Peanut farmers well into their second year of a loan program absent the highly structured quota support system they sold through for decades find themselves still fine-tuning a marketing method that's more than a little difficult to understand.
“Any time we replace a system that's been working for decades, a lot of fine-tuning will be necessary,” says Dan Hunter, Executive Director of the Southwestern Peanut Growers Association in Gorman, Texas.
Peanut growers moved from a “structured marketing system to an open market,” Hunter says. Such a major change comes with a steep learning curve.
“The biggest challenge for growers (as well as those trying to help market their crops) is determining the national posted price.”
Hunter says the formula the government uses to arrive at a daily national posted price has not been made public. “We're not certain if they use prices for runner type peanuts and prices for Virginia types and then blend them,” he says. That system may work well for growers of one type but not for the other, as prices vary according to demand.
Hunter says lack of a public market for peanuts also poses problems with a loan-type system. “A loan program has worked for years with cotton, corn, and other commodities,” he says. “But those crops have established public markets where a producer can check a price daily and establish a futures price or move his crop into the cash market.
“A world price for cotton, for instance, is easy to determine because of the public trade available.”
“Peanuts have no public market, so growers can't look at the board to hedge their production. Also, we're dealing with a perishable product. We have to move each crop in a limited time.”
He says at some point, interest in peanuts may peak enough to create a market. “We've talked about the possibilities,” he says. “I even visited with the Commodity Futures Traders Commission. But economics 101 indicates a market needs a willing seller and a wiling buyer to work. Growers would like to see an open market, but manufacturers are less willing. And until they come together, there is no way for a trading board to make any money. Eventually, need for producers to identify a cash market may encourage development of a public trading system.”
Hunter says farmers are learning how to market peanuts under “the confines of a loan program.”
He says warehouse receipts also pose a challenge as peanut farmers learn to sell under this new system. “Most warehouse receipts are still paper,” he says. “We've run a trial with electronic receipts but are not yet fully equipped to engage the whole program. As we turn more to electronics, however, marketing will improve.”
He says quite a few growers took advantage of the marketing pool offered by the Southwestern Peanut Growers Association.
“We had a good year through the pool,” he says. “We averaged above the market price last year.”
He says the national posted price also dictates how well a pool will do. Growers who “pool” their peanuts actually do better when the national posted price is low. “The jury is still out on where the market for 2003 will settle,” Hunter says. “The national posted price was up after harvest. If it drops to a level where we can get more peanuts into the market, we'll make more for pool participants.”
Hunter says the changes in the peanut support and management system created new challenges for the association.
“We still operate as the Southwest Peanut Growers Association but we also have undertaken a second role, as a designated marketing association (DMA). We service loans for growers not in the pool,” he says.