Consider retaining control, storing and marketing later in the year.

By Tyron Spearman
Contributing Editor

 

The dye will soon be cast on this year’s agricultural picture. A new battle is brewing, the battle for production of food or energy. A picture of handsome farm profits from higher prices has disappeared with higher input costs that wipe out any profits.

Getting Started
Farmers are gearing up to plant. Surveys indicate a 16 percent increase in acreage. Factors affecting planting are weather and seed availability.

Southeastern states received winter rains, but with no spring rains, the topsoil has dried out quickly. Many farmers have stopped planting the high-priced seed until rains return. Last season many farmers “dusted in” near the insurance deadline, but an early June rain helpted peanuts develop and thrive. Early indications from seed dealers are that demand exceeds supply, especially recently developed varieties.

In the Southwest, areas that were flooded last season have not received rains, and soils are extremely dry. Soil moisture in Texas was 70 percent very short, 25 percent short and only one percent adequate.

Market Demands
Shellers and manufacturers continue to redeem peanuts from the loan as needed. Farmers who have not marketed the 2007 crop and hold warehouse receipts could receive $600 to $625 per ton. The National Posted Price suggests that price for uncommitted peanuts are trading at $560 per ton.

Looking into 2008, farmers might consider retaining market control, storing peanuts in the loan and delaying marketing until later in the year.

Most shellers have withdrawn from selling remaining inventory to manufacturers. Many have forward contracted and may need inventory to fill earlier orders, depending on acreage planted and total crop production. Some supplies may be diverted to seed.

In the Southeast and Southwest, most farmers signed the $500 per ton contract for runners. Some 60 to 65 percent of the crop could be priced at this level. That was a marketing decision at the time, and farmers must honor that contract. If you signed it, plant and deliver.

What about farmers with no contract or farmers considering planting more peanuts rather than soybeans? With 60 percent priced on the forward contract with only acreage listed, shellers are not likely to get into a contract battle early. If they sense acreage is down, yes, look for a battle later to get more planted. But that is not likely until mid-June, and look for tonnage to be limited.

Farm Bill Help
Farmers with base should get another counter-cyclical payment in September from the 2007 crop. The April average price was only $402 per ton.

The direct payment remains in the new Farm Bill, but a reduction may be required in 2010. If USDA can capture all the option payments or contract offers, don’t look for any counter-cyclical payments next season.

Demand
Peanut usage was making a comeback, down less than one percent. In March, the tide changed, unless it is a record-keeping adjustment, as usage in candy plummeted 35.5 percent, bringing the category for the year down 17.2 percent. Snack peanut usage also declined, down 13 percent, but remains up 5.4 percent for the year. Peanut butter is even and should continue to climb in this economy.

Wholesale prices of shelled peanuts have topped 70 cents per pound for medium grades, indicating a strong demand and short supplies until the new crop is produced.

Export demand continues strong, but supplies are limited at this time.

Competition
An early frost may cause maturity issues for Argentine farmers when peanuts arrive in European markets. For now, they are the only source available to many buyers. Argentina’s farmers’ strike could be an issue. China continues to keep supplies at home.

Bullish On Peanuts
The market should stay strong through the year. Domestic demand should improve, export demand is already strong, and, don’t forget, peanut oil is the best biodiesel. Don’t get caught cheating by not delivering to a contract…after all, there is next season. PG


Leading Market Indicators (as of May 7, 2008)

• 2007 Crop - 1,811,688 tons
• 2007 Crop Sold Commercial - 356,085 tons
• 2007 Crop In Market Loan - 1,362,760 tons
• 2008 Acreage - 1,430,000 (est.)
• 2007-08 Usage (8 mos.) - down 2.4 %
• 2007-08 Exports (6 mos.) - up 11.1%
• National Posted Price (per ton): Runners $560.19, Spanish $542.61, Virginia/Valencia $550.32.