Late-planted peanuts after wheat may be a factor for 2008

Agriculture is changing its outlook and structure. Peanut farmers are trying to assess where they fit in and if alternatives are better than growing peanuts. That sends uncertainty across the industry as economic factors are evaluated by all segments.
What’s driving this uncertainty and market jitters? In spite of higher costs, support for renewable fuels production continues and appears to be getting stronger. Land prices have doubled in the last five years, and older farmers see retirement opportunities. Farm policy changes are in disarray with little consensus. Water is a great concern. Demand is growing worldwide, and now there is a new phenomenon on the farm – being able to choose among several good alternatives instead of having to pick the least bad.

Competing For Acres
The industry moved quickly to ensure farmers plant peanuts by offering early, higher-priced contracts. Farmers have already reduced acreage 25 percent in 2006 because rising fuel costs were above the loan rate and contract offers.

Did shellers get enough acreage committed to peanuts? What if prices for corn, cotton and soybeans continue to rise? Is the contract binding for peanuts or can the farmer switch to a higher-priced commodity? The price of fertilizer and nitrogen is weighing into the equation. Peanuts need less fertilizer and make their own nitrogen…advantage peanuts. Could this be the year, farmers plant too many peanuts and bust the market? The industry has a dilemma.

Finding a balance has the market nervous and cautious. Don’t look for much to happen until planting indications are released.

The 2007 crop was better than expected, about 1,870,000 tons. USDA predicts an ending stock of about 700,000 tons with a demand of about 1,900,000 tons, meaning the industry will reduce ending stocks to about 650,000 tons. About 300,000 tons are needed before a new crop arrives, cutting supplies and increasing prices.

Demand Flat
Domestic demand has flattened out with no current growth. Lack of advertising for peanuts, but increased advertising dollars and health claims for almonds and other nuts, coupled with negative peanut allergy news, have peanuts stymied at current price levels. For the first four months, peanut usage is down 5.8 percent.

Export demand continues about 300,000 tons with major customers in Canada and Mexico, mainly because of logistics. Some loyal customers in Europe still promote U.S. quality and continue to buy. As the dollar continues to decline against the Euro, U.S. peanuts become cheaper. However, the increase in prices has taken away the exchange advantage. Ironically, other sources are not available with Argentina reporting a summer heat wave and China planting less and keeping supplies at home.

Farm Bill
The Farm Bill is far from over. The direct payment of $36 per ton may be the only direct assistance for peanut farmers. With prices averaging above the $500 per ton level, counter-cyclical payments will be history. Farmers will get some relief when handling costs are pre-paid at the local buying point, but the first buyer replaces those costs. If the crop is gigantic, the payment of storage and handling for forfeited peanuts could be a factor on un-contracted peanuts.

The new idea of a four-year rotation could net a farmer $50 per acre under the conservation section, but most irrigated peanut farmers will have difficulty meeting the requirements. Separate payment limits are nice to retain, but not as important at present market price levels.

Expansion Year
Peanut acreage dropped 25 percent in 2006 and another 1.4 percent in 2007 to about 1.225 million acres. Some economists predict a 15 percent increase in 2008 or 1.4 million acres. Early contracting was reported heavy in new growing areas. However, traditional growing areas are waiting.

Early predictions point to less corn and more soybeans and wheat. Late-planted peanuts after wheat will be a factor for the 2008 crop. For 2008, buy fuel before prices increase, look for ways to cut costs and keep “in the know.” The peanut industry, along with all of agriculture, is changing. Pray for rain.

Leading Market Indicators (as of Jan. 7, 2007)

• 2007 Crop - 1,783,935 tons
• 2007 Crop Sold Commercial - 346,650 tons
• 2007 Crop In Market Loan - 1,437,285 tons
• 2007 Acreage - (down 4%) - 1,190,000 acres
• 2007-08 Usage (4 mos.) - down 5.8%
• 2006-07 Exports (12 mos.) - + 22.1%
• National Posted Price(per ton): Runners $442.19, Spanish $434.61, Virginia/Valencia $442.32.