Published on 05/20/96

Price of Peanuts? Depends on Who's Buying, Selling

People who love peanuts and peanut products shouldn't expect the new farm bill to lead to lower prices.

"I don't expect there to be any difference at all," said Don Shurley, an economist with the University of Georgia Extension Service. "I don't expect retail prices to drop."

In the long run, consumers may see more widely changing prices.

"We're likely to see the peanut quota set much closer to demand than in recent years," Shurley said. "In close crop years, with less buffer supplies, we could see wider price swings.

"Manufacturers have complained that this year's quota (1.1 million tons) is too low," he said. "But the farm bill has some provisions that can divert nonquota peanuts into the domestic market if supplies are short."

The low supplies that could lead to higher retail prices aren't out of the question. "If we have a short crop anywhere, the market could be very tight," Shurley said.

Meanwhile, as spring heats up, Georgia farmers are busy putting peanuts into the ground. But they can't expect to get as much out of their efforts as they once did.

Under the new farm bill, the U.S. Department of Agriculture has slashed the peanut quota (the amount farmers can grow) by 18 percent from last year. To make matters worse, the federal support price is 10 percent lower, too.

In the short term, Shurley said, farmers' depressing numbers may not be as bad as they seem.

"Unlike past years, the 1996 quota doesn't include seed," he said. "Under the new farm bill, the USDA bases the peanut quota on their estimate of what is needed to meet the edible market demand."

Peanut quotas go to the farms on which they've been grown over the years. Now, though, a temporary seed quota (about 140 pounds per planted acre) will go straight to the grower.

"Counting the seed quota, we're looking at a net quota reduction of 12 percent to 15 percent from last year," Shurley said.

The support-price cut may be a softer blow, too, he said. About 40 percent into their planting, Georgia growers have been able to get contracts for about $650 per ton. That's closer to last year's $678 support price than this year's $610.

"The price to growers may not be too different this year than in the past," Shurley said.

"The support price is supposed to be a floor. It protects growers from big price drops," he said. "In the recent past, they've been more like a ceiling."

Shurley expects the purchase value of peanut quota to remain at current or slightly higher levels. But that's largely because uncertainty over the peanut program had already driven prices to about half of earlier levels.

Quota lease rates will have to drop, too.

"For a grower to make the same net return as last year, his lease rate will have to drop 25 percent to 30 percent," he said. "They may not drop that much right away. That will vary with local competition, past lease rates, etc. But if rates don't come down right away, chances are they will eventually."

Peanut farmers will face a cost-price squeeze toward the end of the seven-year farm bill, which ends in 2002, Shurley said.

"The price support is frozen at $610 for the entire life of the farm bill," he said. "Their costs are going to go up during that time. With the support price frozen, that will put further pressure on the lease market."

The value of peanut quota gets bid into the value of farm land, he said. If quota values drop, so do land values. That will affect local tax bases. And that will hit people who don't grow or even eat peanuts.

"Peanuts undergird local economies," Shurley said.

Dan Rahn is a news editor with the University of Georgia College of Agricultural and Environmental Sciences.