Farm Bill, Economics & Farm Bill, Economics & Outlook for 2002Outlook for 2002

County Agent Peanut TrainingCounty Agent Peanut TrainingNathan Smith Nathan Smith

UGA Extension EconomistUGA Extension Economist

Peanut Situation

Bumper crop in Southeast Over supply situation Domestic use down 3.3% from last year Exports down in 1st quarter Quota kept at 2001 level Argentina currency devaluation impact? Farm Bill in 2002 or 2003?

US Peanut Production, Quota, and Food Use

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2.5

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Basic Quota Effective Quota * Production Food Use

Effective Quota is Basic Quota plus Undermarketings 1990-95, and Basic Quota plus Buybacks 1996-00.

Planted Acres by Region

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500

1000

1500

2000

US Southeast Southwest VC Georgia

US

SE

GA

SW

VC

2001 Peanut CropGA SE SW VC US

Planted Acres (1,000)

515 817 528 198 1543

Harvested Acres (1,000)

512 805 398 198 1401

Yield (lb/acre) 3300 3143 2787 3038 3027

Production (1,000,000 lb)

(1000 tons)

2001 QUOTA

1690845486

25281264695

865555241

602300223

423921201180

U.S. Peanut Balance Sheet

million pounds (Dec 12, 2001)

27.425.4Average Price

1,3751,1161,233Ending Stocks

4,0763,5884,166TOTAL USE

351341493Seed & Res

725519727Exports

800548713Crush

2,2752,1702,233Food Use

5,4514,7035,400TOTAL SUPPLY

178204178Imports

4,1573,2663,829Production

1,1161,2331,392Beg. Stocks

2001/02 Proj.2000/01 Est.1999/00

Estimated 2001/02 Peanut Supply and Disappearance

FS Tons(1,000)

FS Tons(1,000)

Total Production 2,119 Quota Supply 1,303

Less Seg. 2 & 3’s 13.5 Less Food Use 1,138

(A) Total Seg. 1 Production

2,106 (C) Remaining Quota 165

US Qouta 1,180 Seg. 1 Add’l Supply (A-B)

803

Quota Delivery 1,170 Less Exports 363

Seed Delivery 110 Remaining Addtl’s 440

+ Buybacks 23.5

(B) Total Quota Supply

1,303 Seg. 1’s w/o home (C+D)

607

Marketing Assessment

GFA has approximately 243,000 tons of quota in loan

Another 145,000 tons of additionals are in the loan pool

243,000 tons * $400 loss = 97.2 mil. Loss SE has ~ 692,000 tons quota Marketing assessment could be as much

as $140/ton not counting additional losses or gains

What do I need from the Market?Irrigated Budgets

Crop Yield $/ac $/unit

Corn 185 bu $518 $2.80

Cotton 1000 lbs $628 $0.63

Peanuts 3500 lbs $734 21¢

Soybeans 50 bu $334 $6.69

Tobacco 2200 bu $2218 $1.01

* 2002 UGA CES Cost of Production Budgets

Note: Land and Quota costs not included

What do I need from the Market?Dryland Budgets

Crop** Yield $/ac $/unit

Corn 85 bu $277 $3.25

Cotton 650 lbs $460 71¢

Peanuts 2500 lbs $588 23.5¢

Soybeans 30 bu $232 $7.72

Wheat 55 bu $192 $3.50

* 2002 UGA CES Cost of Production Budgets

Note: Land and Quota costs not included

UGA CES Peanut Budgets, South Georgia 2002

Irrigated Dryland YIELD 3500 lb 2500 lb

Per Acre

Per Ton

Per Acre

Per Ton

VARIABLE COSTS $468 $267 $414 $331FIXED COSTS $243 $139 $153 $122MANAGEMENT $23 $13 $21 $17TOTAL COSTS $734 $419 $588 $470Breakeven Price $419 $470Breakeven Yield 2407 lb 1928 lb

Method 1: Based On Producer Net Returns

Expected (Average) Yield Per Acre 3500 lbsExpected (Average) Selling Price For Quota Peanuts 610 dollars per ton

Variable Costs Per Acre 468.00Fixed Costs Per Acre (Excluding Land and Quota) 266.00Rental Value of Land 0.00Total Costs Excluding Quota 734.00

Net Return To Quota 333.50 dollars per acreNet Return Per Pound 9.5 cents per pound

Net Return to Quota per lb for 3500 lb Irrigated Yield

Land Rent Per Acre

Total Cost

$0 $35 $50 $75 $100

$850 6.2 5.2 4.8 4.1 3.4

$800 7.6 6.6 6.2 5.5 4.8

$734 9.5 8.5 8.1 7.4 6.7

$700 10.5 9.5 9.1 8.4 7.6

$650 11.9 10.9 10.5 9.8 9.1

Net Return to Quota per lb for 2500 lb Non-Irrigated Yield

Land Rent Per Acre

Total Cost

$0 $25 $35 $50 $75

$650 4.5 3.5 3.1 2.5 1.5

$600 6.5 5.5 5.1 4.5 3.5

$588 7.0 6.0 5.6 5.0 4.0

$525 9.5 8.5 8.1 7.5 6.5

$475 11.5 10.5 10.1 9.5 8.5

Trade Situation

US is preparing for WTO negotiations FTAA has been stalled since the Sep.

11 attack Argentina facing a currency

devaluation

Tariff RatesNAFTA WTOTariff Tariff

YEAR2000 93 131.82001 81.4 131.82002 69.8 131.8

2003* 58.12004* 46.52005* 34.92006* 23.32007* 11.62008* 0

*3 percentage points tariff reduction for WTO

# Tariff rates on a pound of shelled peanuts

Tidal Wave May Tidal Wave May Be Closer Than Be Closer Than

Thought!Thought!

Argentina

Main exporter of peanuts into USAllocated 78% of the in-quota TRQ

(Tariff Rate Quota)Amounted to 43.9 thousand metric

tons last yearMain competitor in the European

Market Arg 43% market share from 98-00’ US 26% market share from 98-00’

Argentina Exchange Rate

Austral pegged to US dollar in 1991 Austral replaced by Peso in 1992 at a

fixed rate of 1:1 to the US dollar Peso became overvalued by being

tied to the US dollar May 2001 figures show 80-90%

overvalued, reduces Argentina’s competitiveness in the world market

Recent Changes in Argentina’s Exchange Rate

New temporary official exchange rate of 1.4 Pesos/US $

Argentina price is estimated to still be above US price (57.5 cents/pound) with 131.8 tariff rate (using 34.8 cents/lb + 2 cents/lb shipping cost)

Soon will be allowed to float freely (this summer)

What if Exchange Rate continues to drop?

The current free market exchange rate is closer to 1:1.6

At 60% devaluation, Argentina peanuts produced using >80% domestic inputs would be below the US price

Would make the tariff rate quota meaningless as a protection measure

Farm Bill Chronology and TimetableFarm Bill Chronology and Timetable

• House Ag Committee presents HR 2646 -- July 27, 2001

• HR2646 passed the House -- October 5, 2001

• Senate Ag Committee passes S 1628 -- November 15, 2001

• “Harkin Bill” presented S 1731 to the Senate -- November 27, 2001

• Senate Adjourned December 21 without a vote • Senate reconvenes next week• Senate vote• House-Senate conference committee• President

• FSA must write regulations

Major Components Of The BillMajor Components Of The Bill-- Provisions That Impact Income ---- Provisions That Impact Income --

• Loan Rate• AMTA or Fixed, Decoupled Payments • Base• Target Price• Payment Acres• Payment Yield• Payment Limits

Marketing Loan

Non-recourse Marketing Loan for all peanuts produced.

LDP could be taken on peanuts instead of actually taking out a loan.

Payment limitation of Marketing Loan gains and LDPs is proposed at $150,000 (House)

Fixed, Decoupled Payments

New name for AMTA payments. Peanuts would received a Fixed,

Decoupled Payment of $36 per ton. “Historical Producer” is defined as having

peanuts sometime during the 1998-2001 time period on a farm.

Payment limitation: $50,000 (House) $100,000 combined with CCP (Senate)

Counter-Cyclical Payments

Establish a payment to producers with peanut base.

Not tied to production Payments would be triggered when the

average season price for peanuts falls below a target price.

Payment limitation: $75,000 (House) $100,000 combined with FDP (Senate)

Counter-Cyclical Payment Calculation

CCP = TP - ASP - FDP or TP - NLR - FDP, whichever is higher.

CCP = counter cyclical payment TP = target price, $480 ASP = average season price FDP = fixed, decoupled payment, $36 NLR = national loan rate, $350

Base Acres

1996 Farm BillHouse

2002-2011Senate

2002-2006

Quota Poundage Allotment

Producer has a 180-day option to assign base to his own or someone else’s land. Base acreage is the average planted acres during 1998-2001 period

Same

Impact: Will create major tension between some Georgia landowners/quotaholders and producers. Will give the producer leverage for 180 days.Creates the opportunity for long term leases to be negotiated. Total bases of All crops cannot exceed cropland on the farm.

Comparison of House and Senate To Current ProgramComparison of House and Senate To Current Program

Peanut Provision BasicsHouse

H.R.2646Senate S.1731

Quota Buyout

10¢/lb. per year for 5 yrs

10¢/lb. per year for 5 yrs

Loan Rate $350/ton $400/ton

Fixed Decoupled Payment

$36/ton $36/ton

Target Price $480/ton $520/ton

Base Years 1998-2001 1998-2001

1996 Bill1996 Bill HouseHouse SenateSenate

PricePrice 375375 375375

Quota PriceQuota Price 610610

Loan RateLoan Rate 132*132* 350350 400400

Target PriceTarget Price 480480 520520

LDPLDP 00 2525

Decoupled Decoupled PaymentPayment 3636 3636

Counter Cyclical Counter Cyclical PaymentPayment

69 x 85%69 x 85%

= 59= 59109 x 85%109 x 85%

= 93= 93

Total Total Price/PaymentsPrice/Payments

610 quota610 quota

132-375 132-375 addt’laddt’l

375 Price375 Price

95 Pmt95 Pmt400 Price400 Price

129 Pmt129 Pmt

Comparison Of Payments @ 375/ton PeanutsComparison Of Payments @ 375/ton Peanuts

*Additional peanuts

House Senate

Acres Planted 250 250

Base Acres 250 250

Actual Farm Yield 3000 3000

FSA Program Yield 2800 2800

Average Cash Price 375 375

Loan Rate 350 400

Decoupled Payment Rate 36 36

Counter Cyclical Payment 59 93

Crop Income $141,625 $141,625

Decoupled Payment $7,650 $7,650

Counter-Cyclical Payment $14,750 $23,250

LDP or Loan Gain $0 $6,250

TOTAL $163,025 $177,775

TOTAL PER AC PLANTED $652 $711

TOTAL PER TON 434 474

Whole Farm Comparison of House and Senate ProposalsWhole Farm Comparison of House and Senate Proposals

FieldAndResourceManagementCost AccountingTrackingSystem

A tool to help producersA tool to help producers• track and organize real time cost,track and organize real time cost,• track and organize production data, track and organize production data,

including pesticide and water usageincluding pesticide and water usage• determine total costs, determine total costs, • compare the performances of individual compare the performances of individual

fields and the whole farm operation with fields and the whole farm operation with break-even analysis, break-even analysis,

• aid in management decisions aid in management decisions • in a user-friendly formatin a user-friendly format

Overall, an effort to enhance the Overall, an effort to enhance the COMPETITIVENESS of US peanut COMPETITIVENESS of US peanut producers.producers.

We Need Your Help

Cost of Production Survey for Southeast Target Sample Size – 700 from GA,FL,AL

Representative Farms 7 in Georgia 2 Alabama 2 Florida 1 South Carolina

UGA UGA Peanut Peanut

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www.ugapeanuts.com