Peanut Cost of Production, the Farm Bill, and Need for Risk Management

Marketing peanuts can be challenging for producers due to the lack of a futures market and relatively concentrated first buyers. This makes it even more important for producers to evaluate their cost of production to help control input costs and make strategic risk management decisions. 

According to the USDA Commodity Cost and Returns for peanuts, the cost of production increased in 2022 and has stayed at this new higher level, much like other commodities. Figure 1 shows the 2024 forecasted operating cost of production at $336/ton. This covers such items as seed, chemicals, fuel, repairs, and interest. Meanwhile, allocated overhead includes general farm expenses that are allocated to the peanut operation, such as labor, the cost of machinery, and the opportunity cost of land. When including allocated overhead, the total cost of production is forecasted for 2024 at $598/ton, a 28% increase from 2014. These costs are slightly lower than the $648/ton total cost peak forecasted for 2023, but nowhere near the levels seen in earlier years.

Source: Calculated using annual yields and costs of production from USDA Economic Research Service Commodity Costs and Returns, November 2023.  2023 yields are based on November USDA estimates.  2024 yields are an average of the previous five years.

In a Southern Ag Today article on December 4, 2023, it was shown that peanut prices are continuing to rise since the low in 2015. It was noted that the USDA expects prices to be about $550/ton for the 2023-2024 marketing year. This is still below the cost of production shown above. 

The farm bill provides for a safety net for peanut producers with base acres through the ARC/PLC and Marketing Loan programs. These programs have statutory price levels that have not changed since the 2014 Farm Bill. For the PLC program, the statutory reference price is $535/ton. While the 2018 Farm Bill allowed for an escalation through the Effective Reference Price, that has not triggered for peanuts. Meanwhile, the Marketing Loan has been set at a rate of $355/ton. This does not provide a safety net at these higher cost levels. 

While Congress continues to debate the next farm bill, producers need to look at alternative marketing strategies and other ways to help mitigate the rising costs of growing peanuts. Cross hedging is a popular marketing strategy used to mitigate risk, but there is little empirical evidence that it is effective for peanuts. That leaves contracting, cost control, and crop insurance as the most viable risk management tools for peanut producers.

Rabinowitz, Adam. “Peanut Cost of Production, the Farm Bill, and Need for Risk Management.Southern Ag Today 4(2.1). January 8, 2024. Permalink