Industry waits on acreage total,
Signals are so mixed, it is difficult to determine what the market holds. The economy is a mess, and agriculture seems to be the forgotten piece of the puzzle. The salmonella issue will give rise to improved food safety. A drought in Argentina could open more exports, but the market is quiet.
USDA holds over a million tons in the Market Loan Assistance Program with about three months to maturity as shellers and manufacturers wait to see the planted acres. Peanut butter usage continues to grow, but consumption of peanut snacks and candy is still lagging. What’s a producer to do?
Virginia-type peanut contracts, about 20 percent of the production, were higher than runners this season as shellers had to offer enough to get them planted in North Carolina, South Carolina, Virginia and even in Texas.
New this year, shellers offered the market option contract. The loan of $355 per ton was considered equal to a 45 cent per pound medium runner shelled price. A group of brokers would be contacted each week, and the company would issue a shelled peanut average price for medium runners. If the price increased one cent per pound, $13.50 per ton would be added to the price. The maximum allowed was 51 cents per pound or an $81 per ton added to $355 per ton or max of $436 per ton.
If the market declined below $355 per ton and there was a market gain, the company would give the farmer the option contract with a 50:50 split of the market gain. The farmer could make the price election any time from loan to two weeks before loan maturity. Response to this type contract has been mixed.
USDA Price Data Not Reliable
FSA’s financial assistance to producers depends on either 1) NASS’s weekly published price or 2) FSA’s national posted price. Auditors said that from 2002 to 2007, FSA paid over $1 billion in financial assistance to peanut producers, but without mandatory, verifiable price reporting.
The auditors recommend that USDA seek authority to establish mandatory price reporting requirements for buyers along with the authority to verify data respondents’ reports. Another recommendation is to coordinate with NASS and request they collect buyers’ contract price data for option contracts executed with producers during the week.
Producers, likely planting without a contract, need to remember that placing peanuts into sheller-owned storage causes them to lose options on selling to others. Acreage numbers will impact markets, and many are willing to wait in most cases to see if the markets improve.
Leading Market Indicators (as of May 5, 2009)
• 2008 Crop (predicted) 2,496,650 tons