Deliver the contracts and prepare to
negotiate the rest

By Tyron Spearman
Contributing Editor

 

Change in agriculture is sweeping across the country like a wind-driven wild fire, and growers are stunned, wondering what can happen next. From credit approval to the amount of credit, from input costs to margin calls, from contracts to today’s price, it’s like a new learning process that spells more risk for the farmer.

Producers felt cheated when President Bush vetoed the Farm Bill and Congress cut support. Farmers and food should be as important as freedom and security. Now farmers are a part of those being blamed for using corn to make ethanol that critics say has caused food prices to soar and starvation in some countries. Most of us are afraid of all the uncertainty and bristle at the lack of support.

Market Picture
As for peanuts, one might describe the market as quiet and cautiously optimistic. Growers know they signed contracts too early and too cheap as input costs continue to rise. But that was a decision made by the farmer and sheller at a time when both needed market assurance. Now the job is to deliver to the contract, striving to make some extra, hopefully at a better price.

Acreage And Start-Up
The Southeast and Southwest have been hammered with an early season drought. Georgia had some areas that were too wet and some that had not received an inch of rain in three months. Temperatures soared to 100+ degrees in early June, and climatologists predict drought conditions will continue. The V-C region has depended on scattered showers to get a good start, but more rain is needed.

Acreage is estimated up 16 percent nationwide and seed supplies have been limited. As seed demand increased and allocations declined, some buying points purchased the remaining seed, no matter the variety. One buying point reports growers planting seven different varieties that must be handled separately.

Irrigation has been required to get a stand, which increases the cost of production. Dry-land peanuts have stand problems, and farmers hope they will emerge after a rain.

Farm Bill
A counter-cyclical payment from the 2007 crop in September should be around $9 per ton, and the direct payment of $36 per ton survived in the Farm Bill for 2009. If USDA cannot capture the 2008 prices, a counter-cyclical payment may occur.

In the new Farm Bill, direct payments for 2009 will be reduced through a percentage of base acres. The 85 percent of peanut base will be reduced to 83.3 percent. Farms in which the base acres are 10 acres or less were eliminated.

The new program instructs USDA to pay any handling and associated costs (other than storage costs) incurred at the time the peanuts are placed in the loan for the 2008 through 2012 peanut crop years. These payments are to be repaid when the loan payments are redeemed. If the peanuts in the loan are forfeited, USDA would pay the storage, handling and associated costs.

The goal of the provision was to ensure proper and adequate storage and handling of peanuts in the loan and to guarantee that these costs were not taken from the producer’s loan proceeds at the time the peanuts are placed in the loan.

USDA issued a proposal to switch loan differentials to a market-oriented loan rather than a quality value. The price support levels must average $355 per ton loan level. The industry responded negatively to the proposal, mainly due to timing. USDA could not help that, as Congress kept delaying the Farm Bill. The changes could impact planting decisions, making it more market-driven and reducing the risk of overproducing one peanut type, thereby improving prices received by growers. Look for implementation next season.

Supply And Demand
USDA predicts that the peanut industry has a good supply, about 500,000 tons as ending stocks. Traders report that the remaining stocks are in the hands of a few shellers, and they are reluctant to sell. Markets for shelled stocks have continued to rise as stocks declined 23.9 percent compared to same month last year. Domestic food use is expected to remain about the same as last year.

After nine months, usage is down 2.2 percent with candy down 17 percent, snack peanuts up 4.5 percent and peanut butter up .6 percent. Peanut butter was up 5.9 percent in April, indicating that economic conditions are increasing demand.

About 300,000 tons remain in the USDA market loan with total tonnage likely to be redeemed with no forfeits by October, 2008. USDA estimated the final crop at 1,870,325 tons. However, inspection reports had 1,811,000 tons, a 59,325-ton discrepancy.

Exports continue to rise with shelled peanut sales up 18.4 percent. In-shell sales are up 67.3 percent, with peanut butter down 4.8 percent. The take over by Argentina of the world peanut export market has been slowed by drought, harvest weather, a farm strike and shipment delays. Exporters would likely book more U.S. peanuts, but shellers have withdrawn from the market until they get a handle on the 2008 U.S. crop.

Believe it or not, peanut imports are increasing again, up 314 percent for eight months, mostly peanut crude oil from Argentina, India and Nicaragua. Sure is a shame, America’s peanut farmers can’t produce enough peanuts to supply the U.S. peanut oil market.

It May Not Be As Bad As It Seems
Demand for peanuts and peanut products continues strong and could get stronger with less travel and more families eating at home seeking an economical, nutritious product. Bids for uncommitted peanut tons in the fall should be exciting. As long as the drought continues in regions, don’t look for contracts. No one would sign.

Deliver to the contract and get ready to negotiate the rest. Buying points should be a constant contact for producers as prices for peanuts at home and abroad should remain strong for 2008 and 2009. Pray for rain.

PG


Leading Market Indicators (as of June 7, 2008)

• 2007 Crop - 1,811,688 tons
• 2007 Crop Sold Commercial - 356,085 tons
• 2007 Crop placed In Market Loan - 1,362,760 tons
• Remaining In Loan - 361,810 tons
• 2008 Acreage (up 16 %) - 1,430,000 (est.)
• 2007-08 Usage (9 mos.) - down 2.2 %
• 2007-08 Exports (8 mos.) - up 13.7%
• National Posted Price (per ton): Runners $585.19, Spanish $577.61, Virginia/Valencia $585.32.