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Peanut co-ops finding market niche

Peanut cooperatives are working their way into the market. The 2002 farm bill shook up the peanut world, eliminating quota, setting a national price for peanuts and leaving the marketing of the crop to farmers. It also established an alternative way for growers to market their crop. That method is the cooperative marketing association.

The three area pools that operated as an agent of the Commodity Credit Corporation under the previous peanut program in the Southeast, Southwest and Virginia-Carolina regions are working their way into the market, giving growers an alternative.

Storage is a key factor that will determine the success of these cooperative marketing associations, says a University of Georgia ag economist.

The term cooperative marketing association isn't a new one. It is new to the peanut industry. In the group, farmers hold 50 percent of the ownership and control. Once approved by the USDA, the group acts as a marketing agent on behalf of the farmers, says Nathan Smith, University of Georgia Extension ag economist.

“It comes down to having a marketing alternative,” Smith says. “There's been a lot of interest in cooperative marketing associations and the benefits they might offer farmers.

“The main benefit is that you're able to pool your peanuts and try to improve your price in terms of selling as a group rather than an individual,” Smith says. “A cooperative can meet the specific requirements of manufacturers and shellers related to quality.”

In the traditional sense of the word, the cooperative “stabilizes the price you receive,” Smith says. “You wouldn't expect to get the lowest price or the highest. Everybody receives the same price generally.”

The cooperative marketing association has the options of contracting with a sheller or placing the peanuts in the loan.

“It's difficult to use the marketing loan program if you don't have control of your own storage,” Smith says. “If you're trying to put peanuts in the loan and store them in a warehouse owned by someone else, you might have a problem in controlling the quality of those peanuts.

“A key factor for the success of a cooperative marketing association is having storage,” Smith says.

The cooperative marketing association is an evolving option in the peanut industry, Smith says. Under the cooperative marketing association, the group acts as a marketing agent for farmers through the local county Farm Service Agency office. Operating as a designated marketing association would allow a group to serve as the originator of the loan rather than having to go through the FSA.

The Peanut Growers Cooperative Marketing Association is now in a dual role of a cooperative marketing association and designated marketing association, says Dell Cotton, manager of the association.

Under the new farm bill, organizations such as PGCMA “had to find a niche where we could serve the farmer. Hopefully, we're providing a valuable service to the producer on the cooperative marketing association side.”

On the designated marketing association side, “we chose to help the producer consolidate the process, save him trips to the FSA office and help avoid fees,” Cotton says.

Shellers have to choose to use the designated marketing association for their producers.

PGCMA has storage at two warehouses in southeast Virginia where it is storing “identified preserved” peanuts. This year PGMA is serving as a designated marketing association for Birdsong Peanuts and John B. Sanfilippo & Son Inc.

“We're not involved with shelling this year.” On the cooperative marketing association side, PGCMA will sell the peanuts on behalf of the farmers to any sheller who may be interested.

For 2003, many growers in Virginia did not contract their planted acreage.

At harvest, “some people are taking the spot price offered by shellers, some are putting peanuts in the loan, some are acting as their own agent and some are storing the peanuts on-farm, which is common in Virginia,” Cotton says.

“It's hard to tell what options growers have chosen and difficult to say at this point how many tons of peanuts we will handle this season,” Cotton says. The overall crop in Virginia this season is disappointing due to too much rain in the spring, cool nighttime temperatures in the fall and diseases.

The USDA approved the GFA Peanut Association as a cooperative marketing association after harvest began last year. Despite the late start and a poor crop last year, GFA made a little more than $41 a ton profit above the repayment rate of $355 per ton, says Jimmy Godwin, the group's manager. “We feel like we ought to be able to do that or a little better on a good crop.”

This season, GFA hit the ground running with 16 buying points and leased warehouses in which to store the peanuts.

The group expects to market 66,000 tons of peanuts this harvest; that number could go as high as 80,000 tons because of the “real big crop” in Georgia.

Under the provisions of the new farm bill, a grower can appoint a cooperative marketing association as his marketing agent. The producer is issued a warehouse receipt from the cooperative marketing association, which obtains the loan through the county Farm Service Agency office. The producer gets the check for his peanuts a few days later.

To handle the information in a fast, effective manner, GFA developed a computer system to handle information off the 1007, the form used to list the grower and the amount of peanuts received at the buying point, and issue a warehouse receipt and the check to the producer.

Godwin says GFA has contracts with two shellers: Easom in Donalsonville, Ga., and Brooks in Samson, Ala. Brooks is the larger of the two shellers and is building a new plant that “should be comparable to anybody in the business.

“We'll be able to ship to the big manufacturers. Once we get established for providing quality, then we'll have a history.”

Godwin says a lot is riding on “how well we do this first full year.”

Birdsong and Golden Peanut Company have a combined 72-percent market share of the shelling business in the Southeast. Godwin realizes it has tinges of the David and Goliath story.

“Our biggest challenge is working our way into the market and getting the manufacturers to agree to buy peanuts from us,” Godwin says. “The farmer is willing to have another option. As long as we can perform equally with other shellers, the farmer will want to maintain that option.”

With an overloaded market due to the big crop in the Southeast this year, most contracts have been running at $25 or better above the repayment rate of $355, Godwin says.

“We've got to do $25 or better and we'd like to be at $400 a ton, without the counter-cyclical payments,” Godwin says.


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