The Cost of Peanut Production: Q&A with Dr. Stanley Fletcher

Production research funding is a key priority for the National Peanut Board. Since 2001, NPB has allocated more than $38 million to this cause to help increase efficiencies for America’s peanut farmers. One NPB-funded research project provides useful insight into farms across the Peanut Belt to present an accurate picture of the cost of peanut production and the state of farming. Project lead Dr. Stanley Fletcher is a professor of policy at the Center for Rural Prosperity and Innovation at Abraham Baldwin Agricultural College. Dr. Fletcher’s project, with support from the National Peanut Board, aims to analyze the costs of peanut production concerning yields and grade and evaluate the profitability of various production schemes. The project was started in 2000 and provides updates every three to four years. The conversation with Dr. Fletcher about this work is below and has been edited for length and clarity.
 
Could you give a quick overview of the program?
My program covers everything related to economics of peanuts. When I started in 1990, I only dealt with trade and policy. Then, expanded out to supply and demand, then to crop insurance, production economics and farm management. I used to start with a spreadsheet and only covered A through D on economics related to peanuts. Now, it's A to triple Z.
 
Your program uses representative groups of farms around the country that you track. How does it work?
I was quite involved with the trade negotiations that dealt with North American Free Trade Agreement (NAFT) and General Agreement on Tariffs and Trade (GATT) (which later became World Trade Organization (WTO)). Back in those days, peanuts had a quota program. If you had quota, you were well-protected and supported so you could survive. I knew based on my work in trade that the environment that peanut farmers dealt with was going to change. They needed to have some good, sound information about really what is going on in the farms, not just with peanuts, but the whole farming operation.
 
This program was based on two years of accumulated funding. I convinced leadership of the need to track representative farms, where you go out and check certain areas. You get five to six farmers that come together, sit around a table and talk about what would be a typical representative farm in their area.
 
They reach a consensus on what a representative farm is in their area. It was key the farmers understood that what was talked about in the room, stays in the room. Fortunately, I was able to obtain panels in different areas that captured the typical farm.
 
How did you choose where these farms were?
 
You've got primary states when I started: Virginia, North Carolina, South Carolina, Georgia, Florida, Alabama, Mississippi, Texas, Oklahoma and New Mexico. I based how many farms for each state on the general production across the peanut belt. Some states are small and if you did the proportions, would have one-half or two-thirds of a farm. I made sure there was at least one farm in each state.
 
Peanuts are a relatively new crop to Arkansas and Missouri. Farm data does not capture what's going on in the peanut world until you get about five years under your belt. Then, I can expand to those areas.
 
It's been surprising that since the project was started in 2000, I have not had much turnover in participating farmers. The first year, the farmers could not understand the benefits. However, as they got into it, they understood how the information is being used in educating folks on what a peanut farm is.
 
A lot of non-farming folks do not realize that peanuts need to be rotated at least once every three years. That means a farm's total crop land will not be more than about one-third to one-fourth peanuts. That is shocking to them. The farmers who participate understand that the information they provide not only helps in their own management decisions, but it shows the general economic conditions on farms that may help guide public policy. It's not just the peanut side, it's the whole farm.
 
How do you see the economic condition of farmers today versus five or 10 years ago?
 
The thing that's saving farmers today is very low-interest rates. I did updates in 2017 and interest rates were 3% to 4% like they are today.
 
I asked farmers, “What would happen if the rates went to 5% or 10% like in the 1980s?” Every one of the farmers told me, if it got up to that percentage, they are all dead. Because interest rates are so low, and yields for peanuts have increased a lot, they can hang on. But they are not what I consider comfortable.
 
In recent years, the reference price went to $535 from $495. That is where peanuts have a respectful safety net, relative to other commodities. I'd say five or 10 years ago farmers were probably in better shape overall than they are now. Especially the Southwest, because they had not experienced that first major drought.
 
The other thing that I've noticed on my farms, the ones that can survive during the tough times, is they're not replacing equipment every three years. They've still got their equipment that goes back 15, 20 years, so they don't have the equipment loans.
 
 
Are there certain farm enterprises that seem to consistently thrive, or perform better than those that don't, based on diversification?
 
Farming used to be diversified. When I was growing up, we were diversified and had chickens, cattle and wheat. You’re not going to make a lot on them because they go through cycles. Like that year when corn prices and soybean prices hit the roof, those guys that were totally into those two crops made money. They didn’t bother them about paying $10,000 an acre for land. While down in the south, it meant best might be $3,000. On the other hand, when that one commodity tanks, it’s not going to take you under. You've got some areas based 100% on cotton. With 50-cent prices, they can handle one year, but two or three years of that, they are bankrupt. Diversification helps, and there's not one that's better than the other. It’s just, if it fits within your operation. Farmers only have so much equipment, land and water.
 
There was one year in Georgia when corn got up to $6 a bushel. I think peanuts were going for only $400. I said, "You need over $600 peanuts to compete with corn. Why aren't you growing more corn?" and the farmer said, "I have equipment constraints, water constraints and I need to plant peanuts to keep my rotation."
 
Farmers in southwest Georgia have consistently maintained their rotation. They have not gone overboard, because with rotation they see more consistent yields. They are not going to hit a home run, but they're not going to strike out, either.
 
Are there any differences in prosperity in farms in the Southwest, Southeast or Virginia-Carolinas (VC)?
 
If I had to take the three areas, I would say the Southwest is hurting the most because of water restrictions and extreme drought. Between the Southeast and VC, it depends on who you are talking to. In the past, the VC guys would be in first place and the Southeast would be in second place.
 
Drought can be a challenge in the Southeast too, but they can irrigate. Over half the acres are irrigated in Georgia, so if we do get those super high temperatures like the Southwest did, they can handle it better. Drought and heat make a major impact on the Southwest, especially out in the panhandle, more than in the Southeast and VC.
 
For more information about Dr. Fletcher’s work on the economics of peanut farming. Visit https://www.nationalpeanutboard.org/more/farmers/production-research.htm and search “Fletcher”.

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