Peanut butter market strong, but large crop means heavy carryover

By Tyron Spearman
Contributing Editor

 

What on earth is happening? Gas and diesel prices are lower, but early crop prices are approaching record lows for modern times. Input prices remain high, but are starting to fall. The stock market and the economy are depressed and awaiting a bailout.

Farmers and those in agribusiness are having difficulty grasping all of this. Farm income is up from 2008, says USDA, and peanut farmers have produced a record peanut crop. It is hard to get a banker’s attention to talk loans or next year’s crop. One fact is certain, things have got to turn, and turn soon, or agriculture will be in trouble in 2009.

Farmers Still Blessed
U.S. farmers produced a record 2,500,000 tons, the largest peanut crop in history. Acreage was up 25 percent from last year, as farmers optioned for a crop with lower fertilizer requirements. Backed by key rains, producers averaged a record 3,350 pounds per acre, up 266 pounds per acre from last year. Add it all up and that’s just too many peanuts for world and domestic markets.

The USDA Economic Research Service predicts an ending stock of 700,000 to 800,000 tons. About 300,000 tons are needed to bridge the seasons. A 500,000-ton carryover is not too abnormal. It means manufacturers will need some peanuts in 2009, but not quite as many.

Contracts
What will it take to get peanuts planted and not alternative crops? Because less-than-maximum production is needed, look for limits on acreage or poundage at buying points. Prices will have to be high enough to allow a farmer to secure financing and that’s not as easy as last spring. Most average contracts last season were $500 per ton on runners and $600 per ton on Virginias on about 96 percent of the crop. Spanish and Valencia were only a small percentage.

Direct and counter-cyclical payments return to the economic picture for base owners. Producers without base will only have minimum price support for collateral. Base owners will receive $36 per ton direct payment and two counter-cyclical payments up to $104 per ton. With lower average prices, base farmers are likely to receive a major portion of the $495 per ton target price. That’s not a guarantee because USDA uses some funny ways of getting the numbers.

A record peanut crop means lower prices for un-contracted peanuts. Some peanuts from the 2008 crop are likely to be forfeited, but the new program gives the farmer free handling until someone buys them. If a farmer forfeits the peanuts to the government, costs of storage and handling will be paid by the government so there is little or no risk in waiting the nine months.

Markets Remain Fairly Strong
A poor economy means a strong peanut butter market. Up 11 percent through November, peanut butter consumes 65 percent of the peanuts produced in America. In-shells, although small, are making a comeback in U.S. markets with an eight percent increase.

The export market is up 34 percent for the first two months of the marketing year, with shelled peanuts up 20 percent and in-shells up about 500 percent because of major buys in Germany and Italy. Imports keep impacting the market, up 32 percent this year, mostly as crude peanut oil from Argentina.

At planting, Argentine farmers experienced problems securing financing since world market prices have dropped. Their acreage is down, and now they are in a major drought with about 60 percent of the crop planted.

Does Change Offer Hope?
Lots of unknowns with the new regime in Washington, D.C. Peanuts will be a player, along with other ag commodities, in feeding the U.S. and other countries. We have a nutritious product that can save lives and reduce our dependence on foreign oil.

Working with the Obama team will be an important step in building trust and a more friendly, fair and open Department of Agriculture.

Just think, in three years we will be writing a new Farm Bill, and peanuts have a special section that needs nurturing, improving and protecting. Producers need a seat at the table with an educated, planned strategy that is a united force, not a regional split voice.

Even so, we have hope and faith in the future for peanuts because the American farmer is an eternal optimist.

PG


Leading Market Indicators (as of Dec. 1, 2008)

• 2008 Crop predicted at 2,496,650 tons
• 2008 Crop tonnage - 2,434,586 tons
• 2008 Crop sold commercial - 369,164 tons
• 2008 Crop in market loan - 2,065,422 tons
• 2008 Acreage (up 25 %) - 1,494,000
• 2008-09 Usage (2 mos.) - up 2.2 %
• 2008-09 Exports (2 mos.) - up 37.4%
• National Posted Price (per ton): Runners $549.75, Spanish $543.95, Virginia/Valencia $552.32.