By lowering the fixed quota support price to $610 per ton and reducing the national quota level (total tonnage of peanuts guaranteed at $610 per ton) for the seven-year life of the new Farm Bill, 1996-2002, instability was created in the quota rental market. Producers believe that quota rent should be lower because the price of peanuts is lower. However, quota owners feel the price should remain at current levels because there is less quota available for rent, hence less supply of quota.

In the first year of the new Farm Bill, 1996, quota rent prices slightly increased as a whole. One explanation might be that farmers felt that they must replace reduced quota that they lost as part of the Farm Bill and/or produce even more quota peanuts since they were to receive a lower price per pound. This likely sustained the recent price levels of quota rent.

In order to determine what might happen over the next few years, a study was conducted to determine at what level quota prices would need to go before quota renters would be better off growing alternative crops, such as cotton or com and at what price owners would be better off to rent-out their quotas rather than grow quota peanuts themselves. It was hypothesized that renters will not be able to continue to pay past quota rental prices with the reduction in the quota support price, but that a quota rental market will exist as long as renters can pay more for quota than owners would require to use the quota themselves.

A representative farm was modeled over a five-year period for five situations. One situation was to grow no quota peanuts. The remaining four situations included peanut production at different quota rental prices.

A parallel set of situations was also analyzed for quota owners. Prices used in this analysis were $610 per ton for quota peanuts, $315 per ton for additional peanuts, and two price levels for alternative crops. Low and high alternative crop prices were $2.53 and $3.25 per bushel for com and $.64 and $.75 per pound for cotton, respectively.

The economic potential of each renter and owner situation was measured as the average annual income over five years. This provided a numerical value for each situation which could then be used to determine break-even quota rental levels for various renter and owner situations. Fifty iterations of the model were run for each situation. Data for all situations were created at the same time with the same states of nature. For example, if a peanut crop failure happened in any particular analytical year, renters at all rental rates and owners were affected alike.

The farm that was used as a base for this model consisted of 500 acres of non-irrigated farm land. For the RENTER model all crop land was rented at $20 per acre. In the OWNER model, all land was considered to be owned. In the models run, the income ranged from about $86,000 to $140,000. Owners typically made 10-15% more than renters, and new crop prices (higher) generally returned 30-50% more income than old (lower) crop prices.

Results are presented in Tables 1 and 2. For RENTER 1 (low competing crop prices), the farmer would receive an equivalent annual net income stream of $87,809 over five years when he paid $.08 per pound for quota, and $89,720 when he paid $.06 per pound. If, however, he had grown no quota peanuts and only the alternative crops, his annual net income would have been $88,814. Thus, the farmer could afford to pay only up to about $.07 per pound for quota pounds.

Table 2. Average of Annual Net Returns from Fifty Observations (Runs) of the Five Year OWNER Model for Two Quota Scenarios and Two Price Levels
Item	OWNER 11	OWNER 22
Did not allow quota peanuts	$97,838	$136,947
Did allow quota peanuts	109,845	140,388
1Old crop prices (corn $2.53 per bushel and cotton $.64 per pound). 2New crop prices (corn $3.25 per bushel and cotton $.72 per pound).

RENTER 2 (high competing crop prices) makes more net income when planting alternative crops than when renting quota at even the $.04 per pound level. However, about equal net income was obtained even at $.10 per pound quota rent, but only four acres of quota peanuts were planted. This is not an economically feasible size for peanut production. Therefore, he should really not grow peanuts unless he can pay as little as $.04 or less for quota pounds because only then would he plant enough acres to make it economically viable.

The OWNER 1 model was set up the same way as the RENTER 1 model with low competing crop prices except that this farmer owned rather than rented quota pounds. The results from Owner 1 showed that as long as the farmer could rent out his quota pounds for $.05 per pound, he would be better off to rent them out and to grow other crops on his farm. This does not, however, take into effect the fixed cost of peanut specialized machinery which might raise this price by a cent or two.

OWNER 2 was modeled with higher competing new crop prices (same as RENTER 2). In this situation, the owner would be just as well off to rent his quota out at $.01 per pound than to grow peanuts.

The results from this study indicate that provisions in the 1996 Farm Bill will cause quota rental prices to decrease from the commonly seen $.10 per pound level under the past Farm Bill. The break-even rental price for quota was $.07 per pound when competing crop prices were relatively low, and $.04 per pound when competing crop prices were relatively high. The rental price was also found where a quota owner would be better off to rent out his quota than to grow it. The price an owner would need to receive to rent out his quota would be $.05 per pound for low competing crop prices, and $.01 per pound for high competing crop prices. Since this analysis indicates that renters will be willing to pay more for quota than owners will require, there should still be a healthy market for quota poundage over the life of the 1996 Farm Bill.

Curtis is a Graduate Research Assistant, Martin is a Professor, Lamb is a Research Fellow, and Johnson is a Professor and Head of Agricultural Economics and Rural Sociology.