Peanut Provisions of the Farm Security and Rural Investment Act of Farm Bill Education Conference Kansas City, Missouri May 20-21, 2002 Nathan Smith University of Georgia

New Peanut Program Eliminates Quota Provides a Quota Buyout Establishes a –Marketing Loan for Peanuts –Peanut Base –Direct Payment –Counter Cyclical Payment

Sources of Income Production Related –Market Sales –Marketing Loans Non-Production Related –Direct Payments –Counter Cyclical –Buyout Base Payments Quotaholders

Producers Have Two Separate Decisions To Make What Bases To Have To Maximize Payments? Direct Payments (DP) and Counter Cyclical Payments (CCP) are tied to Base acres and what you produce or not produce has no bearing on these payments. What Crops To Produce? LDP’s/POP’s or Marketing Loan Gains (MLG) are the only payments tied to actual production. Producing for cash+LDP or the loan rate.

Basic Peanut Provisions Loan Rate$355/ton Direct Payments$36/ton Target Price$495/ton Base Acreage Average Direct Payment Program Yield Average Counter Cyclical Program Yield Average Payment LimitsSeparate but Equal Buyout$0.11/lb per year for 5yrs Or $0.55 lump sum

1996 Farm Bill2002 Farm Bill Cash Price610 Quota325 Loan Rate132*355 LDP30 ** Total Price 610 Quota Addt’l 355 Direct Payment36 Counter-Cyclical Payment 104 Buyout220 Comparison 325/ton Peanuts *Additional peanuts **No Specifics on Calculating LDP are Known

Establishment of Peanut Base for each Historic Peanut Producer Program Yield –Average yield for excluding any year peanuts were not planted –May substitute for a farm up to 3 years when peanuts were planted the county average yield from Base Acreage –Average acreage planted for , including years of zero acreage. –Prevented planted included. –Base acres cannot exceed actual cropland on the farm. –Exception for double-cropping.

Assignment of Peanut Base Deadline is set as March 31, 2003 Can assign to own farm or another farm in the same state or a contiguous state (must be a historical producer in the state or a producer in the state on Mar. 31) One time assignment

Direct Payments Upfront, fixed payment Payment rate = $36/ton DP = (payment rate x (base acres x.85) x farm program yield) Example: $36 (or $0.018/lb) x 100 x 85% x 1.5 tons (or 3000 lb) = $4,590 = $45.90/acre Option to receive 50% in advance after December 1 of each calender year

Counter-Cyclical Payments Target price - Effective price Counter-cyclical payment rate ($/ton) Effective price equals the higher of market price or loan rate plus the direct payment rate CCP = CCP rate x Base acres x 85% x Farm Program Yield Example: $495 – ($355 + $36) * 100 ac. x.85 x 1.5 tons (or 3000 lb) = $13260 = $132.26/acre

Timing of CCP Payments As soon as “practicable” after the end of the 12-month marketing year PARTIAL PAYMENTS: –1st payment : Up to 35% in October –2nd payment: Another 35% in February not to exceed 70% of estimated payment

Marketing Loan  Non-recourse Marketing Loan for all peanuts produced.  LDP could be taken on peanuts instead of actually taking out a loan.  9 month loan beginning the 1 st day of month after the month in which the loan is made  Generic Marketing Certificates allowed  CCC pays cost of storage, handling & associated costs for loan peanuts

Loan Deficiency Payment / Market Loan Gain LDP/MLG = Loan Rate – “Loan Repayment Price” No specifics are available on what how the Loan Repayment Price will be calculated for peanuts. This price would be similar to “posted county price” for corn or the “adjusted world price” in cotton. Examples: Loan Rate LRP LDP/MLG 355 – 300 = – 350 = – 400 = 0

Payment Limitations Separate limitations for Peanuts –Direct Payments = $40,000 –Counter-Cyclical = $65,000 –LDP/MLG = $75,000 3 Entity & Spouse Rule Apply to effectively double the limits Generic Marketing Certificates allow use of loan after limitation is reached. For 2002 payments, refers to the Historic Peanut Producer, i.e. 1-entity limit on payments to the producer.

Max Peanut Acres with $75,000 LDP Limit LDP $/ton Yield Per Acre (Pounds)

Max Peanut Acres with $40,000 DP Limit Payment Yield Payment Acres Base Acres

Max Peanut Acres with $65,000 CCP Limit Payment Yield Price and CCP

Example Direct and Counter-Cyclical Payments, $ Per Base Acre CornCottonPeanuts Direct Payment Maximum (Potential) Counter- Cyclical Payment Maximum Combined Payment CornCottonPeanuts Payment Yield: 85 bu. 650 lb lb. Direct Rate: $0.28/bu. $0.0677/lb. $36/ton Target Price: $2.60/bu.$0.724/lb.$495/ton. Loan Rate:$1.98/bu.$0.52/lb.$355/ton.

Difference Between Peanut and Cotton Payments, $ Per Base Acre Peanut Payment minus Cotton Payment Peanut Average Season Price Direct PaymentCounter- Cyclical Payment Direct + Counter Cyclical Payments $ $ $4001(12)(11) CottonPeanuts Payment Yield: 650 lb lb. Direct Rate: $0.0677/lb. $36/ton Target Price: $0.724/lb.$495/ton Loan Rate:$0.52/lb.$355/ton

Buyout $0.11 per pound per year for five years Allows the option to take $0.55/lb. in lump sum payment in year of quotaowner’s choosing.

Marketing Assessment? Quota is eliminated No quota to assess for the $100+ million loss from 2001 crop

Example Farm *Using UGA CES Non-irrigated 2002 Budgets for yields and costs

Whole Farm Budget Example

Returns per Acre & Price Comparisons

WHAT TO PRODUCE? Estimated Returns Above Variable Cost for Peanuts and Cotton, $ Per Acre EnterpriseExpected Price (including LDP) Expected Yield Variable Cost Return Above Variable Cost Irrigated Peanuts Non-Irr. Peanuts Irrigated Cotton Non-Irr. Cotton

UGA Extension Ag Econ Webpage Click on Extension ( Click on: Farm Bill 2002 Find:Presentations Decision Aid (Excel Spreadsheet)