United States

Department

of Agriculture

www.ers.usda.gov

Electronic Outlook Report from the Economic Research Service

OCS-04G-01

July 2004

Peanut Policy Change

and Adjustment Under

the 2002 Farm Act

Erik Dohlman, Linwood Hoffman, 

Edwin Young, and William McBride

Abstract

By eliminating the longstanding peanut marketing quota system, the 2002

Farm Act substantially altered the policy environment for the U.S. peanut

sector. Under the marketing quota system, supply controls assured peanut

quota holders of receiving high support prices, while requiring that nonquota

peanuts be exported or sold into the lower value crush market. Pressured, in

part, by increased imports, these supply controls were replaced with the same

set of supports available to producers of other program crops. For producers,

the transition has been marked by lower peanut prices and reduced, but stabilizing, acreage, and adaptation to an environment with limited price information and marketing strategies. At the same time, it appears that peanut

producers are taking advantage of increased planting flexibility and expanding

production in higher yielding areas. For many producers, the transition has

been cushioned by additional revenue from Government payments and other

sources of farm and off-farm income. 

Keywords: Peanut policy, marketing quota, 2002 Farm Act, trade, farm

income, tariff-rate quota.

Acknowledgments

For their reviews and comments, the authors would like to thank Mark Ash,

Robert Dismukes, Joy Harwood, Demcey Johnson, and Kitty Smith of the

Economic Research Service, USDA; Carol Goodloe and Larry Salathe of the

Office of the Chief Economist, USDA; Keith Menzie of the World Agricultural

Outlook Board, USDA; Remy Jurenas of the Congressional Research Service;

Dr. Kim Anderson of Oklahoma State University; and Dr. James Pease of

Virginia Tech. Much appreciation is also extended to our editor, John Weber,

and to Wynnice Pointer-Napper, Shawn Bucholtz, and Vince Breneman for

their efforts in designing this report.
Introduction

Until 2002, peanuts had been among a small group of U.S. commodities regulated by marketing quotas. Similar to the tobacco and sugar programs, the

peanut program was established during the Great Depression to support and

stabilize grower incomes through supply limitations and price supports. With

passage of the Farm Security and Rural Investment Act of 2002 (2002 Farm

Act), however, the longstanding price support system for peanuts was

scrapped. As part of the new program, peanut quota owners received peanut

quota buyout payments and peanut producers are now eligible for the same set

of supports—marketing loans, direct payments, and counter-cyclical

payments—available to producers of other mainstream crops. 

What pressures led to this striking change in policy? What has been the

experience of the peanut sector following the 2002 Farm Act? And what

factors are affecting the transition to a more market-oriented system?

Although the circumstances of peanut producers are unique in many ways,

their transition to policy change can offer insights for those contemplating

similar changes for other crops, such as tobacco

http://www.ers.usda.gov/AmberWaves/September03/Features/

USTobaccoIndustry.htm.

Although the longer term impacts of policy change are still playing out in

the peanut sector, some general observations can be made:

● Average farm-level prices and production incentives—as reflected by

planted acreage—have declined, compared with pre-2002 levels, but

appear to be stabilizing. 

● Peanut production is beginning to shift from farms in less productive,

traditional peanut-growing areas to farms in higher yielding areas, largely in the Southeast, the result of increased planting flexibility, and perhaps indicating increased production by more efficient producers. 

● For producers affected by the policy change, drops in farm-level revenues have been tempered by new sources of Government revenue from

the 2002 Farm Act, a diversified crop mix, sources of off-farm income,

and an upswing in domestic demand. 

● Lower domestic prices stemming from the policy change have dampened

import demand, but exports are likely to remain below levels regularly

reached in the 1990s. 

● Although prices are lower and potentially more variable than under the

marketing quota system, producers are adapting to price uncertainty by

managing risk through contracting and marketing associations. 

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How Did the Old Peanut Program

Work? Why Was It Changed?

Prior to 2002, the peanut program’s marketing quota system placed a limit

on the amount of peanuts (“quota” peanuts) that could be sold for the

domestic food-use market (e.g., peanut butter, snacks, candy). Any peanuts

produced beyond the specific quota level (“additional” peanuts) had to be

exported, or diverted into the lower value crush (oil and peanut meal)

market. Producers who owned or rented quota rights were assured of

receiving high prices based on a Government-established “quota loan rate”

of $610 per ton (during 1996-2001). The quota loan rate was well above

average production costs, giving producers a strong economic incentive to

produce the amount of peanuts they had been allocated under the quota

system. The quota level—set at 2.36 billion pounds in 2001/02—was established annually by USDA, based on anticipated demand, and then allocated

among quota holders. Producers not controlling quota rights were guaranteed only a low additionals loan rate of $132 per ton (in 2001/02), but they

typically grew peanuts under contract for export at world prices (ranging

from $320-$460 per ton) and responded primarily to demand in foreign

markets. The central component of the program—production or marketing

limitations—was established in the 1930s. 

Although the peanut quota system faced longstanding opposition from

consumer groups, peanut processors, and others opposed to supply controls,

the program’s overhaul in 2002 was likely influenced by producer groups

who recognized that policy change was unavoidable given trade agreements

liberalizing U.S. peanut imports. 

Under the marketing quota system, import restrictions—capped at 1.7 million

pounds (less than 1 percent of domestic consumption) prior to 1994— were

necessary to prevent an oversupply of peanuts from undercutting domestic

support prices.1 However, under NAFTA (North American Free Trade Agreement) and WTO (World Trade Organization) agreements signed in the mid1990s, the United States opened its market to gradually increasing peanut

imports through tariff-rate quotas (TRQs) (fig. 1). TRQs allow a specific level

of imports at a lower “within-quota” tariff rate. Imports beyond that level are

charged a much higher “over-quota” tariff. 

As part of the current (Uruguay Round) WTO agreement, allowable peanut

imports at the lower within-quota tariff level are scheduled to stay fixed at

about 116 million pounds (53,000 metric tons, about 6 percent of domestic

food use in 2002) and face a specific per unit tariff ranging from $66 to $93

per metric ton, depending on the level of processing. Prior to the 2002 Farm

Act, peanut imports quickly reached the annual TRQ level, but a much

higher ad valorem tariff on over-quota imports—ranging from 131 to 163

percent of the import price—prevented significant imports beyond the TRQ

level. As part of NAFTA, a separate TRQ for Mexico is scheduled to raise

lower tariff peanut imports from that country to a (still low) level of 10.6

million pounds in 2007, but all U.S. imports from Mexico will become

tariff-free in 2008. 

1 Without restrictions on lower priced

imports, unsold domestic quota peanuts

would likely have been forfeited to the

Government’s Commodity Credit

Corporation. Since the marketing quota

was meant to operate at “no-net-cost”

to the Government under the 1996

Farm Act, large forfeitures would have

required either a substantial cut in the

domestic marketing quota level or an

eventual reduction of the quota loan

rate under new legislation. 
Mexico is a relatively minor peanut producer, but increased production

arising from incentives to export peanuts to the United States may eventually have placed further pressure on the U.S. marketing quota program. U.S.

commitments to enter into new trade agreements, and rising imports of

peanut-containing products, such as candies and other processed foods—

which are not covered by TRQs—would also likely have pressured the

system (peanut butter is covered under a separate TRQ). Some observers

suggest that recognition of these competitive pressures—and the additional

budget (Government) resources made available to peanut producers in the

2002 Farm Act—facilitated acceptance of policy change by many growers.2

(For more information, see U.S. Tariff-Rate Quotas for Peanuts -

http://www.ers.usda.gov/briefing/WTO/PDF/Skully.pdf; and Issues Facing

the U.S. Peanut Industry During the Seattle Round of the World Trade Organization - http://www.ers.usda.gov/briefing/WTO/PDF/Skinner.pdf.)

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Before the 2002 Farm Act, peanut imports had cut into the U.S. market

1,000 metric tons

1989 91 93 95 97 99 2001

0

10

20

30

40

50

60

70

80 Argentina

Nicaragua South Africa Rest of world

China Mexico

Marketing year

Source: USDA, Foreign Agricultural Service, U.S. Trade Internet System.

NAFTA and

WTO agreements

(1994)

Last year of 

marketing quota system

(2001/02)

Figure 1

2 Some observers have also cited U.S.

commitments under the WTO—limiting the amount of domestic support

provided by certain agricultural commodity programs—as a motivation for

changing the U.S. peanut program.

The United States agreed to limit

(non-exempt) “amber box” support for

agriculture—classified as the

Aggregate Measurement of Support—

to no more than $19.1 billion annually

after 2000. However, the peanut program constituted a relatively small

share—about 2 percent—of WTO-limited domestic support under the 1996

Farm Act, and it is uncertain what

effect program changes in the 2002

legislation will have on the overall

level of support for peanuts.
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Note: Definitions of specific farm 

policy terms can be found at:

www.ers.usda.gov/briefing/FarmPolicy/

glossary.htm.

New Program Provisions

The 2002 Farm Act eliminated the supply-limiting marketing quota program

for peanuts, and all producers—whether former quota holders or not—are

now allowed to sell their peanuts in the domestic market for food use (i.e.,

peanut butter, snacks, candy, in-shell peanuts). Producers are now also eligible

for the same kinds of Government payments that are available to growers of

such crops as grains, oilseeds, and cotton. For example, all peanut growers

can receive marketing assistance loans (a per unit revenue floor) of $355 per

ton for current production. Producers with an established (1998-2001) history

of peanut production (peanut base acres) can receive fixed direct payments

and counter-cyclical payments—benefits not tied to current peanut production.

In addition, peanut quota owners are eligible for a peanut quota buyout

program.3 Under the 1996 Farm Act, the peanut quota program was intended

to operate at “no-net-cost” to the Government, but the 2002 Farm Act shifted

program costs from peanut consumers to all taxpayers. The 2002 Farm Act

governs Federal farm programs over a 6-year period (2002-07) and includes

the following provisions for peanut growers:

● Marketing assistance loans

Current peanut producers are eligible to receive marketing loan benefits when the weekly USDA-established loan repayment rate falls

below the marketing loan rate, which is fixed at $355 per short ton

during the period covered under the 2002 Farm Act (2002-07).4

Producers can repay the marketing loan at the lower of the loan

repayment rate or the loan rate plus interest anytime prior to the

date the loan matures (9 months from the date of the loan), or forfeit the peanuts used as collateral to the Federal Government at

maturity. Alternatively, producers can forgo the loan and accept a

loan deficiency payment if the marketing loan rate exceeds the

repayment rate. 

● Direct and counter-cyclical payments

Farmers who have enrolled peanut base acres are eligible for

fixed direct payments, and for counter-cyclical payments (CCPs)

when the effective price falls below the target price. Participants

must enter into annual contracts with USDA to be eligible for

these payments. Payments are not tied to current production

choices, though farmers are required to keep their land in approved

agricultural uses (e.g., crop production, fallow). Direct and countercyclical payments are the product of the national payment rates, 85

percent of the payee farm’s base acres, and the farm’s payment

yield. The payment rate for direct payments is fixed at $36 per ton.

The payment rate for CCPs is variable, and payments are only made

when the “effective price” is less than the target price of $495 per

ton. The effective price is equal to the sum of 1) the direct payment

rate and 2) the higher of the national average farm price for the marketing year, or the peanut marketing loan rate. Because these payments are not tied to current production, a portion may go to farmers who no longer produce peanuts. 

3 For more information on peanut provisions in the 2002 Farm Act and comparisons with the 1996 Farm Bill, see

The 2002 Farm Bill: Provisions and

Economic Implications

http://www.ers.usda.gov/publications/

aib778/, The 2002 Farm Act:

Provisions and Economic Implications

for Commodity Markets

http://www.ers.usda.gov/Features/

FarmBill/Titles/TitleICommodities.htm

and Provisions of the Federal Agriculture

Improvement and Reform Act of 1996

http://www.ers.usda.gov/publications/

aib729/ Title I.

4 The $355 per ton loan rate is the

national average for all peanuts. The

loan rate does not vary by region, but

does vary by quality and market type

of peanuts (Runners, Virginias,

Spanish, and Valencias).
● Peanut quota buyout program

The new program authorizes peanut quota owners—regardless of

whether they farmed or rented out the quota—to receive quota buyout

payments. Quota owners could receive payments in five annual

installments of $220 per short ton during fiscal years 2002-06 or take

the payment in a lump sum during the fiscal year specified by the

quota owner. Payments are based on the owner’s 2001 quota. (See

section “. . . and sector revenues expected to be relatively stable” for

more information on Government payments.)

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Lower Prices Dampen Planting

Incentives. . . 

The relatively recent passage of the 2002 Farm Act makes it difficult to

generalize about the impacts of the new program on individual peanut

growers. Not surprisingly, though, the transition to the new policy environment has been marked by some uncertainty and adjustment pressures for

U.S. peanut growers—a small but geographically concentrated group of

farmers (fig. 2).5 For example, at the aggregate level, farm-level prices and

market revenues dropped substantially following the 2002 Farm Act—

particularly during the first year (2002) under the new policy (fig. 3). Farm

market revenues from peanut production (excluding Government payments)

fell from an annual average of about $1 billion during the years covered in

the last farm bill (1996-2001) to just over $600 million in 2002, but

rebounded to nearly $800 million in 2003. 

In addition, although planted acreage remained stable or even increased in the

major peanut-producing States of the Southeast, other States experienced

large drops in acreage, and overall production incentives appear to have

declined, as indicated by 2 consecutive years of reduced plantings in 2002 and

2003. Total U.S. plantings of 1.34 million acres in 2003 were down from a

typical level of slightly more than 1.5 million acres during the 1996 Farm Act

(1996-2001) and hit their lowest level since 1915. Between 2001 and 2003,

declines were particularly steep in Virginia (down 55 percent), Oklahoma

(down 54 percent), and Texas (down 35 percent) (fig. 4). The decline in Texas

reflects, in part, reduced plantings in unirrigated areas, which has led to lower

abandonment (acres planted but not harvested) rates since 2001.6 In Virginia,

reduced plantings appear to be tied to reduced profitability, abandonment of

marginal land, and contract difficulties between growers and shellers.

However, based on preliminary estimates, overall plantings in 2004 increased

Source: USDA, National Agricultural Statistics Service, Agricultural Charts and Maps.

Southwest

Mid-Atlantic

Southeast

Harvested acres by county

Not estimated

< 5,000

5,000 to 9,999

10,000 to 24,999

25,000 to 49,999

50,000 to 99,999

100,000 +

Acres

Peanut regions, 2002

Figure 2

6 Abandonment averaged 30 percent in

Texas during 2000 and 2001 but

declined to 11 percent in 2002 and 2

percent in 2003.

5 During the 1996 Farm Act (1996-

2001), peanuts were grown by about

12,000 farms, averaging $1 billion

annual in peanut revenues—about 1

percent of national “principal crop”

production value. Due to the crop’s

soil and climate requirements, virtually all peanut production occurs in

nine States in three regions. The

Southeast (Georgia, Alabama, Florida,

and South Carolina) had 60 percent of

national production during 1999-2001;

the Southwest (Texas, Oklahoma, and

New Mexico) had 28 percent; and the

Mid-Atlantic (Virginia and North

Carolina) had 12 percent. Georgia and

Texas are the two leading producers,

together accounting for over 60 percent of U.S. production. According to

the 2002 Census of Agriculture, the

number of farms producing peanuts in

2002 was about 8,600, down from

about 12,700 in 1997, and nearly

19,000 in 1987.
slightly (3 percent), compared with plantings in 2003. Acreage increased in

the Southeast and Mid-Atlantic but continued to decline in the Southwest.

(see box “A brief perspective on peanut planting trends”).

. . .But Planting Decisions Signal

More Flexibility. . .

With the elimination of the historical quota entitlements, less competitive

peanut producers are now reducing peanut output, most likely by switching

to other crops. At the same time, production has begun to expand in areas

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Peanut Policy Change and Adjustment Under the 2002 Farm Act / OCS-04G-01 / July 2004

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Average price and value of production

$ billion

Average price 

(right axis)

Marketing year

1985 87 89 91 93 95 97 99 2001 03

0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

0

100

200

300

400

500

600

700

800

Figure 3

Dollars/short ton

Value of production

Source: USDA, National Agricultural Statistics Service, Agricultural Statistics Database.

Percentage change in planted area (2003 vs. 2001)

Percent

Figure 4

Source: USDA, National Agricultural Statistics Service, Agricultural Statistics Database.

Alabama

Florida

Georgia

Oklahoma

Texas

Virginia

North Carolina

-60 -50 -40 -30 -20 -10 0 10 20 30 40 50 60
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Peanut Policy Change and Adjustment Under the 2002 Farm Act / OCS-04G-01 / July 2004

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with traditionally higher peanut yields. This makes economic sense. Since

1981, the program had allowed nonquota holders in any location to produce

peanuts (for export or crush), but restrictions on transferring quota peanut

production to farms in different States or counties confined a large share of

production to areas originally granted quota acreage “allotments” in the

1940s. Although loosened somewhat in 1996, quota transfer restrictions still

generally discouraged inefficient quota holders from exiting production,

made it more expensive for efficient producers to expand (quota peanut)

production due to quota acquisition costs, and limited growth in areas better

U.S. peanut plantings

peaked in 1943 at 5.2

million acres (3.5 million

harvested), as incentives to produce peanuts expanded during World War II.

Plantings dropped rapidly following the war’s end. From the mid-1950s to

1981, U.S. peanut acreage was restricted by acreage allotments, limiting

planted acreage to about 1.5 million acres annually. After 1981, when

poundage quotas fully replaced acreage allotments—allowing nonquota

holders to produce “additionals” (nonquota peanuts)—planted acreage gradually rose to a post-1951 peak of 2.04 million acres in 1991. Since 1991,

U.S. planted acreage has declined fairly steadily, particularly during the span

of the 1996 Farm Act, with planted acreage averaging 1.49 million acres

during 1996-2001, compared with 1.73 million acres during 1991-95. With

the exception of Texas, all major peanut-producing States saw planted

acreage drop since 1996. In Georgia, average acreage fell by over 175,000

acres between the 1991-95 time period and 1996-2001. Declining acreage

reflected lower quota support prices and a reduced marketing quota. The

quota support price fell from $678 per ton in 1995 to a fixed $610 per ton

during the 1996 Farm Act, and USDA lowered the marketing quota from (a

statutory minimum of) 1.35 million tons during 1991-95 to an annually

determined quota based on domestic demand projections—ranging from 1.0

to 1.18 million short tons during 1996-2001. 

A brief perspective on peanut

planting trends

1990 92 94 96 98 2000 02 04

0

0.5

1.0

1.5

2.0

2.5

Peanut planted acres in the U.S.

Million acres

Source: USDA, National Agricultural Statistics Service, Agricultural Statistics Database.

Alabama

Virginia

Texas

North Carolina

Georgia

Other

Florida
suited to peanut production to those willing to invest in growing lower

priced additionals.7 Farmers renting quota rights accounted for a

majority (about 60 percent) of peanut quota production, but rents were

expensive—adding more than $80 per acre to production costs in 2001.

As an indication of the shifts in production area now underway, county-level

data from 2003 show that some peanut-producing areas—particularly in parts

of the Southeast and western Texas—have significantly expanded acreage

over historical average (“base”) plantings. This change may reflect the expectations of producers in these areas that expansion will result in higher profits,

now that restrictions on the domestic sale of nonquota peanuts have been

eliminated. In counties where 2003 peanut plantings exceeded base acreage,

growers planted at least 220,000 more peanut acres (about 17 percent of 2003

plantings) than the base acreage available in those counties (fig. 5). In those

counties where base acreage exceeded 2003 plantings, at least 340,000 acres

of peanut base were not planted to peanuts and most likely went to other

crops.8 In other words, nearly one-quarter of peanut base acres were not

planted to peanuts in 2003, but many of these acres were picked up in other

counties. The counties with expanding acreage, compared with base,

have—on average—significantly better yields than those counties with

declining acreage, based on a comparison of yield histories. In general,

program changes have spurred growers—particularly former quota

holders—to consider expected returns among competing crops, and other

factors, such as crop rotations and yield potential, when making planting deci10

Peanut Policy Change and Adjustment Under the 2002 Farm Act / OCS-04G-01 / July 2004

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Percent of peanut base acres planted in 2003, by county

Figure 5

Sources: ERS calculations using NASS (National Agricultural Statistics Service), Agricultural Statistics 

Database and FSA (Farm Service Agency), USDA, data. Data not available for all counties.

< 50

> 200

50 - 90

110 - 200

90 - 110

NM

FL

GA

AL

OK

TX

VA

NC

SC

Enrolled Farms Peanut Base (U.S. total) = 1.466 million acres

2003 plantings

18,000

Enrolled base

 20,200 acres

2003 plantings

275,000

Enrolled base

 383,600 acres

2003 plantings

37,000

Enrolled base

83,400 acres

2003 plantings

125,000

Enrolled base

88,100 acres

2003 plantings

19,000

Enrolled base

10,200 acres

2003 plantings

101,000

Enrolled base

118,600 acres

2003 plantings

34,000

Enrolled base

71,200 acres

2003 plantings

190,000

Enrolled base

184,7000 acres

2003 plantings

545,000

Enrolled base

497,200 acres

Percent

Note: Base acres reflect average 1998-2001 historical peanut plantings enrolled under the 2002 Farm Act.

8 Although passage of the 2002 Farm

Act coincided with 2002 planting decisions in many areas, some of these

shifts in acreage were already becoming evident in 2002, perhaps because

the legislation may have been widely

anticipated by peanut producers. Since

county-level data are used, these numbers do not reflect shifts in production

between farms within the same county. 

7 The 1996 Farm Act allowed up to 40

percent of quota production to be

transferred across county lines, within

State. Transferring quota production

across State lines was generally not

allowed, except from adjacent counties

in different States. Prior to 1996, limitations on planting flexibility also

reduced incentives to plant nonprogram crops (i.e., peanuts) on program

crop (e.g., feed grains, wheat, cotton,

rice) land due to potential reductions

in program benefits. 
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sions. Government payments tied to historical, rather than current peanut

production—such as direct and counter-cyclical payments—should have little

if any influence on current production decisions.

. . .and Sector Revenues Expected 

To Be Relatively Stable

The elimination of the marketing quota system had varying effects on peanut

growers. Relatively inefficient farmers who relied on the $610 per ton quota

loan rate (support price) to cover production costs may no longer be able to

competitively produce peanuts in the new environment. And despite lower

market prices, other more efficient producers—those who grew additionals for

export or now have lower costs since they no longer rent quota rights—have

been encouraged to enter into or expand peanut production. Regardless of

producers’ decisions to remain in, or exit, peanut production, it appears that the

economic impact on the peanut sector of losing the quota system has been

cushioned by several factors, including new sources of Government revenue.

Off-farm income, relatively large farm sizes and diversified crop mixes, and

reduced costs for some producers should also help offset changes in revenue

under the new program (see box “Peanut farms relatively large, diversified”). 

According to the President’s fiscal year 2005 budget, for example, projected

annual market revenues and Government payments to current and historical

producers—those with an established history (base) of production during

1998-2001—would average $964 million during the 2002 Farm Act (2002-

07), about 5 percent less than the 1996-2001 average (fig. 6).9 Market

revenues are expected to provide the majority of peanut sector revenues 9 Recall that farm-level revenues during

the 1996 Farm Act reflected the influence of the price-supporting marketing

quota system. Reported market prices

prior to the 2002 crop year are the

weighted average of quota peanut prices

and the price of additional peanuts.

Note that projected revenues do not

include government payment of storage

and handling fees.

Sources of revenue for the U.S. peanut sector: 

Historical and projected 

$ billion

Figure 6

Sources: 1991/92 – 2001/02: Farm Service Agency, National Agricultural Statistics Service, 

(Agricultural Statistics Database) USDA; 2002/03 – 2007/08: Office of Management and Budget.

Direct payments

 Counter-cyclical payments

Market revenue under 2002 Farm Act

Market revenue under quota system

Marketing loan benefits

1991/92 93/94 95/96 97/98 99/2000 01/02 03/04 05/06 07/08

0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Market loss assistance payments
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According to the Economic Research

Service’s 2002 Agricultural Resource

Management Survey (ARMS), peanut

farms tend to be larger than average farms in peanut-growing areas (averaging 676 acres of crop land) and are fairly diversified. Peanuts are typically grown in 3 to 4 year rotations on farms that grow cotton, soybeans,

corn, and wheat. Cotton is the most common crop alternative. Peanut acres

averaged only one-fifth of cropland on peanut-growing farms, but peanuts

represented nearly 30 percent of total production value. In Georgia and

Alabama, peanuts accounted for over 20 percent of total State crop production value, but the peanut share of production value was lower (2 to 7

percent) in other States. Producers exiting peanut production would thus

likely emphasize crops already grown on the farm, avoiding additional

investments in equipment and skills to grow new crops. 

ARMS data also show that peanut producers had comparatively high overall

(farm and off-farm) incomes, averaging about $77,000 in 2002 (30 percent

higher than nonfarm household incomes). Off-farm income accounted for

about 70 percent of total household income of peanut growers—although most

peanut farmers reported farming as their primary occupation. Most off-farm

income in peanut-producing households was from wages and salaries earned

by farm operators and family members. Combined with a fairly diversified

farm enterprise structure, sources of off-farm income will likely help offset

changes in revenue under the new program (see appendix 1, “Peanut Farm

and Operator Characteristics”).

In addition, changes to the peanut program will reduce production costs

for those previously renting quota rights. USDA data indicate that about

60 percent of quota rights were cash or share-rented, ranging from 39

percent in the Southwest to 77 percent in the Virginia-North Carolina

region. For those renting quota rights, the elimination of quota rental costs

partly offsets the decline in peanut prices following the elimination of the

quota system. The average quota rent paid in the U.S. was about $83 per

acre in 2001, equivalent to more than 25 percent of average operating

costs. Furthermore, the cost of peanut seed for planting—previously tied to

the quota loan rate—also dropped by about one-third between 2001 and

2003, representing another $24 per acre reduction in operating expenses.

Peanut farms relatively

large, diversified

Peanut share of principal crop 

value, (2000/01-2001/02 average)

AL

FL

GA

SC

OK

TX

NM

VA

NC

0 10 15 20 25 5

Source: Crop Values 2003 Summary, 

USDA, NASS.

Percent

Sources of income for 

peanut farm households, 2002

Source: 2002 Agricultural Resource 

Management Survey.

$ 1,000

Mid-Atlantic Southeast Southwest

0

20

40

60

80

Farm business 

income

Off-farm income

Note: Quota rents are categorized by

USDA as “allocated overhead” rather

than an operating cost, but the elimination of the quota rent will nevertheless result in reduced expenditures for

those previously renting quota.
during 2002-07, averaging $689 million annually. Government payments are

projected to average $275 million per year.

Sources of Government payments under the 2002 legislation include

marketing loan benefits, direct payments, and counter-cyclical payments. All

peanut growers, including former additionals producers and new entrants,

can receive marketing assistance loans of $355 per ton for current production—well below the $610 per ton quota loan rate. Historical peanut

producers who enrolled peanut base acres are eligible for fixed direct

payments of $36 per ton, and counter-cyclical payments that vary depending

on market prices. As of November 2003, most historical producers elected

to enroll their peanut base acres (tied to their 1998-2001 planting history)—

covering about 96 percent of eligible land (1.47 million acres). (For a

further description of benefits available under the 2002 Farm Act, see

http://www.ers.usda.gov/Features/farmbill/titles/titleIcommodities.htm).

In crop year 2002, marketing loan benefits to peanut producers amounted to

$49.7 million, direct payments totaled $73.1 million, and counter-cyclical

payments were $195 million. Marketing loan benefits for peanuts are not

expected to contribute to revenues during the remaining years covered by the

2002 Farm Act as prices are projected to remain above the marketing loan

rate. Annual direct and counter-cyclical payments over the same period are

projected to maintain about the same level as in 2002.10 Although season

average farm prices are projected to be at, or slightly above, the marketing

loan rate, growers can still receive marketing loan benefits (in the form of

loan deficiency payments, marketing loan gains, or certificate exchange benefits) if the loan repayment rate established by USDA falls below the loan rate.

In this case, marketing loan benefits would generally offset the lower price,

depending on marketing decisions made by peanut farmers.

The new legislation also authorized a peanut quota buyout program for

those owning peanut quota in 2001—regardless of whether they farmed or

rented out the quota. According to the President’s fiscal year 2005 budget,

payments to quota owners will total $1.3 billion. Most quota owners elected

to take the quota buyout in a lump sum in the 2002 crop year, with $1.2

billion disbursed among approximately 70,000 eligible recipients.

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10 For complete information on projected Government payments and supply and use projections, see

http://www.fsa.usda.gov/dam/bud/CCC

%20Estimates%20Book/estimatesbook.htm. See links to Output 16,

Output 18, Output 50, and Peanuts.
Demand Prospects

Rebounding demand for peanuts and peanut products in recent years is a

source of optimism for the peanut sector. In fact, estimated U.S. peanut

consumption in the 2003-04 marketing year is rising at the fastest annual

pace (9 percent) since 1991 and is projected to reach record levels. Peanut

demand—particularly in the food-use category (peanut butter, snacks, candy,

and in-shell peanuts)—is a key factor affecting production decisions and

income prospects of peanut farmers. In high-income countries with relatively low population growth—such as the United States and most countries

that import U.S. peanuts—demand is likely to be driven by three factors: 1)

consumption stimulated by lower retail prices—if lower farm-level peanut

prices are passed through to consumers; 2) the development and promotion

of new peanut-containing products and potential demand shifts resulting

from changing dietary preferences; and 3) factors affecting export and

import incentives, such as foreign competition and policy change. 

● The impact of prices

Despite lower farm-level prices for peanuts since 2002, it is not entirely

clear whether policy changes in the 2002 Farm Act or other factors triggered the recent growth in demand. As peanuts are a relatively low-cost

item, the responsiveness of consumers to changes in peanut prices is typically quite low, and peanut consumption had already been on an upward

trend since the mid-1990s (table 1). At the same time, lower farm-level

prices for peanuts since 2002 should reduce input costs of peanuts and

peanut-containing products, thus encouraging greater use of peanuts

among peanut processors, and potentially bringing down retail prices for

these products. Lower retail prices, in turn, would be expected to

increase demand, as consumers substitute peanuts for other food items. 

However, retail price data (http://data.bls.gov/labjava/outside.jsp?

survey=ap) for peanut butter (the leading use for peanuts) indicate that

prices remain similar, or even higher, than levels in the decade preceding

the 2002 Farm Act (fig. 7). Although prices have dropped from a 2002

peak of $2.01 per pound in February 2002, the 2003 average of $1.91

per pound still exceeds the 1995-2001 average. In addition, data on

farm-to-retail price spreads for peanut butter indicate that farmers are

capturing a smaller share of the retail price of peanut butter—about 20

percent in 2002, compared with an average of about 25 percent between

1988 and 1998.

● Market promotion and dietary preferences

Some observers have attributed the current growth in peanut consumption to increased advertising, promotion, and the introduction of new

products—perhaps triggered by reduced input costs for peanut processors. The consumer response to these efforts is often influenced by perceptions about the nutritional characteristics of the food and information

from the Government and other sources suggesting that the food can

help consumers achieve dietary goals or promote better health. 

In 1989, domestic food use of peanuts stood at 2.31 billion pounds (in-shell

basis), or about 9.4 pounds per person. In the early and mid-1990s, U.S.

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food use of peanuts tapered off, falling to just under 2 billion pounds in

1995. Reduced demand reflected demographic trends (fewer children

among baby boomers), health and dietary concerns about fat intake, and

competition from other snack products. Reports of severe allergic reactions

to peanuts, which affect an estimated 1.5 million Americans, also reduced

household and institutional (e.g., schools and airlines) demand. Since 1995,

Table 1—Peanut supply and disappearance

Year beginning Domestic

August 1 Production food use Exports Imports Crush Yield Price

--------------------------Million pounds----------------------- Lb/acre Cents/lb

1980/81 2,303 1,465 503 401 446 1,645 25.1

1981/82 3,982 1,696 576 1 573 2,675 26.9

1982/83 3,440 1,849 681 2 342 2,693 25.1

1983/84 3,296 1,856 744 2 387 2,399 24.7

1984/85 4,406 1,911 860 2 625 2,883 27.9

1985/86 4,123 2,023 1,043 2 812 2,810 24.3

1986/87 3,697 2,073 663 2 514 2,408 29.2

1987/88 3,616 2,071 618 2 560 2,337 28.0

1988/89 3,981 2,254 688 3 814 2,445 27.9

1989/90 3,990 2,312 989 4 624 2,426 28.0

1990/91 3,604 2,020 652 27 689 1,985 34.7

1991/92 4,927 2,207 1,002 5 1,103 2,444 28.3

1992/93 4,284 2,122 951 2 891 2,567 30.0

1993/94 3,392 2,088 533 2 670 2,008 30.4

1994/95 4,247 2,009 878 74 982 2,624 28.9

1995/96 3,461 1,993 826 153 999 2,282 29.3

1996/97 3,661 2,029 668 127 692 2,653 28.1

1997/98 3,539 2,099 682 141 544 2,503 28.3

1998/99 3,963 2,153 562 155 460 2,702 28.4

1999/00 3,829 2,233 743 180 713 2,667 25.4

2000/01 3,266 2,179 527 216 548 2,444 27.4

2001/02 4,277 2,211 700 203 693 3,029 23.4

2002/03 3,320 2,228 490 75 857 2,561 18.2

2003/04 4,144 2,430 495 55 634 3,159 19.3

Notes: Units are farmer stock (in-shell) basis. 2003/04 is forecast.

Sources: National Agricultural Statistics Service (Agricultural Statistics Database), and Foreign Agricultural Service (PS&D online); USDA.

Retail price of peanut butter, January 1995-March 2004

$/pound

Figure 7

Source: Bureau of Labor Statistics, Peanut butter, creamy, U.S. city average.

1995 96 97 98 99 2000 01 02 03 04

1.50

1.55

1.60

1.65

1.70

1.75

1.80

1.85

1.90

1.95

2.00

2.05
however, peanut consumption has turned around, with food use rising

steadily to a projected record of 2.43 billion pounds in 2003/04—though

per capita use remains below levels reached in the early 1990s. 

In addition to benefitting from increased advertising and the introduction

of new products, peanut consumption may be receiving a boost from the

current popularity of low-carbohydrate diets and could be bolstered by a

July 2003 Food and Drug Administration (FDA) ruling allowing “qualified health claims” on packaged (whole or chopped) peanuts. Under this

ruling, packages of peanuts can include the statement: “Scientific evidence suggests but does not prove that eating 1.5 ounces per day of most

nuts as part of a diet low in saturated fat and cholesterol may reduce the

risk of heart disease.” In time, peanut demand may also benefit from the

development of peanut varieties lacking proteins known to cause allergic

reactions, as well as from the development of a still-experimental drug

(TNX-901) that increases the tolerance of allergy sufferers to peanuts. 

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While vegetable oil extraction

drives peanut demand in some

countries, such as India and

many other developing countries, the dominant source of U.S. peanut demand—about 67 percent of

total domestic use during 2000-02—is direct consumption (food use).

Lower quality peanuts used for crushing (for peanut oil and meal) made up

21 percent of domestic use during the period. Seed and residual uses

accounted for the remaining 12 percent. Food use of peanuts comprises

two main categories. Shelled peanuts include those used for peanut butter

(about 48 percent of peanut food use), snack peanuts (21 percent), and

peanut candy (21 percent). Roasted in-shell peanuts account for about 10

percent of U.S. food use of peanuts. 

The proportion of peanuts crushed for animal feed and vegetable oil is

small, especially when compared with other oilseeds (e.g., soybeans).

Peanut oil, which has a niche market in the United States, commands a

price premium over other vegetable oils (roughly double the price of

soybean oil), while peanut meal sells at a discount (roughly two-thirds of

the price of soymeal). In the United States, demand for peanut oil and

meal, and for seed use, is likely to vary proportionally with overall

demand for food-use peanuts. The level of seed use reflects peanut

farmers’ expectations of sales for food use and is incorporated into their

planting decisions, while the level of peanut crush reflects variations in the

quality of the peanut crop—with peanuts not meeting certain grading standards designated as “oil stock” peanuts. Consequently, the price of peanuts

and substitute edible products, such as almonds and other nuts, are more

likely to affect peanut demand than the price of soybeans and other

oilseeds used predominantly for crushing.

Food use the leading source of

demand in the United States
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● Net export outlook

While domestic demand has been rising, the outlook for U.S. exports

looks less promising. Additional (nonquota) peanut producers have been

exporting a significant amount of peanuts for decades, with exports typically accounting for 15-25 percent of overall production. A reputation

for high-quality peanuts has enabled U.S. sellers to command a price

premium in international markets (primarily the European Union,

Canada, and Mexico), but the United States has faced stiffening competition in recent years from lower cost exporters. As a result, U.S. peanut

exports have been on a downward trend since the early 1990s, with the

gap being filled largely by lower priced peanuts from China, as well as

from emerging exporters, such as India, and established exporters such

as Argentina and Vietnam (fig. 8). The United States last led global

peanut exports in 1995 but has since been surpassed by China, which led

all countries with average exports of nearly 1.1 million tons during

2002/03 to 2003/04. China now has over 50 percent of global market

share and nearly five times the level of U.S. exports. Its export growth

has been fueled by rapid growth in production, which rose from an average of 7.8 million metric tons during 1990-95 to 13.6 million tons during 1998-2002 (see appendix 2, “Perspective on Global Peanut

Production and Trade Issues”). 

Although the U.S. remains the world’s second leading peanut exporter,

U.S. peanut exports have slipped from an average of almost 340,000

metric tons annually during the 1990s to an average of 224,000 metric

tons during 2002/03 to 2003/04. Changes to the peanut program in the

2002 Farm Act may have further diminished export incentives, as

domestic producers who formerly produced additional peanuts for export

can now market their peanuts domestically. 

On the other hand, lower domestic prices have reduced import incentives, and imports have fallen to less than half the level typically imported prior to the 2002 Farm Act. The NAFTA and WTO agreements currently allow about 57,000 metric tons of peanut imports at the lower inLeading peanut exporters

Mil. metric tons

Figure 8

Source: USDA, Foreign Agricultural Service, (PS&D online).

1985 87 89 91 93 95 97 99 2001 03

0

0.5

1.0

1.5

2.0

2.5

Argentina

Rest of world

Vietnam

India

United States

China
quota tariff rate. Under the marketing quota system, the high quota loan

rate provided strong incentives to import, and imports typically matched

the TRQ level between 1996 and 2001 (averaging about 57,800 metric

tons (shelled basis)). With lower domestic prices under the new program,

imports declined to about 25,000 metric tons (shelled basis) in 2002 and

to an estimated 22,000 metric tons in 2003—well below the TRQ level.

Future import levels will depend on how domestic peanut prices compare with world prices, transport costs, and the in-quota duty ($66-$93.5

per metric ton, depending on category). Imports may also be limited by

a preference for U.S. peanuts due to quality reasons (e.g., industry standards for aflatoxins and other quality characteristics). 

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Price Information Poses Ongoing

Challenge

With peanut prices having been determined directly by Government policy

for decades, one of the ongoing challenges during the transition to a new

policy environment has been adapting to the lack of easily accessible and

timely price information, which has limited the number of marketing

options available to growers and complicated administration of the new

program. According to March 2004 USDA testimony before the House

Committee on Agriculture, the difficulty in finding price information is a

unique problem for peanuts (compared with commodities such as corn) due

to the relatively small number of peanut producers in the United States, who

face limited sales options, no market exchange, and limited market price

information sources.11

Issues for Policy Implementation

For USDA, the lack of price information has complicated the task of establishing the weekly loan repayment rate for peanuts—the market price

barometer used to determine the level of potential marketing loan benefits.

Under the 2002 Farm Act, the new marketing loan program for peanuts was

designed to serve the same objectives as marketing loans available to

producers of other crops, such as corn and wheat, offering short-term

financing and revenue stability. As with the other crops, USDA relies on

timely and accurate market price data to establish the peanut loan repayment

rate. However, although USDA and various news and commodity services

report U.S. and international prices, the price information for peanuts is not

as readily available as it is for other crops. According to March 2004 USDA

testimony before the House Committee on Agriculture:

“Corn loan repayment rates, typically known as posted county prices

(PCPs), are derived from major terminal market prices... [which] are

collected daily and reflect actual trades. In turn, the terminal prices

are adjusted back to each county using publicly available differentials.

[This information] is available daily at USDA Service Centers and on

FSA’s website for each county.... For peanuts, however, CCC

announces a weekly loan repayment rate or national posted price. The

loan repayment rate is calculated using available, but limited, domestic and international sales prices for peanuts. An average is computed

using the prices collected each week. Because of the limited price discovery mechanism for peanuts, it is difficult for CCC to establish the

weekly repayment rate.”12

Risk Management Issues for Growers

For peanut growers, the lack of price information and marketing options rules

out some of the strategies available to producers of major commodities, such

as timing sales based on cash or futures prices. It appears that a lack of potential trade volume has been a disincentive to establishing a peanut futures

contract. As an alternative, the main price-risk management strategy adopted

by peanut farmers since 2002 has been to enter into private marketing

contracts with peanut buyers, typically peanut shellers. Approximately four11 According to USDA Deputy Under

Secretary Floyd Gaibler: “Finding price

information, not customarily a problem

for other [bulk] commodities with marketing loan provisions, is a unique problem with peanuts. For example, corn

producers have a combination of mechanisms that provide price transparency

in the marketplace. There are vast numbers of corn producers throughout the

U.S. with multiple marketing options,

including selling to feed yards, ethanol

plants, and local elevators. Corn prices

are openly reported on various market

exchanges and by many market price

reporting services. In stark contrast,

there are a comparatively small number

of peanut producers in the U.S. with

limited sales options, no market

exchange, and limited market price

information sources.” - U.S. House of

Representatives, Subcommittee on

Specialty Crops and Foreign Agriculture

Programs, March 11, 2004.

12 U.S. House of Representatives,

Subcommittee on Specialty Crops and

Foreign Agriculture Programs, March

11, 2004.
fifths of growers used such contracts in 2003. Although production or

marketing contracts are common among other agricultural products (livestock,

tobacco, poultry, fruits and vegetables)—and was typical for farmers

producing additional peanuts for export—the inability to time sales based on

cash or futures prices (and the lack of price information) is seen as a disadvantage by some peanut farmers. In addition, while former quota holders had

stable expectations about both the price (based on the quota loan rate) and the

quantity (their share of quota) they could deliver at that price, some current

contract offers guarantee a price on only a portion of the grower’s crop. 

Another emerging option is to participate in one of the three Cooperative

Marketing Associations (CMA) that have been formed since 2002: the Peanut

Growers Cooperative Marketing Association (PGCMA); the Southwest Peanut

Growers Association (SWPGA); and the GFA Peanut Association. These cooperatives formerly administered the quota loan program and acted as marketing

associations for peanut producers. In the new policy environment, the CMAs

can process marketing assistance loans on behalf of USDA and have the

authority to market peanuts on behalf of their members—providing participants with increased bargaining power and more marketing options (Huber,

2003). Participation in CMAs, or perhaps the development of grower-owned

cooperatives, could become more common over time if growers perceive that

consolidation in the shelling industry has limited competition among buyers.13

Government-subsidized crop yield insurance—typically covering 85-90

percent of peanut acres—is another risk-management option available to

peanut producers. The Federal Crop Insurance Corporation offers peanut

producers two types of yield risk management programs, multiple peril crop

insurance (coverage based on farm-level yields), or a group risk plan with

coverage based on county-level yields (not typically used by peanut growers).

In contrast to some other commodities, peanuts are not covered by revenue

insurance products. Producers of peanuts purchase crop insurance policies at a

subsidized rate under Federal crop insurance programs. These insurance policies make indemnity payments to peanut producers when current yields fall

below historical yields. Between 1995 and 2003, net indemnities (indemnity

minus producer premium) ranged from $5.2 million to $105.5 million (table 2).

Despite the widespread use of crop insurance by peanut producers, some

peanut industry representatives are calling for some modifications, such as

allowing growers to insure their crop against the dollar value of contracts. 

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13 Currently, there are only 10 active

shelling companies, down from 45 in

the early 1980s and 92 in 1970. Two

companies now control about 73 percent of purchases and two-thirds of

peanut buying points.

Table 2—Federal crop insurance for U.S. peanuts

Year Planted Insured Percent of Total Premium Producer Net 

area area participation premium subsidy premium Indemnity indemnity

Million acres Percent ----------------------------------- Million dollars -----------------------------------

1995 1.5 1.4 93.3 47.4 20.2 27.2 60.9 33.7

1996 1.4 1.2 85.7 41.8 18.1 23.7 34.0 10.3

1997 1.4 1.2 85.7 36.2 16.1 20.0 46.0 26.0

1998 1.5 1.3 86.7 38.3 17.4 20.9 45.1 25.1

1999 1.5 1.4 93.3 43.7 25.2 18.4 68.2 50.0

2000 1.5 1.4 93.3 47.2 25.2 22.0 127.4 105.5

2001 1.5 1.4 93.3 54.7 32.7 22.1 62.7 40.7

2002 1.4 1.2 85.7 29.9 18.1 11.9 56.5 44.6

2003 1.3 1.2 92.3 28.6 17.3 11.3 16.5 5.2

Source: Risk Management Agency, compiled by ERS, USDA.
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Conclusion

By eliminating the marketing quota system, the 2002 Farm Act introduced a

major shift for the U.S. peanut sector and ushered in a more market-oriented

system. The transition has been marked by lower prices for many producers

and adjustments to marketing and risk management strategies, with most

farmers opting to enter into marketing contracts or participating in

marketing cooperatives. At the same time, production patterns seem to be

responding to market incentives. While overall plantings are down, it

appears that peanut producers are using increased production flexibility to

shift production to more profitable crops or expand peanut production in

higher yielding areas. Additionally, the transition for historical peanut

producers has been cushioned by a number of factors, such as additional

revenue from Government payments and other sources of farm and off-farm

income. As peanut growers continue to adapt to the new environment, their

production decisions will increasingly be guided by demand conditions, as

well as by their assessments of the relative profitability of producing

peanuts versus other crops.
For the individual farm, the production response to the peanut policy change

in the 2002 Farm Act is likely to vary considerably, depending largely on

farm-level production costs and returns, as well as on relative returns from

alternative farming activities. As before, decisions to exit peanut production or

to expand plantings—and the timing of those decisions—will depend on

shorter term annual operating costs and longer term investment decisions

related to peanut production. Other demographic and financial characteristics

of farm operators, such as the operator’s age and education, debt/asset ratio,

farm size, and owner/renter status, will also influence decisionmaking.

This appendix uses data from USDA’s Agricultural Resource Management

Survey (ARMS) to examine production costs and provide a profile of peanut

farms in each of the three main producing areas. 

Peanut Production Costs and Returns

In the short run, annual production decisions are typically based on the relationship between operating costs and expected prices. Operating costs for

peanut production include such items as seed, fertilizer, pesticides, fuel,

custom operations, and hired labor. As the planning span increases and

capital assets have to be replaced, producers must consider both operating

and asset ownership costs in relation to prices. Asset ownership costs

include the annualized cost of maintaining the capital investment (depreciation and interest) in machinery, equipment, and facilities, and costs for property taxes and insurance. The replacement of farm assets requires substantial

investments, so farmers often make that decision in conjunction with determining whether to continue producing a particular commodity. 

To provide some insight on how production costs compare with per unit

production revenues (excluding Government payments) under the marketing

quota system and under the new program, appendix figures A-1 and A-2 show

the operating and combined operating-asset ownership costs of peanut

production for crop years 1998-2002. The charts also show the average 1998-

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Note: Peanut farms are defined as

those in the Mid-Atlantic, Southeast,

and Southwest United States that had

any peanut production in 2002. For

more information on ARMS, see

http://www.ers.usda.gov/Briefing/ARMS/.

Appendix 1: Peanut Farm and Operator Characteristics

Peanut operating costs in relation to prices

Source: Costs: USDA, ERS "Commodity Costs and Returns"; Marketing-year average prices: 

USDA, NASS, Agricultural Statistics Database.

Cents/lb

1998-2001 MYA

price=$0.262/lb

2002 MYA

price=$0.182/lb

Note: MYA = marketing year average.

1998 1999 2000 2001 2002

Figure A-1

Mid-Atlantic Southeast Southwest

0

5

10

15

20

25

30

35
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2001 price (under the price-supporting marketing quota system) and the

season average price for 2002 (the first year following the 2002 Farm Act).1

According to these data, the average 1998-2001 peanut price of 26.2 cents per

pound was well above average operating costs in each of the main peanutproducing regions. The 2002 season-average price of 18.2 cents per pound was

still sufficient to cover operating costs in the Southeast during all years, and in

the Mid-Atlantic and Southwest in 4 of the 5 years. However, when asset

ownership costs are included, average costs in each region generally exceeded

the 2002 season-average peanut price. Assuming this pattern holds true in the

future, there may be a gradual consolidation of farms growing peanuts. The

timing will hinge on the planning horizon and investment decisions of peanut

farmers. Producers with operating costs exceeding expected revenue are likely

to be the first to exit peanut production, while others may exit as fixed assets—

particularly those tied uniquely to peanut production—fully depreciate and

must be replaced. Farmers with lower production costs, more modern operations, and a more favorable financial position could assume increased production, thus offsetting declines by other peanut producers. 

While 2002 data indicate a general incentive to gradually reduce peanut

production, the 2002 ARMS profile of U.S. peanut farms also shows substantial differences among farms and farmers in each of the major peanutproducing regions, which may influence peanut planting decisions. For

example, Southwest peanut farms are larger and have more peanut acres but

are also in a more vulnerable financial position (based on debt-asset ratios)

than farms in the other regions. In addition, average peanut production costs

per pound during 1998-2002 were higher and more variable in the Southwest

than in other regions and were more likely to be above market prices. These

conditions may have contributed to the decline in planted peanut acres

observed in some parts of the Southwest since 2001. 

In the Mid-Atlantic region, peanut producers have smaller farms but had

lower peanut production costs prior to 2002 and are less vulnerable financially than peanut farmers in the Southwest. However, peanut farmers in the

Mid-Atlantic are generally older, and fewer regard farming as their primary

Peanut operating and ownership costs in relation to prices

Source: Costs: USDA, ERS "Commodity Costs and Returns"; Marketing-year average prices: 

USDA, NASS, Agricultural Statistics Database.

Cents/lb

1998-2001 MYA

price=$0.262/lb

2002 MYA

price=$0.182/lb

Note: MYA = marketing year average.

1998 1999 2000 2001 2002

Figure A-2

Mid-Atlantic Southeast Southwest

0

5

10

15

20

25

30

35

1 Note that ARMS cost of production

data do not include opportunity costs

for other resources, such as the farmer’s

labor and land (which could be used for

other purposes). Thus, the data do not

reflect changing land rental rates

caused by the elimination of the quota

system, discussed earlier in this report.

Also note that Appendix figures A-1

and A-2 list costs per pound, which

reflect annual yield variations. For further information on peanut costs of production, see the Economic Research

Service, USDA, Commodity Costs and

Returns database

http://www.ers.usda.gov/Data/

CostsAndReturns/testpick.htm.
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2 “Crop farms in peanut areas” are

defined as any farm in the MidAtlantic, Southeast, and Southwest

that had crop production in 2002.

occupation. At this stage of life, and faced with greater uncertainty about the

returns to peanut production, many of these producers may have decided to

cease peanut production.

In the Southeast, peanut production costs are similar to those in the MidAtlantic. The lower peanut price in 2002 was still sufficient to cover average

operating costs, but not combined operating and ownership costs in most

years. Southeast peanut producers are less vulnerable financially than

producers in the Southwest, but Southeast producers have lower educational

attainment than producers in other regions and appear to have fewer crop

alternatives that are as profitable as peanuts. Consequently, peanut acreage

in the Southeast may be less responsive to changes in the program because

Southeast peanut farmers have fewer off-farm options or crop alternatives. 

Peanut Farmers Likely to Operate 

Larger Farms, Report Farming

as Primary Occupation

Peanut farms tend to be much larger than the average of all (peanut and

nonpeanut producing) crop farms in each of the main peanut-producing

regions, with average acreage operated, owned, and in cropland on peanut

farms more than twice the average for all crop farms in these areas during

2002 (app. fig. A-3).2 Operators of peanut farms were also more likely to

report farming as their primary occupation, compared with operators of all

crop farms. More than 80 percent of peanut farm operators reported farming

as their primary occupation during 2002, in contrast to just over 40 percent

of all crop farm operators (app. fig. A-4). Compared with peanut farmers,

operators of all crops farms (in peanut-producing regions) were more likely

to report being retired (22 percent) or to have a nonfarm job (35 percent) as

their primary occupation.

Peanut Farm Size, Acreage Mix, and

Demographic Characteristics

Most peanut farms (64 percent) are in the Southeast region, primarily in

Georgia (app. table A-1). The Southwest region includes 15 percent of peanut

Acreage on peanut and crop farms

Source: 2002 Agricultural Resource Management Survey. Peanut areas include States 

in the Mid-Atlantic, Southeast, and Southwest.

Acres

Operated

Figure A-3

Cropland

Owned

Peanut farms

0

200

400

600

800

1,000

All crop farms in

peanut-growing areas
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Appendix table A-1—Characteristics of U.S. peanut farms, 2002

Item Mid-Atlantic Southeast Southwest All peanut

farms

Percent of farms 22 64 15 100

Farm size (average acres):

Operated 870 * 763 1,583 907

Owned 273** 385* 632* 397

Rented 586 385 936* 510

Cropland 617 584 1,160 676

Sales class (percent of farms):

Less than $40,000 26** 24* id 21*

$500,000 or more 15 * nr 31* 14**

Peanut acreage (average):

Harvested 91 131* 233* 137

Percent irrigated 6** 32 83 41*

Yield (pounds per acre) 2,004 2,148 3,040 2,351

Other crop acreage (average):

Corn for grain 73 32* id 38

Wheat 29 26* 175* 48*

Soybeans 137 * 15* 11** 41

Cotton 251 * 212* 281* 231

Tobacco 20 * id 0 6*

Production specialty1 (percent of farms):

Peanuts 31* 43 48* 41

Tobacco 23 * id 0 9*

Cotton id 14* id 12*

General crop 20 * 26* 31* 25*

Beef cattle 0 7** id 5**

Notes: id = insufficient data for legal disclosure; nr = not reported due to a limited sample size

and a high coefficient of variation (CV); * = CV between 25 and 50; ** = CV greater than 50.

1The production specialty is the commodity that accounted for 50 percent or more of the farm

value of production during 2002. General crop farms did not have a single commodity that met

this criterion.

Source: 2002 Agricultural Resource Management Survey.

Primary occupation of peanut and crop farm operators

Source: 2002 Agricultural Resource Management Survey. Peanut areas include States 

in the Mid-Atlantic, Southeast, and Southwest.

Percent of farms

Farming

Figure A-4

Non-farm job

Retired

Peanut farms All crop farms in

peanut-growing areas

0

20

40

60

80

100
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farms, but these farms were, on average, larger than farms in the other regions.

Southwest peanut farms averaged nearly 1,600 acres operated, with 1,160 acres

of cropland. In addition, nearly a third of peanut farms in the Southwest had

total farm sales of $500,000 or more, compared with 15 percent or less in the

other regions. Peanut farms in the Mid-Atlantic and Southeast were similar in

size, with around 800 operated acres and 600 acres of cropland. About a

quarter of farms in these two regions were relatively small, with total farm

sales less than $40,000. 

The largest peanut acreage on peanut-growing farms was in the Southwest,

with an average of 233 harvested acres, compared with 131 in the Southeast

and 91 in the Mid-Atlantic. Southwest producers also had the highest peanut

yields in 2002, nearly 1,000 pounds per acre higher than in both other

regions, owing to extensive irrigation in this region. Over 80 percent of

peanut acreage in the Southwest was irrigated, compared with 32 percent in

the Southeast, and only 6 percent in the Mid-Atlantic. 

Other crops found on peanut farms varied by region, but cotton was

common in all regions (app. fig. A-5). More than 200 acres of cotton, on

average, was harvested on peanut farms in each region. In the MidAtlantic, soybeans and corn were also commonly grown on peanut farms.

Southwest peanut farms also had substantial acreage of wheat. However,

peanuts were the production specialty on the most farms in each region,

including 48 percent of Southwest farms, 43 percent of Southeast farms,

and 31 percent of Mid-Atlantic farms. Many of the peanut farms in each

region were diversified, classified as general crop farms with no production specialty.3

The average age of peanut farm operators was significantly higher, by 10

years, in the Mid-Atlantic and Southeast than in the Southwest (app. table

A-2). About half of Mid-Atlantic and Southeast peanut farmers were over

age 50, while 80 percent of farmers in the Southwest were under age 50.

Nearly 30 percent of farmers in the Mid-Atlantic reported their primary

occupation as other than farming (retirement or nonfarm), compared with

virtually none of the Southwest farmers. Mid-Atlantic farmers were also

more educated than farmers in the other regions, with more graduating from

college, especially compared with Southeast farmers.

3 Farm production specialty was

defined as the commodity with 50 percent or more of the farm value of production in 2002. Low cotton prices in

2002 depressed the value of cotton production and probably prevented cotton

from being the production specialty on

a greater number of peanut farms.

Crop mix on farms that planted peanuts

Note: Data reflect harvested acres only, not necessarily all cropland.

Harvested acres

Peanuts

Figure A-5

Wheat

Corn

Cotton

Other

Soybeans

Source: 2002 Agricultural Resource Management Survey.

Mid-Atlantic Southeast Southwest

0

200

400

600

800

1,000

1,200

91

212

281

233

131

251
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Farm Typology 

The ERS farm typology combines farm characteristics, including operator

occupation and farm sales, in order to assign farms into homogeneous categories (Hoppe, Perry, and Banker). The measure of farm typology used in

this report classifies farms into three categories: a) commercial farms (any

farm with annual sales of $250,000 or more); b) rural residence farm (farms

with sales less than $250,000 and whose operators report their primary

occupation as either retirement of off-farm) and; c) intermediate farms

(farms with sales less than $250,000 and whose operators report farming as

their primary occupation).

The distribution of peanut farms by farm typology indicates that a majority

can be characterized as intermediate farms, but the distribution varies significantly among the regions (app. fig. A-6). Nearly a third of Mid-Atlantic

peanut farms were rural residence farms, owing to the large number of retired

farm operators, while nearly half were commercial farms. Most peanut farms

in the Southeast and Southwest were intermediate farms, but a significant

number of Southwest farms were classified as commercial.

Farm Financial Characteristics

The average net cash farm income of Southwest peanut farms, nearly

$120,000 per farm, was significantly higher than income in the MidAtlantic (about $70,000) and in the Southeast (about $50,000) (app. table

A-3). However, a depreciation expense of about $86,000 per farm in the

Appendix table A-2—Farm operator characteristics of U.S. peanut

farms, 2002

Item Mid-Atlantic Southeast Southwest All peanut

farms

Age (years) 52 52 42 50

Age class (percent of farms):

Less than 50 years 54 * 45* 80* 52*

50 years or more 46 * 55* 20** 48

Education (percent of farms):

Completed high school 100 85 100 90

Completed college 33** 13* 20** 19

Primary occupation (percent of farms):

Farming 71 * 86 100 85

Retirement id id 0 8**

Nonfarm job id id id 7*

Farm typology1 (percent of farms):

Rural residence farms 29** 12** 0 14**

Intermediate farms 24 * 67 59* 56

Commercial farms 47 * 22* 41* 30*

Notes: id = insufficient data for legal disclosure; * = coefficient of variation (CV) between 25

and 50; ** = CV greater than 50.

1Rural residence farms had operators whose primary occupation was retirement or a non-farm

job. Intermediate and commercial farms had operators whose primary occupation was farming.

Intermediate farms had sales of less than $250,000, whereas commercial farms had sales of

$250,000 or more.

Source: 2002 Agricultural Resource Management Survey.
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Peanut farm typology by region, 2002

Percent of farms

Figure A-6

Rural residence

Commercial

Intermediate

Source: 2002 Agricultural Resource Management Survey.

Mid-Atlantic Southeast Southwest

0

20

40

60

80

100

Appendix table A-3—Financial characteristics of U.S. peanut farms, 2002

Item Mid-Atlantic Southeast Southwest All peanut

farms

Farm income statement ($ per farm):

Gross cash income 308,501* 264,943* 398,276 294,101*

Livestock sales 7,103** nr 16,531* nr

Crop sales (all crops) 201,779* 162,987* 260,277* 185,785

Government payments 65,796* 50,753* 55,653* 54,742

AMTA payments 6,821* 6,708* 10,494* 7,292

Direct payments 8,625* 9,892* nr 9,418*

Counter-cyclical payments 5,927* 3,584** nr 4,013*

LDP payments/

Marketing loan gains 13,511* 3,842** 12,966* 7,289*

Peanut quota compensation 18,750* 18,571* 16,640** 18,324

Cash expenses 239,922* 215,060* 278,661* 229,855

Net cash farm income 68,579* 49,883** 119,615 64,246*

Depreciation 20,239* 27,010** 86,016** 34,261*

Net farm income1 57,892** 43,897** 28,934** 44,723*

Farm balance sheet ($ per farm):

Assets 660,726* 1,014,041* 1,013,376* 937,265*

Liabilities 123,271* 109,327* 366,210* 150,318*

Equity 537,454* 904,713* 647,166 786,946*

Debt/asset ratio 0.19* 0.11 0.36* 0.16*

Return on equity 10.77* 4.85* 4.47** 5.68*

Farm household income ($ per household):

Total household income 71,948* 80,374* 65,673** 76,614

Farm-related income2 34,332* 14,483** 33,274** 21,211**

Off-farm income 37,616 65,891 32,400** 55,403

Earned sources 21,771* 40,105 26,914* 34,450

Unearned sources 15,844* 25,786** 5,486* 20,953*

Notes id = insufficient data for legal disclosure; nr = not reported due to a limited sample size

and a high coefficient of variation (CV); * = CV between 25 and 50; ** = CV greater than 50.

1 Net farm income is net cash farm income less costs for depreciation and noncash benefits for

hired workers, plus the value of the inventory change in 2002 and any nonmoney income.

Nonmoney income includes the value of farm products consumed on the farm and an imputed

rental value for the farm operator dwelling.

2 Farm-related income is that portion of farm income that is accrued by the farm household.

Farm-related income is net cash farm income less costs for depreciation and farmland rental

income. The total is then adjusted to reflect any other households that share in the farm business income, and the farm earnings of household members other than the farm operator.

Source: 2002 Agricultural Resource Management Survey.
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Southwest, compared with less than $30,000 in the other regions, meant

that net farm income was lowest in the Southwest. The depreciation charge

is greater in the Southwest because of the substantial machinery and equipment requirements for the large irrigated acreage of farms in this area.

Also, the younger age of Southwest peanut farmers suggests that their

investments in farm assets have been more recent, and thus have a greater

depreciation charge. Average net farm income in 2002 was highest on

peanut farms in the Mid-Atlantic, about $60,000 per farm, nearly double

that on farms in the Southwest. 

Peanut farms in the Southeast and Southwest regions had nearly identical

farm asset values, but the debt on Southwest farms was nearly three times

higher, resulting in a debt-to-asset ratio of 0.36. This high ratio likely

reflects the young age of these farm operators, relative to those in other

regions, who have recently borrowed significantly to finance asset purchases

and farming operations. The high debt-to-asset ratio on Southwest peanut

farms does not indicate a problem as long as the income generated from

farming is enough to service the debt; however, farmers could be at greater

risk in years when prices and yields are less favorable. Debt-to-asset ratios

were much lower in the Mid-Atlantic (0.19) and Southeast (0.11), where

older farm operators have likely paid down much of the farm debt incurred

during their early years in business. 
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Production—Peanuts represent about 10 percent of world oilseed production,

making them the fourth largest oilseed crop after soybeans, cottonseed, and rapeseed. The world’s leading peanut producers in terms of global production share

during 2001/02-2002/03 were China (46 percent) and India (19 percent), followed

by the U.S. (5.2 percent), Nigeria (4.7 percent), and Indonesia (3.3 percent). Most

production is consumed within country, as only 6 percent of recent (2000/01 to

2002/03) production was traded—up slightly from 5.4 percent in the early 1980s. 

Trade—During 2000/01-2002/03, China (with 49 percent of global exports), the

United States (13.5 percent), Argentina (13 percent), India (7 percent), and

Vietnam (5 percent) were the world’s leading peanut exporters. Relatively poor

storage and internal transportation capabilities and quality issues are likely to

limit potential U.S. imports from many of the less developed countries. The

European Union (EU) is by far the leading importer of peanuts, with about 38

percent of global imports during 2000/01 to 2002/03. The EU is followed by

Japan (8.5 percent of imports), Indonesia (7.6 percent), Russia (7.4 percent),

Canada (7.0 percent), Mexico (6.6 percent), and the United States (4.9 percent).

The U.S. import share fell to 2.2 percent in 2002/03.

Trade policy and market access issues—The outlook for global peanut trade and

U.S. peanut exports will depend, to a certain degree, on potential reductions to

market barriers, such as tariffs and TRQs. According to data from the Agricultural

Market Access Database, the simple average of bound or over-quota tariff rates on

peanuts for 101 countries was 66 percent, slightly above the 62-percent average for

all agricultural products. Of these countries, only 16 had bound or over-quota tariff

rates of less than 20 percent (including the EU and Canada). Of 22 countries for

which applied tariff data were available (mostly Latin America, East Asia), tariffs

were typically below 50 percent, with the exception of the Republic of Korea (251

percent). Excluding Korea, the average applied rate for these countries was just

over 12 percent. The U.S. trade negotiating position of reducing tariffs and

increasing tariff-rate quotas could result in changes to the tariff rates and tariff-rate

quota of U.S. peanuts and peanut product imports, but may also provide opportunities for increased U.S. exports if tariff rates abroad are lowered. With the U.S.

TRQ currently not filling, it appears that under current market conditions,

increasing the TRQ will not result in increased U.S. imports, but lowering the inquota tariff level could have some effect.

In addition to tariff barriers, sanitary and phytosanitary rules and regulations

have had a significant impact on trade. For example, the level of aflatoxin (a

carcinogenic byproduct of mold) is a key factor in the trading of peanuts, but

regulatory standards governing the permissible level of aflatoxins in peanuts

vary widely among countries. The U.S. peanut industry standard and the international standard-setting body CODEX Alimentarius have both adopted a tolerance level of 15 parts per billion aflatoxin in peanuts for human consumption.

The EU has adopted more stringent standards, but many less developed countries allow higher levels of aflatoxin. Differences in regulatory standards have

potentially large trade impacts (for more information, see Mycotoxin Hazards

and Regulations: Impacts on Food and Animal Feed Trade,

http://www.ers.usda.gov/publications/aer828/aer828h.pdf).

Appendix 2: Perspective on Global Peanut Production

and Trade Issues
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