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![Page 1: Adapting to a New Peanut Program and a New Risk Environment 2005 National Risk Management Education Conference Nathan Smith, University of Georgia, Jim.](https://reader036.fdocuments.in/reader036/viewer/2022070415/56649c805503460f94936c56/html5/thumbnails/1.jpg)
Adapting to a New Peanut Adapting to a New Peanut Program and a New Risk Program and a New Risk
EnvironmentEnvironment
2005 National Risk Management Education Conference
Nathan Smith, University of Georgia, Jim Pease and Mike Roberts, Virginia Tech,
Gary Bullen, North Carolina State University, Kim Anderson, Oklahoma State University,
Tim Hewitt, University of Florida, Stanley M. Fletcher, University of Georgia
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Peanut are Grown Primarily in 9 Southern States
Alabama, Florida, Georgia, New Mexico, North Carolina, Oklahoma, South Carolina, Texas &
Virginia
Source: Dr. John Baldwin, UGA Extension Peanut Specialist
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Who Buys and Process Peanuts?
• Peanut Shellers• Blanchers• Oil Mills• Peanut Butter Manufacturers• Candy Manufacturers• Snack Companies
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First Buyer Level of Peanut Marketing
• Two shellers purchase an estimated 80% of the US peanut production.
• Buying Points handle and store peanuts for shellers. Several also provide farm inputs and supplies. Some are independently owned but typically buy exclusively for one buyer.
• Majority of peanuts are shelled after which some will be blanched and roasted depending on end use.
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Production History
• Peanuts have been historically grown under a quota program.
• Quota was limited to domestic use only.• Additionals used for export and crush.• Quota began as acreage allotment then
changed to poundage allotments in late 70s.
• Based on historical production, no movement across states, limited movement across county lines.
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Policy Changes Lead to a New Risk Environment for
Peanuts• Elimination of “Section 22” blocking
imported peanuts under WTO.• Declining schedule of Tariff Rate
Quotas for imported peanuts.• Political economy changes in
Congress • The 2002 Farm Bill eliminates the
peanut quota allotment program that had been in place since 1930s.
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2002 Peanut Program Basics
• Quota Poundage Allotments Eliminated
• Provided 55 cents/lb Quota Buyout to Quota Owners
• Established a Marketing Assistance Loan Program for Peanuts
• Peanut Base (yield and acres) Established– Direct Payment– Counter Cyclical Payment
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Program Transition
• Moving from a supply control program that restricted production through quota poundage allotments and a two-tiered pricing system to a more market-oriented program.
• Support price lowered from $610 to $355 per ton. Non-quota (additionals) support price was $132 to $175 per ton.
• DCP payments for peanuts:– Minimum of $36/ton on 85% of base– Maximum of $140/ton on 85% of base– Subject to payment limitations
• Buyout of quota owners designed to aid transition
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Peanut Quota Buyout by State
StateQuota Buyout
($million)State Quota Buyout
($million)
Georgia $440.3New Mexico
$5.4
Alabama $136.2 Mississippi $4.7
Texas $129.7 Arkansas $1.8
North Carolina
$98.0 Arizona $0.8
Virginia $61.5 California $0.6
Oklahoma $56.8 Missouri $0.2
Florida $40.4 Louisiana $0.1
South Carolina
$6.6Environmental Working Group (www.ewg.org, accessed 10/21/03), with data from USDA/FSA
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2003 Peanut Program Base Acres & Average Program Yields by
State3192
290127803126313431553046
2597
0
100,000
200,000
300,000
400,000
500,000
600,000
Acr
es
0
500
1000
1500
2000
2500
3000
3500
Lbs
/acr
e
Base Acres
Program Yield
Source: USDA/FSA Price Support Division
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Minimum and Maximum 2003 DCP Payments by State
$0$10$20$30$40$50$60$70$80$90
$100
Mill
ions
Min 2003 DCP Max 2003 DCP
Calculated from Base Acres and Program Yields
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A Lot of Uncertainty
• How will the marketing loan program work?• What are the marketing alternatives for peanut
producers?• Increased supply risk for peanut buyers
(shellers).• Peanut buying points (first handler of peanuts
and marketing representative of shellers) uncertain of role in new program, who will pay for handling and storage of peanuts?
• No public exchange or terminal market prices.• How will manufacturers respond to lower price
for shelled peanuts?• Where will peanuts be grown?
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Risk Management Education Opportunity
• Producers, Bankers, Shellers, Buying Point Managers, USDA/FSA, Production Specialists and County Educators.
• Lot of focus on program provisions, mechanics and base update/establishment decision.
• Producers used to delivering peanuts and picking up check, need help in evaluating marketing alternatives and developing price risk management strategies.
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Southern Region Peanut Risk Management Team
• Team formed to address marketing risk issues for peanuts.
• Group supported by Southern Region Risk Management Education Center
• Organizers were:– Kim Anderson, Oklahoma State
University– Gary Bullen, NC State University– Jim Pease, Virginia Tech University– Nathan Smith, University of Georgia
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Objectives
• Develop educational materials for marketing peanuts under the new peanut program.
• Conduct train-the-trainer workshops.
• Deliver education programs through local producer meetings.
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Activities
• Two Regional Train-the-Trainer Workshops– Roanoke Rapids, NC - December 16, 2003– Tifton, Georgia – January 27, 2004
• Peanut Marketing workshops for producers and county agents in Florida, Georgia, North Carolina, Oklahoma and Virginia
• CD with presentations and factsheets• Revised factsheets are in development
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Train-the Trainer Workshops
• Original plan to have a regional workshop in each of the three main production regions: – Southeast, – Southwest, – Virginia-Carolina.
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Peanut Marketing Train-the-Trainer Workshop
Topics• Peanut Program Overview and USDA
Implementation• National Posted Price for Peanuts• Domestic and International Structure• Peanut Contracting• Market Outlook• Financial Keys to Success• Lender’s Considerations• Issues Facing the Peanut Industry
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Marketing Virginia Peanuts: New Peanut Program and New Industry Dynamics
Regional Peanut Marketing Workshop
Location: Ralph’s Barbeque, 1400 Julian R. Allsbrook Hwy, Roanoke Rapids, NC Date: December 16, 2003
Workshop Program 9:00 - 9:15 Introduction Welcome, agenda, workshop objectives, handout materials. 9:15 - 9:45 Basic Mechanics and Implementation of the Peanut Program Jim Pease, Virginia Tech
9:45 -10:15 USDA Structure and Functions of the Peanut Program Tonye Gross, USDA/FSA
10:15-10:30 Break 10:30-11:00 USDA Resolved and Pending Issues in the Peanut Program Dan Stevens, USDA/FSA
11:00-11:40 New Structure and Dynamics of the US Peanut Industry Nathan Smith, University of Georgia
11:40-12:10 Market Outlook for 2004 Dell Cotton, PGCMA
12:10-1:10 Lunch 1:10-1:40 Peanut Lending after the 2002 Farm Bill Michael Lacks, Colonial Farm Credit 1:40-2:20 Peanut Contracting Mike Roberts, Virginia Cooperative Extension 2:20-3:00 Keys to Financial Success in Producing Peanuts Gary Bullen, North Carolina State University 3:00-3:15 Peanut Revenue Estimator Nathan Smith, University of Georgia
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Southeast Regional Peanut Workshop “Marketing Peanuts: New Peanut Program and New Peanut Industry Dynamics”
Date: J anuary 27, 2004
Workshop Program
10:00 - 10:15 Welcome and Introductions
10:15 - 10:45 Basic Mechanics and Implementation of the Peanut Program Jim Pease, Virginia Tech University
10:45 -11:05 Peanut Program Update
Ray Pate, USDA/FSA, Tifton
11:05-11:15 Break
11:15-11:45 National Posted Price – What is it and How is it Used?
Kenny Robinson, USDA/FSA, Washington, DC
11:45-12:15 Domestic and International Structure of the Peanut Industry Nathan Smith, University of Georgia
12:15-1:00 Lunch (provided)
1:00-1:40 Peanut Contracting
Mike Roberts, Virginia Cooperative Extension
1:40-2:10 Keys to Financial Success in Producing Peanuts Gary Bullen, North Carolina State University
2:10-2:20 Break
2:20-2:40 Market Outlook for 2004
Tim Hewitt, University of Florida
2:40-3:20 Peanut Megatrends: A Potpourri of Issues Stanley M. Fletcher, National Center for Peanut Competitiveness, University of Georgia
3:20-3:30 Questions & Adjourn
Sponsors and Partial Funding by:
The Southern Region Risk Management Education Center UGA Cooperative Extension Service
National Center f or Peanut Competitiveness Georgia Peanut Commission
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Regional Workshops
• North Carolina60 Workshop participants: lenders, county agents, buyers, County FSA personnel
• Georgia 50 participants: shellers, buying point managers, lenders, agents
• Participants received CD with copy of presentations and factsheets.
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Oklahoma
• Schedule conflicts and logistics precluded a regional meeting.
• Kim Anderson partnered with Shelling Firms and Southwest Peanut Cooperative Marketing Association to do a series of meetings.
• Developed Marketing Oklahoma Peanuts factsheet, Excel pricing model, and powerpoint presentations to help producers identify and manage price risk.
• 12 workshops in Oklahoma where material and information developed by the Southern Region Peanut Risk Management group was shared with about 360 producers, buyers, agricultural industry professionals and educators.
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Excel Peanut Pricing Model
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North Carolina & Virginia
• Gary Bullen and Blake Brown conducted 8 peanut meetings with North Carolina producers with a total participation of about 500.
• Multi-state meeting was organized by Mike Roberts in Virginia, January 2004. Risk management information presented regarding peanut processing, peanut production, peanut cost analysis, marketing alternatives with and without contracting. 277 producers (169 Va, 108 NC), 5 shellers/processors, 27 lenders.
• Participants received CD containing 2004 budgets and seminar proceedings.
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• 38 county level producer meetings in GA during 2003 and 2004 covering peanut marketing, 1,483 participants.
• Agent training in both GA and FL.• Southern Peanut Growers Conference,
Panama City, FL – Peanut Marketing Options by Nathan Smith, Tim Hewitt and Marshall Lamb, about 125 participants, mostly producers.
• Series of articles during 2003 on peanut marketing in the Southeastern Peanut Farmer Magazine.
Georgia & Florida
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Other Training
• Southern Extension Committee Meeting in 2003. Kim Anderson made a presentation on marketing peanuts to joint committees on Farm Management, Marketing and Public Affairs.
• Nathan Smith presented marketing alternatives to 150 producers at 2003 Ag Expo in South Carolina.
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Key Marketing Issues
• Quota was often contracted by shellers to insure their market share.
• “Loan” peanuts prior to 2002 were thru CCC approved regional grower Cooperative Marketing Associations. Marketed on behalf of the grower through pool.
• Marketing Assistance Loans are made on individual basis and must be stored in CCC approved warehouse (federal license).
• Marketing pools allowed through Cooperative Marketing Associations, but not the sole loan servicing agent for CCC as before.
• Concentrated buyers market with little price information.
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Sources of Peanut Income Under New Peanut Program
• Market– Cash Sales– Contract Sales
• Government– Marketing Loans– Direct Payments– Counter-Cyclical Payments– Buyout
Tied To Production
Not Tied To Production
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What are the Marketing Alternatives for Peanuts?
• Sell peanuts to commercial buyers (shellers) through buying points.
• Place peanuts in the CCC marketing assistance loan and forfeit the loan.
• Place the peanuts in a marketing pool.• Farmer-owned shelling and marketing.
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Marketing “Tools”
• Forward Contract• Sell at Harvest for Cash• Marketing Pool (CMAs such as GFA)• Store in Approved Warehouse and
Use Marketing Loan• Store On Your Own – Risky!• Pros and Cons covered in workshops
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Marketing Loan Peanuts
• Heavily used by shellers in an indirect way through “option” contracts.
• Two big benefits to sheller:– Financing inventory through the marketing
loan program, major savings for shellers – Ditto for handling peanuts at the buying
point, sheller was paying before 2002• Shellers have more control once peanuts
in their warehouses and/or under contract.
• Nine month loan is potential challenge for cleaning out warehouses in time for harvest.
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Response to New Risk Environment
• Heavy use of market contracts.• Price is tied to loan repayment rate.• Right of first refusal on surplus production.• Contracted peanuts go into market loan
which pays handling and storage fee. • Has “Act of God” clause for short deliveries.• Shift in where peanuts are grown.• New grower-owned ventures in peanut
processing and marketing.
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Barriers to Entry
• New peanut program provided window of opportunity for entry of new shellers,
• Two groups of farmers have invested in their own shelling plant in Georgia,– Donalsonville, Georgia– Tifton, Georgia
• CMA and DMAs designed to allow farmers to market peanuts in a pool– GFA, Concordia, SWPGA, VCPGA
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Tifton Quality Peanut Building anInnovative Farmer Stock Storage System
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Price Variability
• To date price volatility has not been a problem,
• It is fortunate that the economic fundamentals of peanut market have been in balance during the implementation of new program,
• Price Contract is the main marketing tool with farmers to date.
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Risk Management and Efficiency Gains
• Electronic warehouse receipts• Semi trailer hauling and drying • Electronic grading• Green weight grading• Cleaning and drying systems• Storage technology to reduce shrink
and damage • System is currently inefficient for
segregation by variety and grade
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Control Beyond the Farm Gate
• THE DAY IS COMING OF IDENTITY PRESERVED.
• 14 varieties grown in Georgia in 2004,• Integration will happen, will farmer be
integrated or will they integrate up?• Aflatoxin, genetic traits such as hi-
oleic, size, color, taste…• Mandatory chemical testing
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Challenges• Export market
– Same peanut competes for domestic and export markets– $355 historically higher than world market– Stricter specifications in EU market, i.e. Aflatoxin level– Argentina can deliver similar quality, except for taste
• Nine month marketing loan for a semi-perishable crop• Price Discovery
– Shellers wanted the government to set the price– Government wants market to set the price
• Price Transparency– Does National Posted Price reflect the market price– Does the Average Season Price reflect what the farmer
receives?• Handling and Storage Fees• Integration and Control
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Challenges in Delivery of Risk Management
Education• Smaller commodity relative to
acreage and states producing peanuts – fewer resources dedicated to peanuts.
• Distance and logistics of collaborating with other states.
• Extension specialists have major responsibilities in other areas: commodities, subject area, teaching
• Evaluation of impact.
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Thank You
http://www.ces.uga.edu/Agriculture/agecon/agecon.html