If you signed a contract to plant,
honor the contract and plant

By Tyron Spearman
Contributing Editor

 

Competition for land, labor, capitol and management has agriculture in a fight for acreage. Energy costs are driving inputs higher, and management by the grower is even more important. Higher commodity prices sound good. However, margin of profit is difficult to nail down.

Lack of progress on the Farm Bill is not that important. The baseline did not change, and this demand-driven market tells the farmer, “come grow for us; forget the government.” After all, more than 75 percent of funding is for nutrition and incentives that fail to help the farmer and rural America. If a farmer is making money, he will invest in conservation practices and building reservoirs to keep producing.

Contracting Early
With peanut acreage down in 2007 and supplies tightening, prices jumped to 65 cents per pound. That compares to some peanuts selling last year for 30 cents per pound. Manufacturers urged shellers to determine what it would take for growers to grow more peanuts. At the end of 2007, shellers offered $600 for Virginia-type peanuts and $500 plus for runners. Response was excellent as farmers signed anticipating a profit. Shellers continued the market excitement by pre-selling peanuts for 57 to 58 cents per pound for delivery next fall.

Suddenly, competing commodities began to climb with soybeans pushing $15 per bushel, corn almost $6 per bushel and cotton over $90 per pound. Inputs also increased. The profit of $150 per acre on peanuts seems like “peanuts” when a farmer could clear $300 per acre on other commodities. Some analysts told farmers to switch to corn and cotton since peanuts did not have to be delivered. Wrong. Although this industry has never had mandatory delivery, most farmers have honored planted-acreage intensions. The “Act of God” clause remains in most contracts, and to keep that privilege, farmers must honor contracts. If you signed, plant.

Acreage Sets The Market
The two questions influencing the peanut market are 1) how many acres will be planted and 2) if acreage is short, will manufacturers pay more to get a few more acres planted. Timing is key since corn is planted first, followed by cotton and then peanuts. Wait too late and land will be gone. Shellers don’t like to offer more later, making previous contractors upset. Analysts predict a 15 to 18 percent acreage increase is ideal. If markets are complacent and late June slips by and fails to get the attention of the peanut grower, it’s too late.

Market Demands
The U.S. dollar keeps declining against the Euro and other currencies, making U.S. peanuts less expensive and increasing demand. January exports were up 57 percent compared to January 2007, and exports are up 5.8 percent year-to-date. Argentina will harvest a good crop by late April, reduced slightly by a summer drought.

U.S. markets for peanuts are improving. January’s market adjustment now shows usage down only 1.3 percent with peanut butter about even for the year and peanut snacks up 6.1 percent. Analysts predict a slight decline in demand after price increases. However, peanut butter and peanut products have seen usage increase or hold steady during tough economic times.

Government Assistance
The Farm Bill should be completed by April 18. For peanut farmers, look for the $36 per ton direct payment to remain. No counter-cyclical payment is likely if USDA captures all option payments since the average is above $495 per ton. Conservation programs may be available for peanut farmers, but not until next year. Separate payments limits for peanuts could help larger growers. Remember, we have 10,200 peanut farmers remaining in America.

Rural Economy
Record commodity prices are supporting a rural boom desperately needed. It seems we run counter to city problems of housing foreclosures, recession fears and job losses. New farm equipment orders are booming as row-crop agriculture is beginning to enjoy some good times.

As for peanuts, plant what you have contracted. Study the numbers and try to save on inputs. If commodity prices drop, make sure to plant enough peanuts. The peanut boom is good for the next few years.


Leading Market Indicators (as of March 15, 2008)

• 2007 Crop - 1,808,744 tons
• 2007 Crop Sold Commercial - 354,940 tons
• 2007 Crop In Market Loan - 1,362,760 tons
• 2008 Acreage - unknown
• 2007-08 Usage (6 mos.) - down 1.3 %
• 2007-08 Exports (6 mos.) - up 3.9 %
• National Posted Price (per ton): Runners $475.19, Spanish $467.61, Virginia/Valencia $475.32..