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
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
1998-2001 Average
Direct Payment Program Yield
1998-2001 Average
Counter Cyclical Program Yield
1998-2001 Average
Payment Limits
Separate but Equal
Buyout
$0.11/lb per year for 5yrs
Or $0.55 lump sum
Comparison Program @ 325/ton Peanuts
1996 Farm Bill
2002 Farm Bill
Cash Price
610 Quota
325
Loan Rate
132*
355
LDP
30 **
Total Price
610 Quota
132-375 Addt’l
355
Direct Payment
36
Counter-Cyclical
Payment
104
Buyout
220
*Additional peanuts
**No Specifics on Calculating LDP are Known
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.
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 1st 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
355
–
355
–
355
–
LRP
300
350
400
LDP/MLG
=
55
=
5
=
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
Yield Per Acre (Pounds)
LDP
$/ton 2000 2500 3000 3500 4000 4500
25
3000
2400
2000
1714
1500
1333
50
1500
1200
1000
857
750
667
75
1000
800
667
571
500
444
100
750
600
500
429
375
333
Max Peanut Acres with $40,000 DP Limit
Payment Yield
Payment
Acres
2500
3000
3500
4000
4500
889
741
635
556
494
1046
871
747
654
581
Base Acres
Max Peanut Acres with $65,000 CCP Limit
Payment
Yield
2000
300
104
735
2500
3000
3500
4000
588
490
420
368
4500
327
Price and CCP
325
350
400
104
104
59
735
735
1296
588
588
1037
490
490
864
420
420
741
368
368
648
327
327
576
450
9
8497
6797
5664
4855
4248
3776
Example Direct and Counter-Cyclical Payments,
$ Per Base Acre
Corn
Cotton
Peanuts
Direct Payment
20
37
38
Maximum (Potential) CounterCyclical Payment
25
76
111
Maximum Combined Payment
45
113
149
Corn
Payment Yield: 85 bu.
Direct Rate:
$0.28/bu.
Target Price:
$2.60/bu.
Loan Rate:
$1.98/bu.
Cotton
650 lb.
$0.0677/lb.
$0.724/lb.
$0.52/lb.
Peanuts
2500 lb.
$36/ton
$495/ton.
$355/ton.
Difference Between Peanut and Cotton Payments,
$ Per Base Acre
Peanut Payment minus Cotton Payment
Peanut Average Direct Payment
Season Price
CounterCyclical
Payment
Direct +
Counter
Cyclical
Payments
$350
1
36
37
$375
1
15
16
$400
1
(12)
(11)
Cotton
Payment Yield: 650 lb.
Direct Rate:
$0.0677/lb.
Target Price:
$0.724/lb.
Loan Rate:
$0.52/lb.
Peanuts
2500 lb.
$36/ton
$495/ton
$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
Enterprise
Expected Price
(including LDP)
Expected
Yield
Variable
Cost
Return Above
Variable Cost
Irrigated
Peanuts
350
3500
461
152
Non-Irr.
Peanuts
350
2500
404
34
Irrigated
Cotton
0.56
1000
397
163
Non-Irr.
Cotton
0.56
650
330
34
UGA Extension Ag Econ Webpage
www.agecon.uga.edu
Click on Extension
(www.ces.uga.edu/Agriculture/agecon/agecon.html)
Click on: Farm Bill 2002
Find: Presentations
Decision Aid
(Excel Spreadsheet)