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Peanut price mechanism still elusive

In an exclusive interview with Southeast Farm Press, U.S. Department of Agriculture deputy undersecretary for Farm and Foreign Agricultural Services Floyd Gaibler says, “We would like to see a reliable price series evolve to the point down the road where a future's exchange would be interested in trading peanuts.”

The gap in the price discovery information for peanuts has industry observers wondering how the weekly loan repayment rate for peanuts is set.

USDA is making progress on announcing a weekly loan repayment rate for peanuts that reflects the marketplace, but the price discovery mechanism remains “elusive,” Gaibler says. “Our biggest challenge and our top priority is trying to improve the whole price discovery mechanism so we're in a position to announce repayment rates that reflect market prices,” Gaibler says.

The 2002 farm bill changed the way peanuts are marketed, from a quota supply-control system with a price support set by USDA, to a market-oriented system with loan repayment rates and counter-cyclical payments, similar to programs for other commodities. The law changed the way the peanut program operated for more than 50 years. This change has been challenging for both the USDA and the peanut industry.

By and large peanuts were planted when President Bush signed a new farm bill into law in May of 2002, so the USDA and farmers alike hit the ground running, learning how to comply with the provisions of the new legislation.

“We had to implement the new program almost immediately,” Gaibler says. “We were able to get the peanut quota buyout provisions in place and implement the marketing loan program and the counter-cyclical payment provisions. We got the job done on time and with a minimum of disruption.

“The USDA is still making improvements to the program,” Gaibler says.

Last fall, Gaibler headed an interagency task forced charged by J.B. Penn, undersecretary, with finding a consistent price discovery mechanism and transparency in the pricing of peanuts each week.

USDA announces peanut loan repayment rates on Tuesday and become effective on Wednesday for runners, Virginias, Valencias and Spanish-type peanuts. Noting gaps in price information, USDA decided that the monthly National Agricultural Statistics Service (NASS) peanut price report “looked like the best place to start to try to get peanut prices by types and regions, so we could get a better handle on the loan repayment rates for each of those types of peanuts,” Gaibler says.

In setting up the current system, USDA met with industry representatives and foreign buyers to discuss how other commodity market prices were reported. Since peanuts lack price transparency, USDA uses available peanut prices, including the Rotterdam price and the shelled farmer-stock prices. In setting the repayment rate, USDA checked peanut prices from a variety of domestic and international sources. The loan repayment rate for peanuts takes into account the Commodity Credit Corporation's responsibility to minimize loan forfeitures, government accumulation of peanut stocks, and storage costs, and allow peanuts produced in the U.S. to be marketed freely and competitively, both domestically and internationally.

Recently, the USDA worked with the American Peanut Council to convene a meeting with brokers, growers, shellers, and manufacturers to discuss challenges relating to the price discovery and transparency and solicit their cooperation on developing solutions.

“We offered the idea of trying to get pricing information through the existing NASS price series, but seeking it more frequently and more specifically by type and region,” Gaibler says.

The industry seemed to think that while the NASS series is useful, the focus should be on shelled peanuts, and include international prices. “We still think that NASS is one of the right approaches,” Gaibler says. “We are going to continue to have dialogue with industry leaders.”

The deputy undersecretary says the USDA is also looking at using an independent third party to take a look at the industry and come back with recommendations on how to improve peanut price discovery.

“We're continuing to meet with the industry,” Gaibler says. “At some point, we may bring the larger group back together and discuss options for fine tuning the program.”

At a scheduled oversight committee hearing this month, Gaibler expects price discovery will be a hot topic, among other issues facing the peanut industry. Peanut industry representatives will be at that meeting, and have been working with USDA “trying to get the best information to reflect what's happening in the marketplace.”

Despite the gaps in price discovery, Gaibler says the process of moving peanuts from a quota supply-control system to market-oriented system has been successful. More work needs to be done to perfect the system.


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