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.”