V-C peanut growers told" "We need to keep quota out of loan"

The only possible problem standing between Virginia-Carolinas peanut growers receiving pool dividends this season is quota peanuts under loan.

"We must avoid having quota peanuts placed under loan or run the risk of once again having quota pool losses which the additional pool must cover," Dell Cotton, manager of the Peanut Growers Cooperative Marketing Association, told farmers attending the association's annual meeting in Roanoke Rapids, N.C.

"If we keep quota out of the loan, it dramatically improves the chance for a decent dividend from the additional pool. Along these lines, producers need to remember that if they place quota and additionals under loan and the quota pool has a loss, the individual's own additional profits are used first to offset his share of the quota loss," Cotton says.

This past year PGCMA handled 1,400 tons of quota peanuts. After crushing 369 tons, the quota pool ended the year with a loss of $251,000, reinforcing Cotton's feeling that quota peanuts placed under loan usually carry the probability of being crushed with resulting pool losses.

The association also handled 3,775 tons of Seg 1 additional peanuts, of which 2,789 tons were bought back, and 231 tons were sold for edible use. The balance of 755 tons was crushed, leaving the additional pool with a profit of $1,045,000. The association crushed 1,266 tons of Seg 2 and 3 peanuts, leading to losses of $84,000. And, the disaster pool, created when Seg 2 or 3 peanuts were transferred to quota for pricing purposes, had losses of $133,000.

The additional pool profits were initially decreased by subtracting losses from the quota and two additional pools, leaving a balance of $660,782. This profit was then used to offset a portion of the pool losses from the Southeast. The result was zero dividends for Virginia-Carolinas growers.

Cotton says the major reason for such high pool losses in the Southeast last year was, "that too many additionals were purchased by shellers through the buy-back for domestic edible use under contracts which allowed the sheller to receive part of the grower's pool distribution.

The 1998 crop saw 150,000 more tons purchased for domestic use than either the 1996 or 1997 crop and, without a corresponding increase in demand, these peanuts were carried forward in shellers' inventory to the 1999 crop year. This led to the purchase during 1999 of peanuts for domestic use being around 17 percent below average, which meant those which were not purchased were forced under loan to be inevitably crushed."

The Secretary of Agriculture authorized the use of $28 million on assessments collected over the past three years that had not been credited to the U.S. Treasury to help reduce this loss. The Southeast pool then took grower assessments from 1999 as well as the additional pool profits from the V-C area and reduced total losses to nearly $33 million.

Peanut growers are now obligated to repay the remaining losses with future assessments.

"Most important to us (the V-C area growers), this will not affect our future dividends and our own assessment collections will continue to be ours to use against potential V-C area losses and will only be used against the loan if we don't need them," Cotton says.

Most of the conditions that led to pool losses in 1999 have now been overcome. Cotton says the domestic over-supply situation has been corrected and a majority of the quota production from in the U.S. should be purchased commercially with little chance of any area suffering a quota loss.

"Assuming that a fairly good portion of our additionals were contracted, I would hope that dividends will once again be a possibility in our area for uncontracted additionals," Cotton says.

Some growers have been hoping that poor growing conditions in the Southeast, with a season-long drought followed by heavy rains in early September, could stimulate higher prices for high quality peanuts this fall. Cotton sees that possibility as unlikely.

"I feel it is important to remember two things," he says. "One. As long as the Southeast makes their quota, there should be minimal, if any, effects on prices. If the quota should fall short, there should be enough buy backs from irrigated areas to offset the shortfall. Assuming decent conditions form here forward, all indications are that the Southeast quota will be made one way or the other.

"Two. If the quota is not made due to stress conditions from now until harvest, the shortfall can be made up from other areas. Most of the West Texas production is additional peanuts, and they are not grown without a contract. A majority of the contracts give the sheller the right to exercise the buy back and split the pool dividends with the producer. Thus, if the shellers see by Sept. 15 that quota may not be made in the Southeast, they have another alternative in getting domestic needs met.

"Keep these points in mind if you are making plans to store peanuts on the farm for a potential premium."

After reviewing PGCMA involvement in the Peanut Administrative Committee, the Agricultural Technical Advisory Committee on Trade in Cotton, Tobacco and Peanuts, and successful efforts to gain a Section 18 special local need designation of fluazinam in the V-C area, Cotton turned his thoughts to the farm bill.

He encouraged peanut producers to work together to maintain the advantages of the peanut program when the next farm bill is written in 2002.

"Currently, agriculture is suffering as bad as it has in many years, and I believe Congress has recognized this," he says.

"This sympathy should bode well for agricultural programs when the farm bill is debated. So, yes, I believe the peanut program will continue. However, as always happens, there surely will be changes. It is imperative that producers offer these changes, whatever they may be, to Congress, rather than relying on Congress to do it for us.

"We plan on beginning a dialogue shortly among the three grower organizations in our area to completely discuss the current program, its pluses and minuses, to see if there is something that will work better for the peanut producer.

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