your average yield from 1998-2001. The grower can drop three of those four years and substitute the county average from 1990-1997 in determining average yield. “That's a tremendous help to many growers, and it'll help you to maintain a good yield going into this new program.”

The deadline for assigning peanut base, he says, is set as March 31, 2003.

You can assign the base to your own farm or to another farm in the same state or in a contiguous state. You must be a historical producer in the state or a producer in the state on March 31, 2003. This is a one-time assignment.

The base, he adds, doesn't have to go back to the land it was generated upon, although it can. The sum of all crop bases, including peanuts, cotton and grains, cannot exceed the actual cropland acres.

The fixed payment rate of $36 per ton goes to the historic producer this year, says Lamb. “Basically, the direct payment is the base acreage multiplied by 85 percent multiplied by the program yield multiplied by the $36 payment rate. It's very simple.

“From 2003-2007, the direct payment goes to the producer on a farm on which the peanut yield and base are assigned. It's the same formula except we're using the payment yield rather than the average yield. It's a very subtle difference, and you don't need to worry about that now.”

The target price, notes Lamb, is $495 per ton. “We'll have to work hard to correctly establish a national average market price for peanuts. The law is written so that it will be received by a producer during the 12-month marketing year, from Aug. 1 through July 31.

“This is a very important price series as far as your wallet is concerned.

“The law states that the national average price will be determined by the secretary of agriculture. We have to make sure it accurately reflects what we're receiving for our peanuts. This price can affect your income.”

The loan rate, says Lamb, is $355 per ton, and the effective price is the higher of either the loan rate or the national or average market price. If the loan rate is higher than the market price, then the effective price will be the loan rate plus the direct payment.

The counter-cyclical payment is the target price minus the fixed direct payment minus the average season price or national loan — whichever is higher — multiplied by the base acreage multiplied by 85 percent multiplied by the payment yield.

“The payment rate varies for the counter-cyclical payment. It could be zero. If the average market price of peanuts goes up and closes the gap to the target price, then the counter-cyclical payment will be zero.

“If the market price stays at or below the loan rate, it could range up to $104 per ton. But don't think of that as something bad. Because, either way, there are opportunities, and that's good. There will be many more opportunities for growers in this new farm bill.”

The counter-cyclical payment goes to the historic producer in 2002. From 2003 through 2007, it goes to the producer on the farm on which the base is assigned.

“Don't confuse the counter-cyclical payment with the loan deficiency payment (LDP). You don't have to produce a peanut crop to receive the counter-cyclical payment.”

The counter-cyclical payment will be made at the end of the marketing year for peanuts. However, growers can receive partial payments in October and in February. The final payment — made at the end of the marketing year — will be the difference between the final actual counter-cyclical payment and what you've been paid in the first and second payments.

“This is a very critical cash flow issue for you as a grower. Make sure you're aware of this, and make sure your lender is aware of this. The timing of this cash flow will be very important.”

The following is an example of a peanut grower's revenue under the new program, assuming a 1-ton-per-acre average.

Decoupled Payment $36 per ton Target Price $495
Market Price $355
Selling Price $355
Market Loan Rate $355

“In this scenario, the counter-cyclical payment would be the maximum $104 per ton. Peanut revenue in this case, since you sold at the effective price, is the selling price of $355 plus $36 plus $104 or $495. This is only if you sold at the effective price, and there's no guarantee that'll happen.

“If, on the other hand, you sold your crop for $400 per ton, you'd still get a counter-cyclical payment of $104 and your peanut revenue would be $540 per ton.”

It's very important, says Lamb, that growers pay more attention to marketing peanuts under the new farm bill. “Be keenly aware of what you're signing whenever you sign a contract and know how it might affect you.”

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