USDA’s weekly national posted price doesn’t accurately reflect the price of peanuts in the worldwide market, say representatives of U.S. peanut growers, shellers, manufacturers and an economist who testified at a recent senate hearing.
The Senate Agriculture Committee held a hearing last month on Capitol Hill to examine the peanut provisions of the 2002 farm bill. U.S. peanut producers have lost a significant portion of their export market despite changes invoked by the most recent farm legislation, say some of those who testified at the hearing.
“While the U.S. peanut industry can be successful in the domestic market, this does not hold true for the international market,” said Stanley Fletcher, director of the National Center for Peanut Competitiveness and a professor at the University of Georgia.
“The U.S. peanut industry used to have over 30 percent of the world peanut trade under the old peanut program during normal crop years, Fletcher told the committee. “In 2005, the industry had approximately 13 percent of the world trade. If one looks at the trend since 1992, the U.S. peanut export volume has dropped 54 percent from 1992 to 2005.”
Fletcher said the problem doesn’t lie within the peanut program itself. Rather, the problem exists due to the method USDA is using to implement the language of the law.
U.S. peanut exports are highly dependent on the National Posted Price set by USDA, he said. “Peanut is not a homogenous commodity, and it is a semi-perishable commodity. You have runner peanuts, Virginia peanuts, Spanish peanuts and Valencia peanuts. While these types of peanuts can be substituted to a minor degree, they each have a particular market.
“For the 2005 crop year, only 2 percent of the crop was sold commercially at inspection time. In other words, 98 percent of the crop moved through the loan program. The majority of the peanut crop moving through the loan has an option contract between the farmer and the sheller. If the sheller exercises the option, the price paid to the farmer is the loan repayment rate, basis grade, which is the lesser of the national posted price and the loan rate (basis grade). Thus, USDA is in reality setting the market price for farmers,” said the economist.
USDA, said Fletcher, has commissioned a third-party study for recommendations on calculating the National Posted Price. The study, he added, recommended using the shelled peanut prices between shellers and processors as the key factor in calculating the National Posted Price.
“The shelled peanut prices are the only prices determined from a competitive market environment. In contrast, the USDA-NASS peanut prices reported have serious flaws. The prices they collect do not necessarily reflect the price that farmers actually receive for their peanut crop. Furthermore, there is no separation of prices by peanut type, which is critical. Thus, shelled peanut prices should be the major factor in the calculation as recommended by the USDA third-party study. This would be a step in the right direction in recapturing our export markets,” he said.
According to current analyses, Fletcher said the long-term health of Southern agriculture and peanut farming isn’t positive.
The National Center for Peanut Competitiveness has 11 peanut representative farms for the Southeast, and in the fall of 2004, the center analyzed the overall economic viability of those farms for the period 2005-2010.
“Seven representative farms were in the good classification of overall economic viability, three farms were in the moderate classification, and one farm was in the poor classification,’ said Fletcher.
More recently, the center re-examined the 11 farms using the January 2006 baseline and eliminating storage and handling for the 2007-2010 crop years, he said. “Only one representative farm was in the good classification of overall economic viability, one farm was in the moderate classification and nine farms were in the poor classification. The primary factors were elimination of storage and handling fees, energy costs and interest rates. This does not paint a good picture for the long-term health of Southern agriculture and peanut farming,” said Fletcher.
Also testifying during the hearing were Floyd Gaibler, deputy under-secretary of the USDA Farm and Foreign Agricultural Services; Evans Plowden, general counsel to the American Peanut Shellers Association; and Gary Rasor, consultant for the American Peanut Products Manufacturers, Inc. — The J.M. Smucker Company. Two peanut farmers, Armond Morris, chairman of the Georgia Peanut Commission, and Jimbo Grissom, Western Peanut Growers Association, accompanied Fletcher to answer questions.
Rasor of The J.M. Smucker Company told the committee that the new peanut program had made the industry more competitive, and that it had made each segment of the industry more efficient.
The marketing loan program had worked extremely well, he said, except for the USDA’s administration of the repayment rate. “The transition to this new program has gone smoother than any of us had anticipated. However, even with our strong support of the program, we want to use this hearing opportunity to discuss one concern that could improve the operation of the program. We believe this committee should take a look at how USDA administers the repayment rate for peanuts,” said Rasor.
“We can ill afford to continue to cause our peanut growers to lose the export market merely because the department is unable or unwilling to develop a formula to identify the weekly world market price for peanuts as it does for cotton, rice and other commodities,” he said.
It appears, said Rasor, that the USDA is ignoring the world market, with the adverse consequence of keeping U.S. peanuts from being competitive in the international marketplace.
“Since peanuts are not moving into export markets as much as they are capable, the United States is undermining its stature as one of the leading exporters of peanuts. USDA will cause irreparable damage to the U.S. export market for peanuts if it continues to ignore the capability of other peanut-exporting countries to fill the void created by non-competitively priced U.S. peanuts,” he said.
The USDA’s determination of the weekly national posted price for peanuts should be a more transparent process, said Rasor. “Greater transparency in the method of establishing the national posted price would allow the industry to improve decision-making for planning purposes. Simply put, we all need an approach that is easily understood and of use to the peanut industry,” he said.