Acreage should remain the same for any hope of reducing supply

J. Tyron Spearman Contributing Editor
J. Tyron Spearman
Contributing Editor

The approval of the Farm Bill by the House and Senate and with the President’s signature will eventually, and hopefully, eliminate some uncertainty in the industry and help make peanut markets more transparent to the grower. However, writing about it at this time is difficult because rules and regulations are not finalized.

Early comments from the grower leadership have been positive. Growers were pleased that the proposals were accepted and after the initial shock of being ignored in the first Senate proposal, bounced back in the House Bill and eventually accomplished their mission.

The debate switched to food stamps and other issues as the commodities survived with little fanfare. The one known is that there will be less government money available to farmers.

Contracts Withdrawn
Because of the uncertainty, buyers quickly withdrew contracts and waited for more information. We do know that the peanut program will retain the Market Loan Assistance Program with a $355 per-ton minimum loan that terminates in nine months.

Peanut farmers will have a separate payment limit, and, for row-crop farmers, that is a plus. The bill eliminated the $36 per-ton direct payment and the counter-cyclical program.

Screen Shot 2014-12-04 at 10.17.52 PMProducers can upgrade base or keep it at current levels. For those who choose to upgrade, the farm can have a onetime reallocation of base acres on all crops, except cotton, but the total base cannot be more than the farm’s base as of Sept. 30, 2013.

Payment for that commodity is limited to 85 percent of base acres. Farmers without a payment yield will have one assigned based on 90 percent of the 2008-2012 crop year. The disappointing news is that farmers that have continuously grown peanuts with no base will not qualify again unless the new “generic base” from cotton is used.

Payment Example
Working with FSA, farmers can determine payment yield and payment acres for all commodities assigned to the farm. Payments will be made on these commodities when the effective price is less than the reference price. USDA will announce the effective price after the close of the season in July and will pay on payment acres probably in October.

For example on peanuts in 2012, the effective price was $602 per ton, which is above the new $575 per-ton reference price, and no payment would be made by CCC. For 2013, the average price is closer to $460 per ton, which would convert to a $75 per-ton payment less sequestration of 7.2 percent.

When peanuts average $535 per ton or higher, no payments will be made. If it is less than $535 per ton, payments would be made only on peanut base for the difference between the $535 and the annual “effective price.” Remember, this payment is paid on the peanut base, not the peanuts planted.

Storage Limitations
Farms with a cotton base, now converted to generic base, can be used on a year-to-year basis and be temporarily allocated to a covered commodity like peanuts, but it must be planted. The cotton program is in transition to a different program. Industry leaders believe cotton base could now be planted as peanut base, possibly depressing the effective price further causing an even higher government payment and an oversupply. Peanut farmers need to seriously consider a storage location before placing peanut seed in the ground. Storage could be the limiting factor.

Planting Time
The pressure will now shift to USDA to interpret the Farm Bill and issue rules and regulations to the local Farm Service Agency offices. The Cooperative Extension Service is charged with educating the farmers on the new Farm Bill, but delays are likely until regulations are complete. Planting time is less than 60 days away, and farmers are trying to secure contracts that have mostly been withdrawn or lowered. Contracts were mostly $425 per ton for runners, $475 per ton for high-oleic runners, $525 per ton for Virginias and $600 per ton for Spanish. Contracts were lowered to $400 per ton after the Farm Bill approval.

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