Extended market outlook:
weather could be the equalizer

With the economy sputtering along and many markets struggling, the peanut industry seems to be rather optimistic about the future and poised to bring supply and demand closer in balance.

Belt tightening is evident, and all segments of the peanut industry are battling to stay profitable. Remarkably, the industry has survived the salmonella recall and kept consumption steady-to-slightly lower than normal. Negative media blasts about peanuts have declined as the food safety issues for all products are being emphasized.

With a surplus 2008 crop, buyers and sellers did not panic and push prices so desperately low that shellers could not survive. Close, but not disastrous.

Acreage Unknown
The 2009 peanut season had an unusual start. Producers planted about 40 percent of the crop in the Southeast, and then a low-pressure area dumped spring rains for about two weeks, keeping them out of the fields. Growers planting peanuts after wheat were delayed until mid-June, some after the crop insurance deadline.

Buying points will likely have a split season at harvest in the Southeast. As normal, the Southwest was extremely dry at planting time, but scattered rains brought some relief.

Back In Balance
Southeast growers had to weigh many factors at planting, including: early and late varieties, rising soybean prices, lack of profitable contracts, replanting early flooded fields and even getting financing with lending institutions becoming more cautious. Growers with set rotation plans planted peanuts without contracts.

At press time, the cutback in peanut acreage remains unknown since certified acreage is released June 30. USDA’s earlier estimate was a 27 percent cutback for 1.12 million acres. With an average yield of 3,100 pounds per acre – the three-year average – that’s a crop of 1,736,000 tons. This would bring supply and demand back into balance, and prices would likely improve contracts for next season. It should also bring late option contract offers for the uncommitted 2009 crop.

Few Contracts
Another unusual aspect about the 2009 crop is the planting of uncontracted peanuts, especially in the Southeast and Southwest. With the 2008 surplus keeping prices low, offers for new crop were also low. Runner contracts were only $20 per ton option or $375 per ton.

With a predicted 27 percent acreage cutback and lots of weather before harvest, farmers were willing to gamble and not contract. Typically, late-planted peanuts in the Southeast have lower yields, which could also tighten supplies and improve contract offers.

Loan Deadline Approaching
Markets are essentially frozen. Shellers are redeeming from the marketing loan only that tonnage needed to meet orders. Most buyers are covered with minimum orders on 2008 peanuts with the watchful eye on the surplus held by the market assistance program.

USDA has kept the repayment rate above the market price, so minimum movement is recorded. Buyers would like to buy 2009 crop, but most offers are at 2008 prices. Shellers can’t offer 2009 peanuts because they don’t have farmer-stock contacts to back them up. When acreage is known and loan tonnage nears the nine-month deadline for redemption, maybe the market will start moving again.

Safety Net In Jeopardy
The $36 per ton direct payment on peanuts is being challenged. The Obama administration wants direct payments eliminated for larger farmers under the payment limits legislation, but the agriculture committees plan to fight this move. The direct payment concept is under attack, and the new conservation idea has yet to be developed.

Last year, the counter-cyclical payment was not needed as prices were above the target price ($495 per ton). But this year, farmers need the help.

No payments were issued in February. Hopefully, USDA and NASS will consider the present offers of $375 per ton, and that many producers settled for the $355 per ton, when figuring the payment in September.

Federal Crop Insurance is another safety net that is often forgotten. Producers have to pay premiums, but some assistance is provided by the government. That program is also under review. Last year, 1,395,000 acres were insured with a total premium paid of $59 million with $35 million paid by the government. Indemnity was $30.9 million or a .52 loss ratio.

Market Loan Assistance Tonnage
USDA has optioned to keep the repayment rate above the market price this year. Therefore, shellers could not afford to buy at 2008’s prices. Most analysts are convinced that shellers hold options on most of the loan tonnage. As of June 2, the loan had over 950,000 tons with the loan’s nine-month maturity occurring on major tonnage starting in July and ending in November.

The theory behind the program was that prices would decline until peanuts were moving domestically and internationally. Movement has been about 40,000 tons per week. With about 22 weeks remaining for total volume maturity, the peanuts could move into the trade by the deadline. If farmers refuse to contract 2009 because of low contract offers, shellers may option to buy any uncommitted 2008 loan peanuts and avoid forfeitures.

Peanut Usage
The peanut industry has teamed together to encourage the use of the 2008 surplus peanuts and to quickly recover from the salmonella recall. Almost every state launched campaigns to get peanut butter restocked in food banks. The American Peanut Council and state associations have worked to get the government to buy peanuts and peanut butter for world hunger and nutrition programs. Total volume is up about 18 percent for the year.

Peanut butter companies have also campaigned to regain customers, and their efforts appear to be successful. Peanut butter usage is up nine percent over last year. Candy is down slightly at four percent, with peanut snacks having the most difficult market, down 15 percent. Consumers are returning to peanut butter and peanuts and, as the economy improves, sales should increase.

World Competition
Argentina, a major competitor for export markets, had a tough year and experienced a major drought. But, look for them to do better than expected as they always do.

The depressed world economy is certain to hurt exports influenced by the strength of the U.S. dollar. China is expected to have less tonnage available, down to 13.6 million metric tons. India is said to boost their production, but most of the tonnage from India and China will likely be used domestically.

Stay Abreast
Producers with uncontracted tonnage should keep in contact with the local buying points. Shellers could decide to buy up the 2008 uncommitted loan stocks anytime before November.

If forfeited, USDA has many options, but those peanuts will likely end up in food aid programs.

Prices for uncommitted 2009 peanuts will have to go higher for growers to sign. Those contracts need to be negotiated prior to harvest because using the sheller’s warehouse as your storage site on uncommitted tonnage does not usually result in a higher price.

Stay tuned. Buyers will need your peanuts, and weather could make this an exciting year.

PG

Leading Market Indicators (as of June 4, 2009)

• 2008 Crop - 2,496,650 tons
• 2008 Crop tonnage (5-11-09) - 2,558,359 tons
• 2008 Crop sold commercial - 397,859 tons
• 2008 Crop in market loan - 2,160,500 tons
• 2008 Crop oustanding loans (6-01- 09) - 950,008 tons
• 2009 Acreage (dn 27%) - est. 1,124,000 acres
• 2009 NASS/USDA Census Est. (May) 1,675,000 tons
• 2008-09 Usage (9 mos.) - dn 1.2%
   Peanut candy - dn 4.0%
   Snack peanuts - dn 15.3%
   Peanut butter - up 9.0%
   In-shells - even with last year
• 2008-09 Exports (8 mos.) - up 1.8%
   Raw shelled - dn 11.7%
   In-shell - up 94.7%
   Peanut butter - up 0.7%
• 2008-09 Imports (8 mos.) - dn 18.6%
• National Posted Price (per ton) Runners $424.75, Spanish $418.95, Virginia/Valencia $427.32