Over production, a slowed economy worldwide and product recall are three strikes that have brought the peanut industry to its knees. All segments of the industry are stunned and hoping the assault will soon end and consumer confidence will return.
Production Silences Markets
For the farmer, markets are silent because of the 2,550,000 tons produced in 2008, 40 percent more than in 2007. Farmers received timely rains, experienced less disease and insects, expanded acreage to fresh soils and planted newer varieties that exploded into record yields. A 25 percent increase in acres increased production 40 percent in one year. All three regions reported record plantings and record crops, except for Texas.
With an annual demand of about 2,090,000 tons, farmers and shellers knew the carryover would be heavy and prices would decline. The carry forward would result in a 900,000-ton plus volume. The tonnage is not considered surplus, but just too many peanuts that will have to be marketed eventually.
U.S. Economy Implodes
Just as the peanut harvest fills warehouses, the U.S. economy implodes, bringing with it the world economy, and markets stalled. The only good news for the peanut industry was that peanut butter is recession proof and usage climbed to 12.5 percent.
The over production and economic crunch caused shelled peanut prices to drop from 70 cents per pound for medium runners to 45 cents per pound. Buyers were hard to find, delaying deliveries and waiting for the market to bottom out. Markets will hold until they could see the 2009 peanut acres planted.
Then disaster hits. The Food and Drug Administration (FDA) and the Center for Disease Control (CDC) finds salmonella in an open peanut butter container in Minnesota, and it is traced to the Peanut Corporation of America in Blakely, Ga. Overnight, peanut butter became the poster child for food safety in America.
Confused consumers and retailers are avoiding peanut butter and peanut products and even destroying products not part of the recall. The overall impact of the recall is hard to predict, but it’s too much negative news not to have some decrease in peanut consumption.
Industry Will Be Better
Eventually consumer confidence will need to be restored through advertising campaigns from the many manufacturers that follow good practices and deliver top quality peanuts, peanut butter and peanut products to consumers at home and abroad. Regaining consumer confidence will be the key.
Also, manufacturers will need quality peanuts and peanut butter to restock products that have been destroyed and to protect grocery store shelf space. That could utilize the over-production, but it will take time.
What Should A Farmer Do?
How much should you plant, and how can you secure financing? First, recognize the over-supply and reduce acreage about 25 to 35 percent. Secondly, understand that the Market Loan Assistance Program is a protective umbrella when markets are down. Farmers with base qualify for direct and counter-cyclical payments up to a $495 target price. If input costs continue to decline, $495 per ton might be at least a break-even price, and with good weather, less disease and insects, the number will cash flow. For farmers with no base, the only guarantee is $355 per ton.
Bankers demanding a contract before financing need to understand the Market Loan Assistance Program with a $355 per ton guarantee, $36 per ton direct payment and a counter-cyclical payment near $85 per ton or at least a $475 per ton, which might cash flow in this present market situation. If a contract is demanded, shellers can’t offer but about $375 per ton and that will not cash flow. Produce, place in the loan and wait for the market to come to you.
The salmonella issue will cloud market prospects for an unknown time. Markets may not respond by planting, and no contracts may be offered. Farmers have few alternatives, but the industry should need about 65 to 75 percent of a normal crop. Work with the sheller-handlers through your local buying point; we all want to survive this storm.
Leading Market Indicators
(as of Feb 5, 2009)
• 2008 Crop predicted at 2,496,650 tons
• 2008 Crop tonnage - 2,547,334 tons
• 2008 Crop sold commercial - 392,211 tons
• 2008 Crop in market loan - 2,155,124 tons
• 2008 Acreage (up 25 %) - 1,494,000
• 2008-09 Usage (5 mos.) - up 2.6 %
• 2008-09 Exports (4 mos.) - up 23.2%
• National Posted Price (per ton): Runners $464.75, Spanish $458.95,