USDA, on December 15th, announced the peanut quota for the upcoming 1998 crop. The national quota will be 1.167 million tons-- an increase of 3% above last year's 1.13 million ton level. This amount (basic quota) will be allocated among farms with peanut quota. The quota is established each year at a level deemed necessary to meet U.S. demand for edible use. Under provisions of the 1996 amended peanut program, this amount excludes uses for seed. All peanut producers, including growers of additionals, will receive a 1-year temporary "seed quota" based on the amount of acres they plant. For Runner type peanuts, for example, growers will receive 145 pounds of quota per acre planted. Last year, seed quota was over 100,000 tons or about 9% of the edible quota.

Under the previous (1990) farm bill, a minimum peanut quota of 1.35 million tons was established. This was the quota level for the 1994 and 1995 crops. The new peanut program eliminated the minimum quota restriction and the quota was decreased to 1.1 million tons in 1996. The quota was increased 3% to 1.13 million tons in '97 and another 3% increase is on tap for '98.

Is the quota increase justified?

For the 1996 crop marketing year ending July 31, 1997 total peanut use in edible products was up only 1.8% from the previous year. This was the first annual increase in peanut consumption since 1991. The increase is attributed to improvements in in-shell, candy, and snack peanuts. Use of peanuts for peanut butter, the largest demand segment, showed no improvement. Use of both shelled and in-shell (roasting stock) peanuts totaled 2.03 billion pounds or just over 1 million tons farmer's stock equivalent.

However, consumption thus far during the 1997 crop marketing year (August - October) is running 13% above last year's pace. The in-shell, candy, and snack categories continue to show improvement. The major reason for the sharp increase, however, has been a 14% increase in the manufacture of peanut butter.

Further, for the first 3 months of the '97 crop marketing year, government purchases of peanut butter (for domestic feeding and child nutrition programs) were 12.9 million pounds-- almost twice the amount purchased during the same period last year. This difference, if annualized but not seasonally adjusted, would be equivalent to 24,000 farmer's stock tons or 2% of the 1997 peanut quota.

In addition to peanut quota, during the 1996 and 1997 crop years, 100,000+ tons of additionals (non-quota peanuts) were transferred to the quota market through the "buyback" provision. If this practice were to continue, it would effectively add another 9% to the '98 quota. Use of the buyback provision, historically a very minor marketing tool for growers, has increased significantly since passage of the new peanut program.

One must remember the 1-year "lag effect" in establishing peanut quota. For example, the 1.8% increase in demand during this past marketing year ended July 31 was actually supplied by the 1996 quota of only 1.1 million tons plus approximately 110,000 tons of "buybacks" plus imports. Any increase in consumption during the 1997 crop year, which thus far has been very good (13% higher than last year) will be met with a quota of only 1.13 million tons (only 3% higher than last year) plus another 110,000+ tons of buybacks plus imports.

While it is highly unlikely that consumption will remain on pace of the first 3 months, the increase in 1996/97 and thus far this marketing season is welcomed news. Under the new peanut program, grower assessments will be used to pay all program costs to the government. Thus, any quota increase must be analyzed carefully. Will this year's increase result in an oversupply of peanuts? Continued increase in peanut butter consumption is the major key. To solidify demand, most of the increase needs to come from the retail consumer, however, not government purchases. Growers and shellers must also be judicious in the use of buybacks.

Don Shurley (912-386-3512) and Stanley Fletcher (770-228-7231, ext 127)

Department of Agricultural and Applied Economics

University of Georgia

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