Peanut Price Methodology

Administered by the 

United States Department of Agriculture

Risk Management Agency

Published November 2014
Peanut Price Methodology Discussion

The pricing methodology for the peanut crop insurance program is based on a formulation of a series

of factors. These factors are determined from a system of equations relating series of historical peanut 

prices relative to several pricing data sources available from the commodity markets. The factors 

derived from this system of equations and subsequent conversions are used to relate the price of inshell peanuts to the prices of commodities traded on futures exchanges. The same factors utilized to 

translate the futures prices observed during the discovery period for the array of commodities into a

projected price for peanuts will also be used to determine the harvest price for peanuts in the same 

insurance period.

A system of equations relates peanut market variables with a number of other variables at monthly 

intervals. The peanut market variables are the average monthly prices of shelled, medium runner 

peanuts and the available quantity of total domestic stocks. These are variables that move 

contemporaneously and both reflect supply and demand activity in the peanut market. Peanut stocks 

are reported each month by the United States Department of Agriculture (USDA)

1

. The monthly price 

associated with shelled, medium runner peanuts are based on an average of prices provided by peanut 

brokers. Another source of shelled, medium runner peanut prices is the monthly Rotterdam prices for 

shelled U.S. runner peanuts2. The Rotterdam prices represent the amount paid for peanuts at a 

European trading point, and from 20033through 2013, the monthly prices have averaged $0.0803 per 

pound above those of the broker prices representing sales in the U.S. These shelled Rotterdam and 

broker peanut price series track rather well with one another with the differential reflecting shipping 

and transaction costs associated with selling the peanuts oversees.

The relationship between the shelled peanut prices and peanut stocks are evaluated with several other 

values in the system of equations. For peanut stocks, in addition to peanut prices, the relationships 

between the monthly averages of closing prices for other commodity contracts as well as short and midterm cycle variables were evaluated. For shelled peanut prices, in addition to peanut stocks, an indicator 

of lagged international peanut prices as well as the monthly averages of closing prices for December 

wheat, cotton, soybean oil, and soybean meal were included as formula associations. The relationships 

in the two equations provide relatively good explanations of the variations in shelled peanut prices and 

peanut stocks. For the purpose of evaluating shelled peanut prices in the determination of the projected 

and harvest pricesfor the peanut crop insurance program, the predicted monthly price of shelled runner 

 

1 As of the date of this publication, the most recent monthly national peanut stocks data (in 1,000 lbs.) are available from NASS 

at quickstats.nass.usda.gov and archived data are available as the USDA Economics, Statistics, and Market Information System 

NASS peanut stocks and processing at usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1118. At the 

end of each month, stocks data for the previous month are published. The most recent available stocks data are utilized in factor 

determination.

2 The Rotterdam peanut price survey is maintained by Oil World (www.oilworld.biz). As of the date of this publication, the 

monthly prices (CIF in dollars per metric ton) for U.S. medium (40/50 count per ounce) runners are available as the USDA 

Economics, Statistics, and Market Information System Foreign Agricultural Service summary report of Oilseeds: World Markets 

and Trade usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1490.

3 The transition out of the federal peanut quota program took place as a result of the 2002 Farm Bill. 2003 represents the first 

full year without a quota program. 
peanuts is given as:

P̂

sp = W0 × Pwh

Ewh × PctEct × PsoEso × PsmEsm (1)

where

P̂

sp is the predicted monthly price of shelled (medium runner) peanuts in dollars per pound;

W0 is the price weighting factor for shelled peanuts;

Ewh, Ect, Eso, and Esm are the exponent factors associated with the prices for the respective 

exchange commodities: wheat (wh), cotton (ct), soybean oil (so), and soybean meal (sm); and

Pwh, Pct, Pso, and Psm are the monthly averages of daily settlement prices for the respective 

harvest year’s commodities’ December futures contracts, rounded to the nearest whole cent, for 

the exchange commodities: wheat (wh), cotton (ct), soybean oil (so), and soybean meal (sm).

The price weighting factor, W0, includes the composite influence weight of variables in the system of 

equations other than the exchange commodities. These factors are derived using monthly data 

beginning after the end of the quota program and extending to the last available period prior to 

projected price discovery period4.

Farmer stock peanut prices reflect the prices received by growers for peanuts prior to shelling. Peanuts 

can be shelled soon after harvest or stored for months in the shell5. The USDA National Agricultural 

Statistical Service (NASS) maintains ongoing surveys of in-shell peanut prices by type and location6. Both 

weekly and monthly in-shell peanut prices are published. Given that the NASS survey represents the 

price paid for in-shell peanuts that are shelled within a given time period, such as a week, the peanut 

prices reported by NASS could be comprised of several transaction dates during which the price was 

actually determined (either a price paid the day they were shelled or from over a year prior via a 

contract). Since a significant inventory is often carried in a potentially year-round shelling operation, 

the time lag between price changes in the shelled and when those prices are reported by the NASS 

survey for in-shell peanut markets must be considered. The time lag can be reconciled by selecting a 

time lag interval in the monthly data that minimizes the relative variability between historical data 

characterizing the shelled price and NASS in-shell peanut price information. Although this interval can 

change from year to year, the optimum interval based on available data reflects a nine month lag 

 

4 The current sales closing dates for peanut insurance are January 31st, February 28th, and March 15th depending on the state in 

which the peanuts are planted; the corresponding price discovery periods last for approximately a month and begin December 

15

th, January 15th, and February 1st

.

5 Most harvested peanuts are shelled; only a small percentage is kept in-shell for various in-shell consumer products. The length 

of time peanuts can be stored in-shell depends on the type of storage. In-shell peanuts can be stored for longer periods if 

refrigeration is available.

6 As of the date of this publication, the peanut price survey data are available from NASS at quickstats.nass.usda.gov.
between shelled and in-shell peanut prices.

The USDA Farm Service Agency (FSA) marketing loan rate for peanuts has traditionally been utilized as 

a benchmark for quoting peanut prices in the contracts established between peanut producers and 

shellers. They are structured as the loan rate plus a contract premium. Growers can put their harvested 

production under the USDA loan program prior to shelling. The loan rate, minus some transaction and 

interest deductions depending on the amount of time peanuts are under loan, becomes the minimum

price expectation for growers. Since the price of shelled peanuts is notably higher than that of in-shell 

peanuts due to the expense of shelling and cleaning, a grower would expect that the in-shell price would 

be significantly lower than the shelled price on a per pound basis. Given the limited availability of 

information characterizing the expected contract premium for all production in a given year prior to the 

insurance program sales closing date, an alternative methodology was developed. That methodology is 

to assess the in-shell peanut price using the NASS survey price of in-shell peanuts, the USDA peanut 

marketing loan rate, and the shelled peanut price with the respective time lag interval. This is stated as:

PN,t = πtPsp,t−9 + (1 − πt

)PLR,t−9

(2)

where

PN,tis the NASS monthly survey price for in-shell peanuts in month t;

Psp,t−9is the shelled medium runner peanut price in month t – 9;

PLR,t−9is the loan rate for in-shell peanuts in month t – 9; and 

πtis the weight assigned to the shelled price in month t.

This formulation simply states that the in-shell price is influenced by both the marketing loan rate7 and 

the shelled price. If the time lag in the NASS reported in-shell peanut price corresponds with the prices 

observed in the shelled peanut market approximately nine months prior, then the formulation implies 

that the NASS price in the current month reflects the nine month prior shelled market peanut price8. 

Following this reasoning, the weight assigned to the shelled peanut price to arrive at the NASS price in 

month t would be:

πt = (PN,t − PLR,t−9)⁄(Psp,t−9 − PLR,t−9) (3)

 

7 At the time of this publication, the marketing loan rates for peanuts by type are available from the USDA Farm Service Agency 

at www.fsa.usda.gov/FSA/webapp?area=home&subject=prsu&topic=col-nl-pp. Archived values for the marketing loan rates are 

available at www.fsa.usda.gov/Internet/FSA_File/peanut.xls.

8 At the time of this publication, the overall marketing loan rate for peanuts is set at $0.1775 per pound. According to the USDA 

Farm Service Agency (cf. www.fsa.usda.gov/Internet/FSA_File/peanutmals_ldps.pdf), the Commodity Credit Corporation (CCC) 

“utilizes the national loan rate of $355 per ton and five year average quality factors, along with a three-year simple average of 

weighted production to determine the specific crop year loan rate for the type of peanuts (Runner, Spanish, Valencia, or 

Virginia).” Although the marketing loan rates for the different peanut types change from year to year, the changes are typically 

within zero to three hundredths of a cent per pound.
where, for the purpose of price determination for the peanut crop insurance program, this value will be 

constrained to be a percentage in the interval [0, 1]. An estimate of this weighting percentage in a given 

month, π̅t, is based on the data for the previous twelve months, or

π̅t =

1

12

∑ πt−i

12

i=1

 .

(4)

Based on the computations above, the Peanut Formula Price (PFP) for Runner peanuts can be 

determined for the peanut crop insurance program. The purpose of the Peanut Formula Price is to elicit 

a farmer stock equivalent price for peanuts based on the relationship between peanut prices and those 

of other commodities traded on public futures exchanges. Prior to the respective regional price 

discovery periods, the factors will be evaluated based on information available up until the point at 

which the factors are released and prior to the applicable discovery period (i.e. the most recent

information available on prices and peanut stocks). Utilizing the factor specification in Formula (1) and 

adapting the grower price determination weighting in Formula (2) to elicit contemporary in-shell prices,

the Peanut Formula Price in month t, PF,t, is calculated as

PF,t = π̅tP̂

sp + (1 − π̅t

)PLR,t

(5)

where PLR,tis the prevailing USDA peanut marketing loan rate. This series of equations can be simplified 

into the Peanut Formula Price equation of:

PF,t = C + W × Pwh

Ewh × PctEct × PsoEso × PsmEsm (6)

where C is an additive price constant and W is the in-shell peanut price weighting coefficient for the 

commodity price formulations. For runner peanuts, the six factors, C, W, Ewh, Ect, Eso, and Esm, are 

utilized during both the projected and harvest price discovery periods to determine the formula price 

for peanuts based on the corresponding discovery prices of the December Chicago Mercantile Exchange 

(CME) futures contracts for wheat, soybean oil, and soybean meal and the Intercontinental Exchange

(ICE) December futures contract for cotton.

The NASS in-shell peanut price survey information will also be utilized to estimate formula prices for the 

other insurable peanut types of Spanish, Valencia, and Virginia. The price ratios between these other 

peanut types and runner peanuts are calculated based on monthly averages of the weekly NASS survey 

prices for the respective types. Twelve-month averages are used to reflect a more typical price 

relationship within a crop year. Since the survey reporting for Valencia peanuts has been sparse,

particularly in recent years, the crop insurance price for Valencia peanuts is based on the prices for the 

Virginia type, which demonstrates the most similar valuation to the Valencia of the types for which 

adequate price information is available. The price ratios for 2007 through 2013 are presented in Table 

1. 

The price ratios are determined prior to each projected price discovery period and will take into account 
the type-specific loan rates in scenarios of depressed market conditions and expert assessments of 

market dynamics. These ratios will formulate the type factor, TX, which will be multiplied by the formula 

price presented in Equation (6) to determine the formula price for projected and harvest prices for 

Runner, Spanish, Valencia, and Virginia peanuts. Since Runner peanuts are utilized to determine the 

formula price, the type factor for Runners will be equivalent to one.

Table 1: Twelve-Month Moving Average Prices for Peanut Types Relative to the 

Price of Runners Based on Weekly NASS Peanut Prices 

Year Spanish Valencia† Virginia

2007 0.996 1.105 1.105

2008 1.095 1.092 1.092

2009 1.126 1.068 1.068

2010 1.014 1.213 1.213

2011 1.181 1.178 1.178

2012 1.220 1.131 1.131

2013 1.058 1.093 1.093

† Values for Valencia peanuts were adopted from Virginia

peanuts due to a lack of consistent survey data for Valencia 

peanuts in recent years.

Prior to each projected price discovery period, the factors for the four peanut types will be available as

PFPX = TX × (C + W × Pwh

Ewh × Pct

Ect × Pso

Eso × PsmEsm) (7)

where

X is the peanut type: Runner, Spanish, Valencia, or Virginia;

PFPX is the Peanut Formula Price in dollars per pound for peanut type X;

TX is type factor: Runner, Spanish, Valencia, or Virginia;

C is the additive price constant;

W is the price weighting coefficient; and

Ewh, Ect, Eso, and Esm are the exponent factors associated with the prices for the respective 

exchange commodities wheat (wh), cotton (ct), soybean oil (so), and soybean meal (so).

Implied volatility is utilized as a basis for determining price risk for most commodities with revenue crop 

insurance options. Since comparable information is not available for peanuts, the volatilities observed in 

the futures exchanges for the commodities used in the Peanut Formula Price determination are also 

utilized in the volatility determination. The relationship between the moving 12-month variability of the 
monthly historical shelled peanut prices and the monthly average of the daily settlement prices for the 

December contracts of wheat, cotton, soybean oil, and soybean meal is formulated in a similar manner to 

that of the shelled peanut price equations. This relationship is assessed in the period prior to the 

respective projected price discovery periods. During the projected price discovery period, the variability 

factors are used to derive an implied volatility for peanut prices using the respective implied volatilities of 

the exchange-traded commodities. The implied volatility associated with peanuts would then be based 

on the following formulation: 

σ̂PFP = V × σwh

γwh × σctγct × σsoγso × σsmγsm (8)

where: 

σ̂PFP is the implied volatility associated with the projected Peanut Formula Price; 

V is a coefficient value assessed from the functional relationship between the historical volatility 

of peanuts and select commodities traded on the futures exchanges; 

σwh, σct, σso, σsm are the implied volatilities associated with the futures prices of wheat (wh), 

cotton (ct), soybean oil (so) and soybean meal (sm), respectively, as determined in the 

corresponding price discovery period based on the prevailing USDA Risk Management Agency 

(RMA) methodology for assessing volatility9

; and 

γwh, γct, γso, γsm are exponent factors assessed from the functional relationship between the 

historical volatility of peanuts and that of the wheat (wh), cotton (ct), soybean oil (so) and soybean 

meal (sm) futures contracts from their respective commodity futures exchanges (CME and ICE). 

The specifications for the price discovery periods, contract commodities, and price factor formulations 

by peanut type can be found in the Commodity Exchange Price Provisions (CEPPs) for peanuts. 

9 As of the date of this publication, the method utilized by the Risk Management Agency to determine price volatility for 

commodities with revenue insurance options is described in the February 2011 Volatility Factor Calculation Methodology found 

at www.rma.usda.gov/-/media/RMA/Publications/2011/volatilitymethodology.pdf