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Peanuts are a unique commodity and should probably be treated as such in new farm legislation. At a recent gathering in Panama City, Fla., growers were told of some of these possible options.
As time draws ever closer for a new farm bill, peanut producers might want to consider improving a program that hasn’t exactly worked according to plan.
“We took a model from other commodities, slapped it on peanuts, and expected it to work,” says Tiffany Arthur, an economist with the Farm Service Agency’s Economic and Policy Analysis Staff. “Peanuts are a different commodity, and maybe we need a more unique program for peanuts.”
When the marketing loan concept was first introduced, says Arthur, the intent was to provide farmers with a portion of their expected revenue up front at harvest for the purpose of repaying creditors.
“Farmers then have nine months to market their crops and repay loans, allowing them to time their sales to capture higher revenues, rather than selling at harvest, when prices are usually lowest. But peanut option contracts circumvent this process,” she says.
Most farmers contract peanuts prior to planting or harvest, making the loan irrelevant to them, and shellers use the marketing loan in their stead, says Arthur.
“Base prices of option contracts are set equal to the loan repayment rate. Shellers pay less for peanuts when the loan repayment rate decreases (a marketing loan gain), with farmer price unaffected,” she says.
Peanut shellers, says Arthur, heavily influence planting decisions, determine whether or not marketing loans are redeemed, and are typically the eventual buyers of any forfeited peanuts.
They also hold all price information, she adds.
“The result is a program that often puts the interests of shellers at cross-purposes with those of USDA. In the past, this has bred mistrust rather than a search for common ground,” says the economist.
In speaking with peanut producers, Arthur says she has found that many factors influence their marketing decisions. One of those is financing, as many banks will not provide financing without evidence of a higher price than the $355 marketing loan.