Peanut Provisions of the Farm Security and Rural Investment Act of 2002

2002 Farm Bill Education ConferenceKansas City, MissouriMay 20-21, 2002

Nathan SmithUniversity of Georgia

New Peanut ProgramNew 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 MakeProducers Have Two Separate Decisions To Make

What Bases To Have To Maximize Payments?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?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 ProvisionsLoan 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

1996 Farm Bill 2002 Farm Bill

Cash Price 610 Quota 325

Loan Rate 132* 355

LDP 30 **

Total Price610 Quota

132-375 Addt’l355

Direct Payment 36

Counter-Cyclical Payment

104

Buyout 220

Comparison Program @ 325/ton PeanutsComparison Program @ 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 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 LRP LDP/MLG 355 – 300 = 55 355 – 350 = 5 355 – 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)

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

2500 3000 3500 4000 4500

Payment Acres 889 741 635 556 494

Base Acres 1046 871 747 654 581

Max Peanut Acres with $65,000 CCP Limit

PaymentYield

Price and CCP

300 325 350 400 450

104 104 104 59 9

2000 735 735 735 1296 8497

2500 588 588 588 1037 6797

3000 490 490 490 864 5664

3500 420 420 420 741 4855

4000 368 368 368 648 4248

4500 327 327 327 576 3776

Example Direct and Counter-Cyclical Payments, $ Per Base Acre

Corn Cotton Peanuts

Direct Payment 20 37 38

Maximum (Potential) Counter-Cyclical Payment

25 76 111

Maximum Combined Payment 45 113 149

Corn Cotton PeanutsPayment 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.

Difference Between Peanut and Cotton Payments, $ Per Base Acre

Peanut Payment minus Cotton Payment

Peanut Average Season Price

Direct Payment

Counter-Cyclical Payment

Direct + Counter Cyclical

Payments

$350 1 36 37

$375 1 15 16

$400 1 (12) (11)

Cotton PeanutsPayment 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

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 UGA Extension Ag Econ WebpageWebpage

www.agecon.uga.edu

Click on Extension(

www.ces.uga.edu/Agriculture/agecon/agecon.html

)

Click on: Farm Bill 2002

Find: PresentationsDecision Aid

(Excel Spreadsheet)

Producer enters Farm Historical and Updated Dataas well as 2002 Farm Plan Data

Includes Program Payment Analysis andLDP Payment Analysis

Provides Cash Flow Analysis by Commodity andReturn above variable expenses for Whole Farm operation

Note to Users: This decision aid is intended for education purposes and will updated periodically. Results are subject to change with USDA rules and regulations. Users should consult

their local FSA office before making final decisions.

Farm Bill Decision Aid

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University of Georgia

Whole Farm Analysis

Program Analysis Results

Version 1.3 (updated 5/14/02)

2002 Farm ProgramInformation

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Program Payment Analysis

Whole Farm Analysis