It has become obvious that the peanut program will be changed in the next farm bill. The question is how much and how to plan for it.
Domestic policy for peanuts now is being driven by trade policy set in the mid-1990s by U.S trade agreements, GATT and NAFTA.
The current quota program is being eroded by imports allowed under these trade agreements.
Producers, policymakers and industry leaders are trying to cope with the changes to trade policy which will translate to changes in domestic policy.
Despite the uncertainty, Southeastern peanut farmers have harvested their best crop in years. The average yield for 2001 in Alabama, Florida, Georgia and South Carolina is estimated at 2,888 pounds per acre. This would be the highest yield for the region since 1985. The bumper crop, however, coupled with a new farm bill on the horizon, has translated into lower prices.
Considering the price for additional peanuts this year, farmers will not be much better off financially than last year.
Quota prices remain at $610 per ton as fixed through the life of the 1996 farm bill, but additional prices contracted for $100 to $150 less than in 2000. Additionals not contracted go to the CCC loan for $132 per ton. The GFA Peanut Association administers the loan pool for the Southeast, and the pool returned nearly $400 per ton for 2000 loan additionals. Profits were generated through buyback sales of 57,000 tons of additionals to make up for a quota shortfall in 2000.
This year, the outlook is not so good for the loan pool. Farmers realistically can expect only $132 for their extra peanuts. Shellers have bought about 70 percent of the 2001 quota production while nearly all quota in the Virginia-Carolina and the Southwest regions is being purchased. As a result, more than 200,000 tons of quota have gone into the Southeast loan pool.
If quota is not redeemed from the loan pool, it will be crushed at the end of the marketing year, resulting in a loss of $70 million to $80 million or about $100 per ton from quota alone.
Estimating some profits from the additional pool sales, the potential marketing assessment could be in the neighborhood of $80 per ton.
The 1999 loss still is being paid off from 1996 through 2002 marketing assessments. Thus, farmers likely would take the full brunt of another marketing assessment.
About 300,000 tons of additionals were contracted in the Southeast for 2001, even at $200 to $250 prices. This is an increase of about 250,000 tons over last year. The bumper crop still will result in more than 100,000 tons delivered to the additional loan pool.
A very small amount of buybacks have been reported and Segregation 2 and Segregation 3 peanuts have been low in 2001.
Exports were down last year as were additional purchases. USDA projects a return to near 1999 levels of about 350,000 tons. Shellers have contracted 130 percent more additionals than last year, totaling at least 525,000 tons. This sends a signal that exports are expected to increase, or shellers are anticipating passage of a new farm bill before next season when a peanut becomes a peanut rather than quota or additional.
Total use of shelled edible peanuts during the 2000-01 marketing year was down 3.3 percent.
The encouraging part is that use recovered late in the season from a decline of more than 8 percent, led largely by lagging peanut butter use. Peanut butter use recovered and was down 2.4 percent after starting off in double-digit deficits. Snack peanuts took the biggest drop finishing 8.3 percent below last year.
The first two months of the 2001-02 marketing year indicate total edible use up more than 0.4 percent over last year. Positive publicity and promotion hopefully will lead to increased demand. Prevention magazine ran an article entitled “The Amazing Peanut Butter Diet,” based on published research in medical journals. The Peanut Institute helped fund the research. The March, 2001, issue included 15 peanut recipes and became the magazine's biggest seller. The popular response has led to a book and publicity on major TV networks. More publicity was generated as the National Peanut Board kicked off its promotion campaign across America. The campaign is increasing the visibility of peanuts through supermarkets, magazines, newspapers, sporting events and other special events.
The key to the 2001-02 outlook is whether a new farm bill is passed for the 2002 crop or is delayed until the current farm bill expires at the end of 2002. The House passed H.R. 2646 on Oct. 5, and the Senate soon should have its version written.
The peanut title in H.R. 2646 drastically changes the peanut program by eliminating quota and replacing it with a marketing loan program. Quota holders would receive compensation of 10 cents per pound over five years, while a peanut base would be established for peanut producers who grew peanuts anytime during the 1998-2001 time period. A fixed, decoupled payment of $36 per ton, similar to an AMTA payment, would be established for historical producers.
The marketing loan for peanuts is proposed at $350 per ton as well as a counter-cyclical payment to eligible producers based upon $480 per ton. The implications on acreage and production are difficult to predict since supply has been controlled for some 70 years. Obviously, the price paid for peanuts would drop. It is expected that imports would be cut significantly with about a 100,000-ton potential in the U.S. market.
Also, exports should increase as U.S. prices will be more competitive on the world market. If a new farm bill is not passed in time for the 2002 crop year, the quota system will remain in effect and peanut farmers will be facing a hefty marketing assessment for 2002 production.