Georgia farmers probably had more peanuts on their mind in 2015, given the low prices for alternative crops. But the 2014 farm bill’s Price Loss Coverage or PLC program may have added several thousand more to the mix.
That’s the opinion of Nathan Smith, associate professor and Extension coordinator in the Department of Agriculture and Applied Economics with the University Of Georgia and a speaker for the University of Arkansas’ Food and Agribusiness Webinar series on Sept. 24.
“As I said yesterday in the Southern Agricultural Outlook Conference in Atlanta, we tried to educate growers on how the generic base provision in the new farm bill was going to work,” he said. “We may have done too good a job in explaining it because Georgia is up almost a third in planted acres.”
Dr. Smith said the PLC program and Georgia’s cotton base or generic base acres helped growers increase the state’s peanut acres from 600,000 in 2014 to 790,000 acres or 32 percent in 2015. Total U.S. peanut acres rose 20 percent to 1.62 million acres.
Georgia’s peanut acres were probably headed for an increase in 2015 because of the low prices for cotton and corn compared to two years ago when cotton was 80 cents per pound or better and corn $6 per bushel, he said.
“If you look at the chart there on what programs Georgia signed up for, peanuts is pretty much all PLC (752,849 of the 790,000 acres,” said Dr. smith. “But it's also showing you we have more than 750,000 acres roughly of peanut base in Georgia. So peanut base is a big driver by over 245,000 acres – this is based on FSA's data on what the elections were in updating a base.”
Cotton becomes generic
Georgia also has 1.46 million acres of old cotton base, which became generic base under the new farm bill. Dr. Smith says growers will plant corn, soybeans and peanuts on the generic base acres that will be eligible for PLC payments when prices are low.
“But then also the generic base allowed, encouraged some other growers to go ahead and add a few more peanut acres with the projected payment for PLC, he said. “You can see in the Southeast, we’re up about 24 percent in 2015 on planted acres and the Southwest is up 22 percent, largely driven by Texas.”
Dr. Smith and Bobby Coats, professor of economics and agribusiness at the University of Arkansas and moderator of the webinar noted the USDA National Agricultural Statistics Service recently made Arkansas an official peanut state.
“I think that should be because Arkansas has more peanut acres (16,311) than Oklahoma (10,000) or New Mexico,” he noted.
The increase in U.S. acres puts the 2015 crop on line to reach 3.16 million tons, which would be the second largest crop in history behind the 3.38 million tons in 2012, when a shortage of peanuts pushed prices to $700 to $800 per acre.
In its latest forecast, USDA is projecting a 12-percent increase in usage for peanuts, partly due to domestic use and crush of this year’s larger crop. “There's a certain percentage of every ton of peanuts that's crushed anyway,” says Smith. “And with an increased in production, we should see crush go up for peanuts, too.”
More peanut butter sandwiches
Peanut butter use in the 2014 marketing year was up 7 percent, according to the Peanuts Stocks and Processing Report. “So that's kind of down from what it was in the middle of the year, which was 12.7 percent.”
USDA analysts say that of the 3.16 million tons produced in 2015, usage could reach between 2.7 to 2.8 million tons, leaving ending stocks of 300,000 to 400,000 tons. “Coming off two years where carryover is around 920,000 or 930,000 tons, that's more than we need, but it's not really burdensome oversupply,” says Smith. “But we could be back to 2012 in terms of carryover stocks where we've got all the warehouses full and busting out at the seam on peanut warehouses.”
Smith showed a map of where the federally-licensed peanut warehouses are located along with shelling plants in different parts of the peanut-growing regions.
“Basically we're looking at a big wave of peanuts coming in if harvest comes through as expected,” says Smith. “Where are we going to put the peanuts? If you count the total tons of capacity in 2014, there's 3.35 million tons' capacity based on the licenses. If we had planted 1.5 million acres, gone up to 1.5, which is kind of what I was thinking we would need to be to kind of keep things where we were coming out of '14, you know U.S. yield could have been as high as 4,770 bushels, pounds.
“At 1.6 million acres, it's right at 4,200 pounds. So we're going to basically stretch that capacity in terms of warehouse space. And like I said, the increase came in the southeast Alabama, Florida, Georgia, Mississippi, Texas, and Arkansas mainly.”
PLC payment update
As far as the farm bill program, farmers are looking at PLC payments based on what the market year average price is running from Aug. 1 to the end of July. For the 2014 crop, USDA’s Agricultural Prices report showed $441 per ton for the season-average price for market peanuts.
“That's higher than the loan rate,” says Smith. “If you subtract the marketing year average of $440 from the peanut reference price of $535 per ton, you get a $95 per ton payment rate. That's what I expect the PLC payments to be calculated off of in October when PLC payments should start be sending out for peanuts.
“Of course, that $95 a ton is not going to be for every ton or base acre that you produce. It's a base that's on the farm or the attributed base, peanut base, that's attributed from generic acres. When you adjust it for the 85 percent level in the farm bill and the congressionally mandated sequestration rate of 7.2 percent, you come up with about $75 per ton actually per base acre.”
A grower with a 3,000-pound PLC yield could expect to receive a payment of $112.40 per base acre given the payment rate of $95 per ton. That’s before the individual payment limit rate of $125,000 is applied.
“At 3,000 pounds, you're probably safe up to 1,000 acres in terms of not triggering the payment limit or reaching your payment limit. If you get a twoâton yield, you're talking somewhere between 800 and 900 acres before hitting the payment limit.”
To learn more about Dr. Smith's presentation and the Food and Agribusiness Webinars, visit http://www.uaex.edu/farm-ranch/economics-marketing/food-agribusiness-webinars/posts/09-24-15-peanut-outlook-webinar-nathan-smith.aspx.