Reduce acreage by 20 percent to match demand, keep prices up

By Tyron Spearman
Contributing Editor

 

What a difference a year makes! The results of a 26 percent increase in peanut acreage and a better-than-average growing season are yet to be fully realized. However, the prediction of a 2.3 million ton crop has essentially shut down trading. There could be 400,000 tons more peanuts available this year compared to last, making it the third largest crop on record and more than a 27 percent gain on the 2007 crop.

Markets Quiet
With a mixed up economy and lack of capital, buyers have dropped out of sight unless they are out of peanuts. Even farmer-stock option contacts were discontinued in mid-September as shellers had demand booked for the year.

How many peanuts are under option contract? Some estimate 50 percent and some estimate 90 percent. Runners were option contracted at $500 per ton ($355 per ton loan plus $145 per ton option) and $575 to $600 per ton for Virginia type. Some late contracts totaled $450 per ton on Southeast runners.

Producers with no option contracts have the marketing loan minimum of $355 per ton and retain the warehouse receipt until the handler makes an offer. The producer’s handling costs are paid by the Commodity Credit Corporation with the first buyer and handler likely covering storage costs. If a producer decides market offers are not enough and continues to warehouse the peanuts for nine months, he can forfeit them to the government and all handling and storage expenses will be paid by CCC.

USDA Predictions
After a few years with little or no growth, USDA predicts domestic food use of peanuts will resume modest growth in 2008, rising to 2.54 billion pounds (less than 1 percent growth). Look for peanut use for crushing to have strong gains, climbing 28 percent to 636 million pounds. Exports are also expected to continue robust growth, climbing to 400,000 tons, up 55 million pounds from 2007/08.

Although supply is improved compared to 2007, the season-average price in 2008/09 is expected to be several cents stronger than the 2007/08 average of 20.5 cents per pound ($410 per ton).

Supply And Demand
The 2007 crop ended with a 550,000 ton carry-in, added to a 2008 crop of 2,300,000 tons means a total supply of 2,850,000 tons. U.S. demand is estimated at 1,400,000 tons for food, 130,000 tons for seed, 300,000 tons for crushing and 400,000 tons for export or a demand of 2,230,000 tons, leaving a 620,000-ton carry forward into 2009.

Farmers will need to reduce acreage about 20 percent to match demand and keep prices profitable.

What About 2009?
Growers are already making crop input decisions and talking contract prices. Input costs continue to soar, increasing the farmer’s risk and requiring a larger credit line. Corn and soybeans are trading higher, which places more pressure on peanut acreage as cotton prices suffer from oversupply. How much will it take to get producers to plant peanuts? With 20 percent of the 2008 crop already in storage, how can handlers limit production to keep prices profitable?

2009 Credit Crunch
With the credit crunch in America not settled, credit on the farm will also tighten. Growers will be required to borrow more – meaning more risk and more collateral – and will have to show a respectful profit to get money to farm. That will be difficult early on as input costs will be difficult to figure.

Good News
Peanut butter demand continues to increase, likely because of the economy. Usage jumped 12 percent in August after a 21 percent increase in July. The category needing a boost is peanut candy, down 14.2 percent last year. It is good that we have a peanut program to help when needed. Although minimum support should have been raised, if prices remain low, counter-cyclical payments will help farmers up to $495 per ton.

Keep The Faith
A late drought and cooler temperatures are certain to impact the quality and quantity of the 2008 crop. Prospects look good for next year if producers don’t overplant. It will be another battle for acreage and a challenge to find cost savings on the balance sheet.

PG


Leading Market Indicators (as of Oct. 2, 2008)

• 2007 Crop - 1,811,688 tons
• 2007 Remaining In Loan- 629 tons
• 2008 Acreage - (up 26%) 1,501,893 acres
• 2008 Crop Estimate - 2,246,700 tons
• 2007-08 Domestic Usage (12 mos.) - down 1.3%
• 2007-08 Exports (12 mos.) - up 23.2%
• National Posted Price (per ton): Runners $564.75, Spanish $558.95, Virginia/Valencia $567.32.