Peanut growers adapting to new program

U.S. peanut producers in those areas of historically high yields probably will expand or at least maintain current acreage levels this spring, predicts Nathan Smith, University of Georgia Extension economist.

“We'll probably continue to see production grow in those areas that have high enough yields to be competitive — those counties where yields are averaging more than 3,000 pounds per acre,” said Smith at the recent Georgia Peanut Farm Show in Albany. “Other areas may be borderline, particularly dryland growers who'll probably take a hard look at cotton.”

An exception might be Virginia, he adds. “Even though growers in Virginia have high yields, their cost of production is too high. They dropped their acreage by about 20 percent this past year, and they'll probably drop it by that much again this year. The same is true with part of North Carolina's acreage. We could see more Virginia peanuts being grown in southern North Carolina and South Carolina,” says the economist.

Peanut producers, says Smith, will need to keep a close watch on the balance between supply and demand as the peanut market continues to adapt to a new government peanut program. The supply of peanuts, he adds, is more uncertain without the quota allotment to determine domestic supply, he adds.

“A new market price system for farmer stock peanuts is being developed with the implementation of the marketing loan for peanuts. In addition to the price offered by shellers, producers will need to pay close attention to the national posted price, which determines the loan deficiency price (LDP) or market loan gain (MLG),” says Smith.

The market price plus the LDP or MLG determines the net price received on production, he explains. In relation to the peanut base, the average season price (12-month marketing year beginning Aug. 1 and ending July 31) will determine the counter-cyclical payment, he says.

“The national posted price comes out each Tuesday,” says Smith. “We don't know yet how this is calculated. The Farm Service Agency isn't saying, and we're not sure if and when they will say how it's calculated. You can look at the shelled prices that come out each Friday and predict how things might go. Thus far, we think this price is running more off the domestic rather than the world market.”

Carryover stocks are projected to be down by almost 30 percent this year to 525,000 tons — the lowest level since 1997, says Smith.

“Another drop in production would push prices higher to insure that domestic needs are met. Producers probably should use the $355-per-ton loan price floor to plan for the 2003 crop and look for opportunities to lock in a higher price through contracting or utilizing the marketing loan.”

Looking at marketing alternatives for 2003, Smith says growers may see a situation similar to that of last year. “We may be looking at the possibility of spring contracts, where shellers would like to go ahead and insure a certain amount of tonnage at the beginning of the year to get their shelling plants up and running. The remainder of the peanuts may be deferred over to the marketing loan.

“Forward contracts with premiums may be offered, and that might be an opportunity to get better than $355 per ton. Another alternative would be to sell at harvest. I see a situation similar to this past year when offers were made on the early peanuts coming out of harvest. Once the shellers reach a certain threshold, the remainder of the peanuts probably will go into loan.”

Yet another marketing alternative, says Smith, is joining or forming a marketing or shelling cooperative. “Several groups currently are looking at such a possibility. GFA has been approved as a commodity marketing association to market peanuts on a farmer's behalf. So, if you don't want to do your own marketing, you might want to go through a cooperative and let them do the marketing. Hopefully, they can pool the peanuts and get a better-than-average price, returning the profits back to members.”

Growers also might opt to store peanuts in the loan and redeem at a later time, he says.

Planted acreage estimates for this spring also might offer an opportunity for pricing peanuts, says Smith. “There might be an opportunity of locking in a better price this spring if there's a fear that not enough peanut acres are being planted. Pay attention to those planted acreage estimates.”

“Also, try to utilize the marketing loan just as you do with other crops, and be able to sell out of the loan when there's a favorable marketing loan gain, or sell out at harvest when there's a high LDP.”

One of the biggest adjustments to the new peanut program, says Smith, is the nature of the cash flow. “Producers and lenders must adjust to later timing of income from loan peanuts and direct and counter-cyclical payments. Once peanut base is assigned and payments begin arriving, cash flow will improve. But it's imperative that you work with your lender, and let him know that the payments are coming at different times.”

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