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 Direct Payments Target Price $355/ton $36/ton $495/ton
Base Acreage
Direct Payment Program Yield Counter Cyclical Program Yield Payment Limits Buyout
1998-2001 Average
1998-2001 Average 1998-2001 Average Separate but Equal $0.11/lb per year for 5yrs Or $0.55 lump sum
Comparison Program @ 325/ton Peanuts
1996 Farm Bill Cash Price Loan Rate LDP Total Price Direct Payment Counter-Cyclical Payment Buyout 610 Quota 132-375 Addt’l 610 Quota 132* 2002 Farm Bill 325 355 30 ** 355 36 104 220
*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
LDP $/ton 2000 2500 3000 3500 4000 4500 25 50 75
3000 1500 1000 2400 1200 800 2000 1000 667 1714 857 571 1500 750 500 1333 667 444
Yield Per Acre (Pounds)
100
750
600
500
429
375
333
Max Peanut Acres with $40,000 DP Limit
Payment Yield 2500 Payment Acres 889 1046 3000 741 871 3500 635 747 4000 556 654 4500 494 581
Base Acres
Max Peanut Acres with $65,000 CCP Limit
Price and CCP
Payment Yield
2000
2500 3000 3500 4000 4500
300 104 735 588 490 420 368 327
325 104 735 588 490 420 368 327
350 104 735 588 490 420 368 327
400 59 1296 1037 864 741 648 576
450 9 8497 6797 5664 4855 4248 3776
Example Direct and Counter-Cyclical Payments, $ Per Base Acre
Corn
Direct Payment Maximum (Potential) CounterCyclical Payment Maximum Combined Payment
Cotton 37 76 113
Peanuts 2500 lb. $36/ton $495/ton. $355/ton.
Peanuts 38 111 149
20 25 45
Cotton 650 lb. $0.0677/lb. $0.724/lb. $0.52/lb.
Corn Payment Yield: 85 bu. Direct Rate: $0.28/bu. Target Price: $2.60/bu. Loan Rate: $1.98/bu.
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 $375 $400
Cotton Payment Yield: 650 lb. Direct Rate: $0.0677/lb. Target Price: $0.724/lb. Loan Rate: $0.52/lb.
1 1 1
Peanuts 2500 lb. $36/ton $495/ton $355/ton
36 15 (12)
37 16 (11)
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 Irrigated Peanuts Non-Irr. Peanuts Irrigated Cotton Expected Price (including LDP) 350 Expected Yield 3500 Variable Cost 461 Return Above Variable Cost 152
350 0.56
2500 1000
404 397
34 163
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
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