June 2, 2002

Note: This is the third in a series of four weekly articles from Congressman Lucas on specific areas of the new farm bill, which was signed into law May 13.
May 19 - Wheat and the Commodity Title
May 26 - Conservation Title Gets Proper Funding
June 2 - Critical Changes to the Peanut Program
June 9 - Rural Development Title Invests in Countryside

Washington, D.C.-Federal agriculture policy has included a multi-year farm bill since the 1930s. These bills, which direct federal agriculture policy, usually are created to last from two to seven years, and then expire, knowing that future Congresses will write a new bill. For example, the farm bill we passed in Congress this year and President Bush signed in May is a six-year bill that will expire in 2007.

These bills are designed to last for a finite amount of time because members of Congress understand that unforseen circumstances or future events could change how agriculture policy can work best. Unpredictability is the name of the game in the farming trade. Therefore, it is expected that future Congresses will review the old policy under the new circumstances and change the programs to best meet new needs.

That's exactly what Congress did with the new peanut program, which underwent some of the most important changes in the new farm bill, because foreign imports would have rendered the old program useless to producers had the old program remained in place.

Peanut producers are now facing an influx of foreign peanuts because of NAFTA and GATT's tariff reductions. These imports would have brought about a collapse of the peanut industry unless the current program was changed.

I would have preferred to delay the implementation of the peanut program overhaul so that producers could continue to use the old program for an additional year, and more easily adjust to the changes resulting from international trade agreements. I urged my colleagues in Congress to delay the changes, but unfortunately they disagreed with me, and therefore the program will begin with this year's crop.

The 2002 farm bill includes $4 billion for the new peanut program. The bill ends the marketing quota program and makes the peanut program similar to other program crops.

Peanut producers will receive as many as four different types of payments under the new system. They will receive an Agricultural Market Transition Act payment, known as the AMTA payment, a loan deficiency payment, a counter-cyclical payment when prices are low, and a quota buyout payment. Also under the bill, USDA will pay for storage costs incurred in peanuts put under the loan program.

The AMTA payment for peanuts is based on the AMTA payments already established for other commodities. Peanut producers will now receive a fixed AMTA payment each year based on their base acres and program yields. Peanut producers will receive an AMTA payment at $36 per ton annually for the life of the six-year farm bill.

The loan deficiency payment, or LDP, is used when peanut prices fall below the loan rate. The loan rate for peanuts in the new farm bill is $355 per ton. So if the price of peanuts is $345, then producers will receive a $10 LDP payment per ton.

When peanut prices fall, producers will also receive a counter-cyclical payment. These payments will be triggered only when peanut prices are low, to ensure farmers receive a certain per-ton target price. When national peanut prices go below a certain price level, the counter-cyclical payment will make up the difference.

When figuring the counter-cyclical payment, three items are included in the formula - the cash price farmers receive for their peanuts, the AMTA payment, and the target price. The formula works like this: the counter-cyclical payment will only kick in when the cash price and the AMTA payment that farmers receive, added together, are below the peanut target price. But if the cash price in this formula is lower than the loan rate for peanuts, at $355 per ton, then the loan rate is substituted for the cash price in the formula. The target price for peanuts is $495 per ton.

In addition to these three payments, farmers participating in the quota program will be compensated for the change at 11 cents per pound per year, for five years. This equals a $220-per-ton payment every year until 2006.

The new farm bill protects quota owners and improves the safety net for other peanut producers. Let's use an example to show the payment amount producers will receive in the new bill compared to the old bill. Farmer Joe in Caddo County plants 50 acres of peanuts this year and produces one ton of peanuts per acre, for a total of 50 tons of peanuts. Assume all of Joe's acres are base acres under the farm bill. That means his land meets certain requirements to be enrolled in commodity programs.

Let's assume the price of peanuts is $360 per ton. Joe will receive $360 x 50 tons, for a total of $18,000.

Joe would also receive his direct AMTA payment. Since the AMTA payment is based on 85 percent of base acres for all commodities, then 42.5 of Joe's acreage is eligible for the AMTA payment. He would receive $36 per ton x 42.5 acres, or $1,530.

When we add the market price of $360 plus the $36 AMTA payment, the $396 total is still below the target price of $495. Joe will receive the difference of $99 per ton as his counter-cyclical payment. Counter-cyclical payments are also based on 85 percent of base acres. That equals the $99 difference per ton x one ton per acre x 42.5 base acres, or $4,207.50.

So how does Joe do under the new system compared to the old? Add together the $18,000 for his peanuts, the $1,530 AMTA payment, and his $4,207.50 counter-cyclical payment, totaling $23,737.50. Divided by 50 acres, that's about $475 per ton. But remember, he also receives $220 per ton to buy out his quota program, which totals $695 per ton. Under the old program, Joe would have received $610 per ton.

For more information on the 2002 farm bill, go to my website at www.house.gov/lucas and click on the link "2002 Farm Bill." Next week, I'll address the areas of the farm bill which will enhance rural development, a subject of special importance to us in rural western Oklahoma.