Farm Bill, Economics & Outlook for 2002 County Agent Peanut Training Nathan Smith UGA Extension Economist

Peanut Situation  Bumper crop in Southeast  Over supply situation  Domestic use down 3.3% from last year  Exports down in 1 st quarter  Quota kept at 2001 level  Argentina currency devaluation impact?  Farm Bill in 2002 or 2003?

US Peanut Production, Quota, and Food Use Effective Quota is Basic Quota plus Undermarketings , and Basic Quota plus Buybacks

Planted Acres by Region US SE GA SW VC

2001 Peanut Crop GASESWVCUS Planted Acres (1,000) Harvested Acres (1,000) Yield (lb/acre) Production (1,000,000 lb) (1000 tons) 2001 QUOTA

U.S. Peanut Balance Sheet million pounds (Dec 12, 2001) Average Price 1,3751,1161,233 Ending Stocks 4,0763,5884,166 TOTAL USE Seed & Res Exports Crush 2,2752,1702,233Food Use 5,4514,7035,400 TOTAL SUPPLY Imports 4,1573,2663,829Production 1,1161,2331,392Beg. Stocks 2001/02 Proj.2000/01 Est.1999/00

Estimated 2001/02 Peanut Supply and Disappearance FS Tons (1,000) FS Tons (1,000) Total Production2,119Quota Supply1,303 Less Seg. 2 & 3’s13.5 Less Food Use1,138 (A) Total Seg. 1 Production 2,106(C) Remaining Quota165 US Qouta1,180Seg. 1 Add’l Supply (A-B)803 Quota Delivery1,170 Less Exports363 Seed Delivery110Remaining Addtl’s440 + Buybacks23.5 (B) Total Quota Supply1,303Seg. 1’s w/o home (C+D)607

Marketing Assessment  GFA has approximately 243,000 tons of quota in loan  Another 145,000 tons of additionals are in the loan pool  243,000 tons * $400 loss = 97.2 mil. Loss  SE has ~ 692,000 tons quota  Marketing assessment could be as much as $140/ton not counting additional losses or gains

What do I need from the Market? Irrigated Budgets * 2002 UGA CES Cost of Production Budgets Note: Land and Quota costs not included

What do I need from the Market? Dryland Budgets * 2002 UGA CES Cost of Production Budgets Note: Land and Quota costs not included

UGA CES Peanut Budgets, South Georgia 2002 IrrigatedDryland YIELD 3500 lb2500 lb Per AcrePer TonPer AcrePer Ton VARIABLE COSTS $468$267$414$331 FIXED COSTS $243$139$153$122 MANAGEMENT $23$13$21$17 TOTAL COSTS $734$419$588$470 Breakeven Price $419$470 Breakeven Yield 2407 lb1928 lb

Net Return to Quota per lb for 3500 lb Irrigated Yield Land Rent Per Acre Total Cost$0$35$50$75$100 $ $ $ $ $

Net Return to Quota per lb for 2500 lb Non-Irrigated Yield Land Rent Per Acre Total Cost$0$25$35$50$75 $ $ $ $ $

Trade Situation  US is preparing for WTO negotiations  FTAA has been stalled since the Sep. 11 attack  Argentina facing a currency devaluation

Tariff Rates # Tariff rates on a pound of shelled peanuts

Tidal Wave May Be Closer Than Thought!

Argentina zMain exporter of peanuts into US zAllocated 78% of the in-quota TRQ (Tariff Rate Quota) zAmounted to 43.9 thousand metric tons last year zMain competitor in the European Market yArg 43% market share from 98-00’ yUS 26% market share from 98-00’

Argentina Exchange Rate  Austral pegged to US dollar in 1991  Austral replaced by Peso in 1992 at a fixed rate of 1:1 to the US dollar  Peso became overvalued by being tied to the US dollar  May 2001 figures show 80-90% overvalued, reduces Argentina’s competitiveness in the world market

Recent Changes in Argentina’s Exchange Rate  New temporary official exchange rate of 1.4 Pesos/US $  Argentina price is estimated to still be above US price (57.5 cents/pound) with tariff rate (using 34.8 cents/lb + 2 cents/lb shipping cost)  Soon will be allowed to float freely (this summer)

What if Exchange Rate continues to drop?  The current free market exchange rate is closer to 1:1.6  At 60% devaluation, Argentina peanuts produced using >80% domestic inputs would be below the US price  Would make the tariff rate quota meaningless as a protection measure

Farm Bill Chronology and Timetable House Ag Committee presents HR July 27, 2001 HR2646 passed the House -- October 5, 2001 Senate Ag Committee passes S November 15, 2001 “Harkin Bill” presented S 1731 to the Senate -- November 27, 2001 Senate Adjourned December 21 without a vote Senate reconvenes next week Senate vote House-Senate conference committee President FSA must write regulations

Major Components Of The Bill -- Provisions That Impact Income -- Loan Rate AMTA or Fixed, Decoupled Payments Base Target Price Payment Acres Payment Yield Payment Limits

Marketing Loan  Non-recourse Marketing Loan for all peanuts produced.  LDP could be taken on peanuts instead of actually taking out a loan.  Payment limitation of Marketing Loan gains and LDPs is proposed at $150,000 (House)

Fixed, Decoupled Payments  New name for AMTA payments.  Peanuts would received a Fixed, Decoupled Payment of $36 per ton.  “Historical Producer” is defined as having peanuts sometime during the time period on a farm.  Payment limitation:  $50,000 (House)  $100,000 combined with CCP (Senate)

Counter-Cyclical Payments  Establish a payment to producers with peanut base.  Not tied to production  Payments would be triggered when the average season price for peanuts falls below a target price.  Payment limitation:  $75,000 (House)  $100,000 combined with FDP (Senate)

Counter-Cyclical Payment Calculation  CCP = TP - ASP - FDP  or  TP - NLR - FDP, whichever is higher.  CCP = counter cyclical payment  TP = target price, $480  ASP = average season price  FDP = fixed, decoupled payment, $36  NLR = national loan rate, $350

Base Acres 1996 Farm Bill House Senate Quota Poundage Allotment Producer has a 180-day option to assign base to his own or someone else’s land. Base acreage is the average planted acres during period Same Impact: Will create major tension between some Georgia landowners/quota holders and producers. Will give the producer leverage for 180 days. Creates the opportunity for long term leases to be negotiated. Total bases of All crops cannot exceed cropland on the farm. Comparison of House and Senate To Current Program

Peanut Provision Basics House H.R.2646Senate S.1731 Quota Buyout10¢/lb. per year for 5 yrs Loan Rate$350/ton$400/ton Fixed Decoupled Payment $36/ton Target Price$480/ton$520/ton Base Years

1996 Bill HouseSenate Price Quota Price 610 Loan Rate 132* Target Price LDP025 Decoupled Payment 3636 Counter Cyclical Payment 69 x 85% = x 85% = 93 Total Price/Payments 610 quota addt’l 375 Price 95 Pmt 400 Price 129 Pmt Comparison Of 375/ton Peanuts *Additional peanuts

Whole Farm Comparison of House and Senate Proposals

Field And Resource Management Cost Accounting Tracking System

A tool to help producers track and organize real time cost,track and organize real time cost, track and organize production data, including pesticide and water usagetrack and organize production data, including pesticide and water usage determine total costs,determine total costs, compare the performances of individual fields and the whole farm operation with break-even analysis,compare the performances of individual fields and the whole farm operation with break-even analysis, aid in management decisionsaid in management decisions in a user-friendly formatin a user-friendly format Overall, an effort to enhance the COMPETITIVENESS of US peanut producers.

We Need Your Help  Cost of Production Survey for Southeast  Target Sample Size – 700 from GA,FL,AL  Representative Farms  7 in Georgia  2 Alabama  2 Florida  1 South Carolina

UGA Peanut Team