Considering the carryover,
about 30 percent less is needed in 2009

By Tyron Spearman
Contributing Editor

 

The industry looks great on the surface. Record yields and a record crop, less disease pressure, new higher-yielding varieties, little or no aflatoxin, plus domestic consumption and export sales are up, with fewer imports – it all sounds good. Then reality sets in.
The ag economy has slipped into a recession with the lowest commodity prices in years, except soybeans, which are not a good rotation for peanuts. The good news is that fuel prices are down, but the reduction in corn for ethanol could spell trouble for that industry. Cotton prices have set record lows and acreage could drop another 20 percent this year after a 26 percent drop in 2008. Crop alternatives were a bargaining chip last year, but don’t look good this year.

Production And Excess
Producers have piled up 2,540,000 tons of peanuts, a 38 percent increase over last season. Add 500,000 tons carry forward and total supply is about 3 million tons. USDA estimates a demand of 1,300,000 tons for domestic consumption, 270,000 tons for crushing, 266,000 tons for seed and residual and 415,000 tons for exports. That’s a demand of 2,250,000 tons leaving 750,000 tons. The peanut pipeline takes about 300,000 tons, so the real excess is about 500,000 tons. The industry must find a market or face the peanuts next season.

For 2009, the industry will need 1,500,000 to 1,800,000 tons to equal demand, about 30 percent less than was brought in last season.

U.S. Demand Trends
USDA reports usage up 2.8 percent after four months. Peanut candy made a comeback in November, up 21 percent and now even with last year. A depressed economy is a peanut butter booster as usage was up 16 percent in November and up 12 percent year-to-date. Peanut butter accounts for about 60 percent of the U.S. market. Peanut snacks are struggling, down 15 percent accounting for about one-third of the volume.

The American Peanut Council, representing all industry segments, has contacted state and federal agencies to inform them of the excess peanuts. A few government purchases to donate nutritious peanuts or peanut products would be like a mini-bailout for the American peanut industry.

Texas growers are commended for organizing a Food Bank donation program to get peanut butter to the hungry.

Export Demand
As the dollar declines against other currencies, U.S. peanuts cost less and buyers have returned. USDA’s December forecast for 2008 will be over 415,000 tons. USDA reports 239,999 metric tons were exported January through September, up 41 percent for the period. The Foreign Agricultural Service and the U.S. peanut industry are working to gain more markets in Europe, Canada and Mexico. The development of tote bags and the new eTDI Web-based trading should make U.S. peanuts more competitive.

Argentine acreage increased slightly, but an early freeze or frost could impact the crop. India’s acreage is up, but most of it is processed domestically for oil. China is sure to offer some exports, but buyers report quality issues.

Financing In 2009
Farmers with a peanut base, but the likelihood of no contracts, can estimate the safety net at $355 per ton loan, plus $36 per ton direct payment and about $50 per ton counter-cyclical payment with 40 percent paid in February and 60 percent paid in September. That’s a guarantee of about $441 per average ton.

UGA economists estimate a $380 per ton variable cost with fixed cost at $262 per ton or a break-even cost near $521 per ton. The government’s safety net is too low as farmers must depend on the markets to make ends meet in 2009. Remember, farmers with no base have a safety net of $355 per ton.

Markets A Gamble
Manufacturers, shellers and producers must work to make certain peanuts are planted to match market demand. Very few farmers can operate with no financing, and the remodeled banking system is more cautious than ever. Farmers could see a two-priced system again with planted base having a price and above base a lower price. Matching acreage to demand is always a gamble with variables like weather and market prices, but that’s the nature of farming.

PG


Leading Market Indicators (as of Jan. 1, 2009)

• 2008 Crop predicted at 2,496,650 tons
• 2008 Crop tonnage - 2,537,437 tons
• 2008 Crop sold commercial - 389,628 tons
• 2008 Crop in market loan - 2,147,810 tons
• 2008 Acreage (up 25 %) - 1,494,000
• 2008-09 Usage (4 mos.) - up 2.8 %
• 2008-09 Exports (3 mos.) - up 23.2%
• National Posted Price (per ton): Runners $534.75, Spanish $528.95, Virginia/Valencia $537.32.