Early this year, congress restored cotton as a title 1 commodity which basically means that it will have a safety net during periods of unprofitable prices. Cotton farmers lost their cotton base in the last Farm Bill and gained something new called Generic Base.
This year that Generic base can be converted back to other crop base based on planted acreage from about 6 to 10 years ago or to Cotton base. In addition, for cotton base, they have to select between ARC or PLC similar to the other commodities.
At the risk of over-simplification, this is going to be a decision that comes down to how much peanut acreage had been grown during 2009-12. Ninety-nine percent of cotton farmers that did not plant peanuts during this period will convert their generic base to cotton base using Option 1. That will give them between an 80% and 100% conversion.
However, if a cotton farmer was planting peanuts between 2009 and 2012, then it will be attractive to convert to some peanut base up to a point. I think giving up 2 acres of cotton base to gain an acre of peanuts makes sense (maybe even a 3:1 ratio).
Historically you could argue that over the last 5 years, you could give up as many as 4 acres of cotton base to gain an acre of peanut base, but I think a cotton producer needs the safety net of the cotton base, and therefore would not be willing to give up that many acres of cotton. With cotton prices in the mid-60s at current seed prices, cotton base will make a $100 payment. If we get to prices that low again, we will be glad to have that cotton base in place.
If no peanut planting during 2009-2012 then use Option 1 which is basically the default option.
Use option 2 primarily if you get an acre of peanuts without sacrificing more than 2 or 3 acres of cotton.
That’s my opinion.