China keeps supplies for domestic use, may become an importer

By Tyron Spearman
Contributing Editor

 

The market is improving, and that’s good news. With prices of all commodities increasing, peanuts had to improve or be left out. Producers are nervous as fuel and fertilizer costs continue to rise, and drought continues in the Southeast and Virginia-Carolina regions. Then, there’s the Farm Bill. Only a few folks in Washington D.C. seem to care about farmers and the country’s food supply. Uncertainty has everyone jittery.

‘07 Crop Keeps Coming
Last year, U.S. production was down almost 25 percent. The 2007 crop was also down 4 percent from last year with acreage down 2 percent. The September estimate was 1,667,600 tons, still plenty of peanuts with the carry-over. By November, the estimate rose to 1,733,200 tons. Federal-State Inspection Service has reported 1,761,000 tons by Dec. 8, 2007, and the final numbers could approach 1,775,000 tons. With demand estimated at 1,920,000 tons, carry-over will decline and supplies tighten.

Shellers withdrew from the market in November and December awaiting more deliveries and bidding for market-loan warehouse receipts that farmers had not sold. Manufacturers, trying to keep supplies coming, bid offers to over 65 cents per pound for medium runners. Earlier in the season, medium runners were trading for 53 cents per pound.

Prices to farmers increased from $415 per ton, offered as an option contract, to $500 per ton option contract for runner-type. Virginias were near $600 per ton. Some farmers continue to hold loan receipts that will mature in nine months. Final 2007 crop volume will dictate prices. Stay abreast of trends and prices being offered for ‘07 peanuts.

What’s Driving The Market?
A perceived crop shortage during the transition had manufacturers wanting to cover needs as far in advance as possible. Domestic consumption is expected to decline with the higher prices, and a 10 percent drop was observed in August/September. By October, the decline was only 6.6 percent, with October up 2.3 percent. Good news for the peanut butter market: in October it was up 8.3 percent. Remember, when times are tough economically, people stay home and eat more peanut butter.

Peanut exports account for about 18 percent of the U.S. production. Exports of U.S. peanuts and peanut products are up 22 percent in the last 11 months, ending in June 2007. Heavy demand is being reported by the European Union and Mexico, as Argentine supplies are committed. China is keeping supplies at home for peanut oil. With a growing demand, officials believe that China could become an importer of peanuts or peanut oil. Peanuts trading for $900 per shelled metric ton in Europe last season have jumped to $1,500 per shelled metric ton. The dollar exchange rate is also making U.S. peanuts more attractive for European buyers.

Planning For 2008 Crop
Shellers wasted no time in getting farmers to commit to plant peanuts in 2008. Prices opened at $500 per ton option contracts, and some even offered $525 per ton for all acreage of runner type. Virginia type opened at $600 per ton option contract in the V-C region with about $580 per ton in the Southwest. Some brokers estimate a 15 to 20 percent increase in acreage is needed to cover demand and keep prices from spiking higher. Response to offers was strong in new growing areas, but farmers in traditional areas are yet committed.

Market Unknowns
How many peanuts are out there, and who has control from the 2007 crop are two major questions driving the market. Farmers still in the game need to monitor the market and watch for opportunities. How many will farmers plant next spring knowing that higher-priced corn, wheat and soybeans require less inputs? Will it ever rain the Southeast where 69.6 percent of the peanuts are grown, or should they plan like West Texas and not expect a rain?

Caution
Rising markets means less government involvement. Counter-cyclical payments will decline, and farmers with peanut base will have about the same money up to $495 per ton. Prices above that level increase cash flow, but not necessarily income. If we plant too many next year, these exciting times could be short lived. Be involved and keep abreast.


Leading Market Indicators (as of Dec. 10, 2007)

• 2007 Crop - 1,761,667 tons
• 2007 Crop Sold Commercial - 338,189 tons
• 2007 Crop In Market Loan - 1,424,477 tons
• 2007 Acreage - (down 4%) - 1,190,000 acres
• 2007-08 Usage (3 mos.) - down 6.6%
• 2006-07 Exports (12 mos.) - + 22.1%
• National Posted Price (per ton): Runners $442.19, Spanish $434.61, Virginia/Valencia $442.32.