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

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

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

4. 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.

5. Basic Peanut Provisions Loan Rate$355/ton Direct Payments$36/ton Target Price$495/ton Base Acreage1998-2001 Average Direct Payment Program Yield1998-2001 Average Counter Cyclical Program Yield1998-2001 Average Payment LimitsSeparate but Equal Buyout$0.11/lb per year for 5yrs Or $0.55 lump sum

6. 1996 Farm Bill2002 Farm Bill Cash Price610 Quota325 Loan Rate132*355 LDP30 ** Total Price 610 Quota 132-375 Addt’l 355 Direct Payment36 Counter-Cyclical Payment 104 Buyout220 Comparison Program @ 325/ton Peanuts *Additional peanuts **No Specifics on Calculating LDP are Known

7. Establishment of Peanut Base for each Historic Peanut Producer Program Yield –Average yield for 1998-2001 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 1990-1997 Base Acreage –Average acreage planted for 1998-2001, including years of zero acreage. –Prevented planted included. –Base acres cannot exceed actual cropland on the farm. –Exception for double-cropping.

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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 = 55 355 – 350 = 5 355 – 400 = 0

14. 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.

15. Max Peanut Acres with $75,000 LDP Limit LDP $/ton Yield Per Acre (Pounds) 200025003000350040004500 25 300024002000171415001333 50 150012001000857750667 75 1000800667571500444 100 750600500429375333

16. Max Peanut Acres with $40,000 DP Limit Payment Yield 25003000350040004500 Payment Acres 889741635556494 Base Acres 1046871747654581

17. Max Peanut Acres with $65,000 CCP Limit Payment Yield Price and CCP 300325350400450 104 599 2000735 12968497 2500588 10376797 3000490 8645664 3500420 7414855 4000368 6484248 4500327 5763776

18. Example Direct and Counter-Cyclical Payments, $ Per Base Acre CornCottonPeanuts Direct Payment 203738 Maximum (Potential) Counter- Cyclical Payment 2576111 Maximum Combined Payment 45113149 CornCottonPeanuts Payment Yield: 85 bu. 650 lb. 2500 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.

19. 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 $35013637 $37511516 $4001(12)(11) CottonPeanuts Payment Yield: 650 lb. 2500 lb. Direct Rate: $0.0677/lb. $36/ton Target Price: $0.724/lb.$495/ton Loan Rate:$0.52/lb.$355/ton

20. 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.

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

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

23. Whole Farm Budget Example

24. Returns per Acre & Price Comparisons

25. 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 3503500461152 Non-Irr. Peanuts 350250040434 Irrigated Cotton 0.561000397163 Non-Irr. Cotton 0.5665033034

26. UGA Extension Ag Econ Webpage www.agecon.uga.edu Click on Extension (www.ces.uga.edu/Agriculture/agecon/agecon.html)www.ces.uga.edu/Agriculture/agecon/agecon.html Click on: Farm Bill 2002 Find:Presentations Decision Aid (Excel Spreadsheet)