July 15, 2003
Peanut farmers will have an additional opportunity to market their crop through a cooperative marketing association in the Virginia-Carolina region this season. The cooperative is also reminding growers of the tax implications of marketing peanuts.
In essence, the cooperative is asking farmers to let them market any additional peanuts over the contract.
The Peanut Growers Cooperative Marketing Association, which acted as a Commodity Credit Corporation agent selling peanuts under the loan in the previous peanut program, was approved last year to act as a cooperative marketing association. But program regulations came out too late last year for the group to offer a marketing option to growers.
“We’re trying to make all producers aware that we can provide a marketing avenue for those who signed contracts and those who didn’t sign contracts,” says Dell Cotton, manager of the association.
Among the advantages of the cooperative marketing association: The ability to pool peanuts and sell them in blocks rather than in small quantities, Cotton says.
In that aspect, the cooperative marketing association works similar to the way the Peanut Growers Cooperative Marketing Association did under the old peanut program.
Cotton sent letters to Extension agents and buying points in May “to just make sure the word gets out that we’re open for business. Buying stations and Extension agents are very important to us.
“Buying stations realize that producers have to have ways to maximize the return on every ton they produce,” Cotton says.
At the annual Champions Night Out honoring top peanut yielders, Cotton asked growers to consider letting the cooperative marketing association market peanuts produced over the contracted tonnage. “If you make a few extra tons, they can be turned over to us, as in the past.
“It’s okay to sign a contract,” Cotton says, “but please keep in mind that one ton you grow over the contract is very important to you as well.”
Cotton says the group hopes to give producers an alternative method to sell their peanuts.
Cotton says production over the stated contract under the new program will in effect be similar to the term “additionals” under the old program.
Under the old program, which was replaced with a marketing loan concept in 2002, the Peanut Growers Cooperative Marketing Association acted as the sole marketing agent for the CCC in the Virginia-Carolina area, selling “additionals.”
“We can market any excess peanuts growers produce over the contract,” Cotton says. “I consider these like the additional peanuts under the old program.”
With a cooperative marketing association, producers are able to benefit from the marketing loan while the organization markets their peanuts throughout the season. Any net gains, including marketing gains, could then be paid back to members. The cooperative marketing association obtains the loan on behalf of the members.
The producer does not actually sell the peanuts to the cooperative marketing association; the co-op acts as an agent for the grower. If the original sheller contract has the right of first refusal, the cooperative marketing association is required to offer the peanuts first to the contracted sheller before accepting other offers.
The producer must sign a marketing agreement with the cooperative marketing association. Upon delivery to the warehouse, a producer will receive a separate warehouse receipt for un-contracted and contracted peanuts. The un-contracted receipt can then be delivered to the cooperative marketing association.
The cooperative marketing association will pay off the marketing loan and sell the farm stock peanuts. Marketing gains become part of a pool and are shared equally with growers on a per ton basis determined by grade and tonnage.
As the new program has required growers to take an active interest in marketing the peanut crop, it will also be necessary to pay close attention to the marketing gains and how it is reported for tax purposes.
“Tax implications of the new peanut program are very important and very complicated to understand,” Cotton says. If a growers signs a contract, the sheller gets the benefit of the marketing gain, as determined by the repayment rate. But as long as the producer declares income for the crop, the grower must declare the marketing gain.
The complexity of marketing peanuts lies in the loan price and the repayment rate. For example, assume a producer contracts for $353.66 per ton, plus an option price of $146.34 which lets the sheller repay the loan at a rate determined at a later date.
For discussion purposes, the loan was repaid at $303.66, even though the producer got the loan for $353.66. The $303.66 should be reported as income for tax purposes, Cotton says. Total taxable income would be the $303.66 sales price, plus the $50 marketing gain, plus the $146.34 option, which totals $500 per ton.
“Even though the grower gave the sheller the right to pay off the loan at the county office, the loan is still in the producer’s name and any marketing gains are the responsibility of the producer,” Cotton says.
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