History repeating itself in the 2014 farm bill, peanut expert says

One of the advantages of having white hair is that you can recognize when history repeats itself. Stanley Fletcher has the white hair, and he can remember the debates leading up to the drafting of the 1996 farm bill.

“A lot of people are complaining about this program (the 2014 farm bill) and the current ag sector, and they have a right to,” says Dr. Fletcher, director and professor emeritus at the University of Georgia’s National Center for Peanut Competitiveness.

“I like to look at history, and, to me, history is showing that we’re repeating the 1996 farm bill. A lot of folks don’t remember that far back – the (congressional committee) staffs certainly don’t remember that. But we’re repeating the 1996 farm bill. We had high prices going into the 1996 farm bill; we passed it; and prices tanked.”

Dr. Fletcher, who spoke at the Mississippi Farm Bureau Federation’s Summer Peanut Commodity Meeting in Itta Bena, Miss., said the costs associated with the 1996 farm bill rose significantly, particularly for corn and soybeans in the Midwest in the years following its passage.

“The difference in the Southeast was that peanuts were still under a quota program at the time,” he said. “At that time the quota program … carried the farm. Farmers could lose on corn, and maybe cotton, but they made enough off peanuts they could absorb the losses and not worry about it too much.

“When you move to this farm bill, peanuts are not under a quota program; they’re just like all the other crops. Peanuts cannot carry a farm. Lenders are making loans because they think the payback is more certain for peanuts under this farm bill, but they can’t carry a farm.

Representative farm records

Dr. Fletcher has been maintaining records on representative peanut farms, including operations in Mississippi and Georgia, since 2008. The representative farms were instrumental in helping the National Center for Peanut Competitiveness develop the Preliminary Base Acreage and Payment Yields Decision Calculator in 2014.

The latter was part of the 2014 Farm Bill Farm Program and Insurance Decision Aid created for USDA by The Agricultural and Food Policy Center at Texas A&M University. Funds were also provided by Southern Peanut Farmers Federation, state peanut grower organizations and the National Peanut Board.

“The co-director of the program at Texas A&M was a classmate of mine at Oklahoma State University,” said Fletcher. “They didn’t understand peanuts, and they said ‘Stan, you handle the peanuts, and we’ll take care of the other parts of it.’”

The farms also helped make the argument for the calculation of the 2014 farm bill reference price for peanuts.

“These farms are what got us around that $535 price per ton,” he said. “We started in 2010 (for what was supposed to be the 2012 farm bill), before the yields changed. We took these representative farms and ran through what the net farm income was going to be for all 22.

“That was for the national number; if we had used a Southeast number, it would have been much lower. When you considered $495 had been the reference price in 2002 and that variable cash costs for the Southeast had increased 75 to 77 percent from 2002 to 2012, the $535 seemed realistic.”

Payment limit entities

Given the payments being projected for peanuts under the Price Loss Coverage or PLC program under the new farm bill more farmers are likely to be affected by the new payment limit rules of the 2014 farm bill, Dr. Fletcher notes.

In 2014-15, the national price that was used to determine the PLC payments was $440 per ton. “When I did the numbers for what I expected for the 2015 crop it was $383. Since then the prices have been a little bit better, and it’s at $384,” Fletcher noted. “That’s the price USDA is showing on the new sheet that came out June 10. But for 2016, it’s going back to $366.

“My concern is that many of those farmers may look at what they got on the 2014 crop and think they’re structured OK (for payment limits,” he said. “Now it’s too late to do any restructuring on the 2016 crop; that ended July 1. If you take the $383 or the $366 per-ton price they originally estimated for 2016 and you take the loan rate of $355, the PLC rate will be around $152 or $151 on the $384 or $169 on the $366.”

The payment rate has to be multiplied by the program yield, the total peanut and generic acreage base and 85 percent to arrive at a total payment. In 2014, farmers could have a total base of 774 acres before they reached the $125,000 payment limit. For 2015 that figure will drop to 480 acres and for 2016 could drop as low as 390 acres. “That’s for one entity,” says Dr. Fletcher.

He says the peanut industry appears to be avoiding another problem – lack of certified warehouse space for the current crop – that the National Center for Peanut Competitiveness warned about in a paper last spring.

Warehouse space for 2017

Last spring, USDA’s Economic Research Service forecast national peanut stocks could reach 1.44 million tons by Aug. 1, a figure that would have been a record high for the carryover going into the new market year.

The NCPC warned in its paper that Georgia could have faced a deficit of almost 400,000 tons of storage capacity if stocks had continued to build. Across the Southeast, the deficit in storage capacity could have reached 627,000 tons.

“Fortunately, the Chinese are helping out by purchasing much larger quantities of the U.S. crop than had been expected,” said Dr. Fletcher. “So we’ve escaped the problem in 2016. Now peanut shellers are wondering about 2017.”

For more on the National Center for Peanut Competitiveness, visit http://www.southernpeanutfarmers.org/spgc/2014/stanleyfletcher.pdf

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