Peanut farmers need to know and plan better for a marketing loan gain created when peanuts in the loan are redeemed on their behalf MLG counts toward their 125000 payment limitation under the new farm bill

Peanut farmers need to know, and plan better for, a marketing loan gain created when peanuts in the loan are redeemed on their behalf. MLG counts toward their $125,000 payment limitation under the new farm bill.

Peanut farmers advised to watch tons in loan, payment limitations

As the 2015 U.S. peanut harvest rolls on, some things are being learned about peanuts under the current farm bill. Peanut farmers will need to continue to watch, or watch better, how they market their peanuts.

As the 2015 U.S. peanut harvest rolls on, some things are being learned about peanuts under the current farm bill. Peanut farmers will need to continue to watch, or watch better, how they market their peanuts.

The short, take-home message for marketing peanuts going forward is, “Pay closer attention to contracts,” said Nathan Smith, University of Georgia peanut economist.

“When we talk about marketing now, you have to factor in more than just what your price is going to be based on the contract. In these low-price years -- and we look to remain in them for the near future -- a grower needs to stay in contact with his buying point or marketing association or representative or Farm Service Agency to know better what he has in the loan and when or how those loan peanuts might be redeemed because this can play into his payment limitation under the farm bill rules,” Smith said, in an interview after the 2015 Southern Outlook Conference in Atlanta.

Some growers in Georgia, South Carolina, North Carolina, Florida, Alabama and Virginia learned this lesson when they received notification from their shellers, as the 2015 harvest approached, that some of their 2014 peanuts in the loan had been redeemed. The growers didn’t realize how much of their tonnage was in the loan, and it became an issue, said Smith, who was asked to speak with farmers specifically about this in Miller County, Ga., in September.

What happened? The USDA announced that the National Posted Price, or NPP, for runner peanuts would drop by $170 per ton to $254.51 per ton Aug. 19 through Sept. 1, a dramatic drop. “Loan repayment rates, during the period covered by this announcement, reflect a temporary two-week adjustment to encourage redemptions of outstanding loan balances and make way for 2015-crop peanuts in warehouses,” according to a USDA FSA “Weekly National Posted Prices for Peanuts” news release Aug. 18.

The NPP was back up to $424.51 per ton for runner peanuts the week of Sept. 23.

The NPP for peanuts is the loan repayment rate. If the rate drops below $354.51 for runner types and peanuts in the loan are redeemed at that time, the difference is called a Marketing Loan Gain. The drop in the posted price Aug. 19 triggered a market loan gain of $100 per ton on peanut tonnage bought out of the loan, and the rate is locked in for 60 days. The $100 per ton MLG isn’t a direct payment to a grower whose peanuts were bought out of the loan. It is the gain from paying off the loan at the lower repayment rate.

It’s been reported that about 145,000 tons were locked in for redemption from the loan under the $254.51 per ton NPP price. A grower whose peanuts are redeemed from the loan at the NPP that was in effect between Aug. 19 and Sept. 1 will have the $100 MLG applied to his payment limitation, and the limitation is $125,000 for a grower annually under the current farm bill. The MLG is still considered a benefit to the grower.

For reference, Smith said, the NPP for runners dropped $94 to $330.73 for a $24 market loan gain the week of March 12, 2014. “Nearly all the remaining tons of 2013 peanut loans were reported redeemed the week of May 17, 2014 following the drop in NPP giving a $24 MLG. The full 60-day lock was used so that most of the loans were redeemed instead of carried to expiration.  The 2013 crop MLG did not count against the payment limit under the 2008 Farm Bill,” he said.

What does this do to PLC payments?

Most peanut growers banked on, literally, their 2015 financing when they enrolled in the Price Loss Coverage farm bill program and on what their possible PLC payment would be for their peanut base acres and generic base planted to peanuts. The PLC provides a payment to growers as a safety net against depressed prices. With PLC payments for the 2014 crop scheduled to go to growers sometime after Oct. 1, the PLC has become an important, if not essential, means of cash flow as growers face depressed commodity prices across the board this year.

Under the farm bill, a PLC peanut payment happens when the national seasonal average price is below a $535 per ton reference price. According to USDA August Agricultural Prices Report, the seasonal average price is $440 per ton. This gives a PLC payment rate of $95 per ton. That payment rate is applied to 85 percent of a grower’s base acres minus deduction for the current federal sequestration. Peanut growers are looking at actually getting a $75 per ton PLC payment for their 2014 crop base tonnage, which again applies to their total payment limitation from all federal farm programs, Smith said.

For example, he said, a grower with a PLC payment yield of two tons per acre, which is looking to be the U.S. average this year, will reach the payment limitation with 834 base acres (total of peanut base and generic base attributed to  peanuts). Again, this is for the 2014 crop payment. If he had 1,000 tons, for example, in the loan that was redeemed during the price drop in August, he’d have $100,000 in MLG applied to his payment limit, which really means he’d only get $25,000 of the actual PLC payment.

Some Southern commodity organizations, including the Georgia Peanut Commission, went to Washington in September in an effort to ease the payment limitations by asking Congress to reinstate generic commodity certificates for the 2015 and 2016 crops. The generic certificates could be used in place of potential loan deficiency payments or market loan gains and not be counted against a grower’s payment limits under the farm bill now.

What can growers do for 2015? “On contracted peanuts, notify the sheller, DMA, CMA of your peanut base tonnage in effort to avoid large tonnage in loan late in the marketing year.  On uncontracted peanuts, possibly wait and forfeit to the government if there is a MLG or sell when the NPP is above the loan rate,” Smith said.  

What about 2016? “Add an entity if possible to increase the payment limitation. Limit the amount of peanuts you contract. Modify contracts some way to share in MLGs or to control redemption of the peanuts from the loan," Smith said.

TAGS: Outlook
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