Peanut farms faring a little better

Peanut farmers may be faring better under the new farm bill, but they're far from profitable in most states. While peanut farms in six states are faring better under the new farm bill than under the old one, how much better is a relative term, according to a Virginia Tech and North Carolina State study.

Based on the numbers, peanut producers in Alabama, Virginia and North Carolina aren't profitable. Producers in Georgia, Florida and Texas benefited the most from the new farm bill. For those who continue peanut production, careful attention to low costs, increased yield, irrigation and government program benefits will be essential.

Although things are better under the new farm program, farms in four out of the six states in the study depended heavily on government payments to make ends meet.

In the future, irrigated yields of more than 3,800 pounds, or dry land yields of greater than 3,200 pounds per acre may have to be the norm rather than the exception if peanut producers are going to survive, the study suggests. Commodity program acreage and associated program payments will also have to be controlled; input costs will have to be reduced, in part through longer rotations. Equipment purchases will have to be made carefully and judiciously.

For the study, researchers in Virginia and North Carolina traveled to Texas, Georgia, North Carolina, Alabama and Florida and sat down with producers, Extension workers, Farm Service Agency personnel, and bankers to determine yields, financial structure, irrigation, off-farm income and other items to determine net family cash position. An economic model of a peanut farm representing top performance in the principal peanut-producing county was developed for each state.

The researchers looked at the before-and-after farm and family income impacts of the 2002 farm bill. They also looked at the impact of the peanut buyout and the possibility of eliminating peanuts from the crop rotation and increasing cotton acreage.

The Virginia Peanut Growers Association funded the study.

The researchers looked at the impact of the peanut buyout and the possibility of eliminating peanuts from the crop rotation and increasing cotton acreage.

“We went down to the level of asking, ‘is the peanut farm better off under the new farm bill?’” says Jim Pease, a Virginia Tech associate professor and Extension specialist. He worked with Gary Bullen, North Carolina State University Extension farm management specialist, Mike Roberts, Virginia Tech Extension agribusiness management agent, and Fred Shokes, director of Virginia Tech's Tidewater Agricultural Research and Education Center.

Total crop acres per farm ranged from 800 acres in Alabama to 2,100 acres in Texas. Peanut acreage per farm ranged from 170 acres in North Carolina to 550 acres in Texas.

Dryland peanut yields ranged from 2,200 pounds per acre in Georgia to 3,000 pounds per acre in Virginia. Irrigated peanut yields were 3,800 pounds per acre in Georgia and Texas and 4,000 pounds per acre in Florida.

All farms raised cotton and all farms were solvent with debt/asset ratios ranging from 26 percent in North Carolina and Texas to 36 percent Alabama.

Family off-farm income ranged from $10,000 in Texas to $30,000 in Alabama and Florida. Family living expenses ranged from $35,000 in Alabama to $50,000 in Texas. The net worth of the various farms ranged from $549,000 to $1.25 million.

Cost of production varied dramatically between irrigated and dryland production, Pease says, but irrigation more than paid its way when all things were considered. Texas provides the dramatic example of irrigation's benefit.

Although total cost of production is at $560 per acre under the new farm bill, irrigated yields still put Texas producers in the black at a net return of $115 per acre with peanut prices at the loan rate, without considering land and overhead costs.

Under the new program, dryland peanut production will have a tough row to hoe. All five farms with dryland production showed negative returns per acre. For all states, yields would have to improve more than 10 percent at the same production cost in order to make dryland production profitable at the loan rate. Dryland yields ranged from 2,200 pounds in Georgia to 3,000 pounds in Virginia.

Looking at the family cash situation under the old peanut program gives a glimpse at the income squeeze on the farm and the family farm.

Under the old program, Virginia, Alabama, Florida, North Carolina and Georgia farms had negative farm incomes under $40,000. Family net cash after debt payments, living expenses and taxes was negative for all farms, ranging from -$2,600 in Texas to -$45,000 in Virginia. “Everybody was in pretty bad shape under the old program,” Pease says.

Under the current peanut program, the Virginia farm increases its net farm income to $49,000, but still falls $25,000 short of generating enough income to let the family meet its debt, living expenses and tax obligations. “This farm has relatively higher production costs, lower commodity program payments and may have taken on too much debt for machinery purchases,” Pease says. The situation improves if cotton replaces peanuts on the farm and the peanut buyout is included.

The North Carolina situation isn't robust either, despite having a larger farm and planting fewer peanut acres. Current yields and costs generate net farm income of $60,000, but leave the cash position of the farm family only about breakeven.

As in Virginia, the North Carolina farm would earn more profit and be in better financial position if it eliminated peanuts — even though the study labels such a move “not practical for reasons of machinery and other resource capacity.

“Mixing quota buyout payments with farm and non-farm income gives the impression of “financial progress,” Pease says. “But expenditure of the buyout money on farm investments should be considered carefully.”

The Georgia farm improves its net farm income to $87,000 under the new farm bill and is the only farm that generates more crop marketing income than cropping expenses with peanut prices at the loan rate. From cropping income, commodity payments, and off-farm income, the Georgia farm family is able to net $19,000 annually for investment, retirement and other purposes.

The Georgia farm is able to generate nearly $46,000 for reinvestment. While it could be more profitable without peanuts, the Georgia farm benefits from the cotton rotation with peanuts. Irrigation is the key to expansion and further financial success in Georgia, the study says.

Of all the farms studied, the Alabama farm faces the most financial peril. Yields are low and costs are higher than any other runner-producing state. The farm has minimal opportunity to expand irrigated production and face increased pesticide costs because of intensive peanut rotations. The farm falls $17,000 short of producing income sufficient for the family's debt, living expenses and taxes. Even with an increase in yield and price, the Alabama farm is still unable to meet its business and family obligations. The Alabama farm would be better off without peanuts, the study suggests. The peanut quota buyout payments make the situation appear better than it is in Alabama. “This farm will need to reorganize, alter crop mix or cease operations if a crop disaster occurs or if commodity program and quota buyout payments do not continue at current levels,” Pease says.

The Florida farm is much better off under the new farm bill, due primarily to cost efficiencies, irrigation and high yields. Despite small peanut acreage, the Florida farm generates profits equal to the Georgia farm on a per-acre cropland basis. It's able to cover its cash obligations without the buyout. “This farm can generate bankable profits,” Pease says. “The key to expansion and further financial success is the purchase of or access to irrigated cropland.”

The Texas farm was doing OK under the old farm bill. “The price-floor loan rate just basically gave Texas farms like this a raise,” Pease says. Farm production cost efficiencies are “second to none,” the study says. It earns a 9 percent rate of return on owner equity and generates nearly $45,699 annually in family net cash after meeting all cash obligations. “This farm has very little downside financial risk because counter-cyclical payments make income very stable,” Pease says. Availability and cost of irrigation may be the factors holding back further increases peanut production in Texas.

All farms in the study are better off with a new program than under the old program. This statement, however, does not imply the farms are doing well under the new program. “Yes, everybody is better off under the new farm bill, but the family financial situation may still be very shaky,” Pease says.

“It's clear that consistent high yields, rotation, irrigation, optimal machinery selection, reduced production costs and control over commodity program acreage are keys to success in the future,” Pease says.

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