If acreage is reduced 30 percent,
the market will get interesting

By Tyron Spearman
Contributing Editor

 

A farmer can’t go wrong doing the right thing, although it may take a while for the market to respond. One can sense that things are getting better. Profit is not a negative, and Congress better understand that without profits, no taxes are paid.

Early Markets Weak
After the best crop in history, farmers knew prices would be weaker. Markets were also weaker because of the slow economy at home and abroad. No one anticipated the recall, which meant even lower prices or no price at all. Even with the down economy, the dollar increased in value against other currencies increasing export peanut costs.

Contracts
Shellers offered an option contract, with limits, that guaranteed the loan with no shrink costs, storage or handling costs ($50 per ton). The loan of $355 per ton was considered equal to a 45-cent per pound medium runner shelled price. A group of brokers would be contacted each week, and the company would issue a shelled-peanut average price for medium runners. If the price increased one cent per pound, $13.50 per ton would be added to the price. The maximum allowed was 51 cents per pound or $81 per ton added to $355 per ton for $436 per ton.

If the market declined below $355 per ton and there was a market gain, the company would give the farmer the option contract with a 50:50 split of the market gain. The farmer could make the price election any time up to two weeks before loan maturity. This allows the sheller and farmer to share risks, depending on the market, and gives the farmer a contract to take to the bank.

Virginia-type contracts were offered with limited tonnage for $485 per ton in North Carolina and Virginia and $425 per ton in South Carolina. The difference was said to be for freight differential to the shelling plant.

Government Assistance
The direct payment of $36 per ton will assist farmers with peanut base. President Obama’s proposal to end direct payments is said to be “dead on arrival” on Capitol Hill. No counter-cyclical payment was issued in February, and growers will have to wait until after all 2008 peanuts are sold before payments will be issued in September 2009.

Loan Peanuts
The market loan program received 2,071,975 tons. As of April 1, 1,275,140 tons remain outstanding. Loans for more than 300,000 tons are complete in July, followed by 650,000 tons maturing in August. The big question is, “How many will be forfeited to the CCC?” Estimates are that more than 300,000 tons will be forfeited, maybe more. Another big question, “Would USDA lower the 2008 price enough to allow peanuts to move into markets?” Then shellers must decide whether to buy from the loan or buy forfeited peanuts if offered to the trade. Lots of marketing decisions will play out as loans mature. Remember, shellers paid an option of up to $145 per ton on most of the loan peanuts and may not be able to afford to forfeit the tonnage.

Peanut Usage
Consumers are returning to jarred peanut butter with usage still up 10.7 percent for the year. Government purchases are increasing, and efforts to get peanut butter back into the food banks will use a lot of tonnage. Candy and snacks are down – impacted by the poor economy. Promotions and advertising are key to re-developing this market.

Exports And Peanut Sales
Argentina, with a major drought, has started harvest. Their production level is certain to impact U.S. peanut exports. China is another unknown as production is needed at home, but to get dollars, they could export. The strength of the dollar is already impacting exports along with the local economy as peanuts are optional.

Interesting Market
If acreage is reduced 30 percent, the market will get interesting, especially in nine months. Everyone has to work to regain consumer confidence in our product. With no farmer-controlled storage, it is difficult to wait and be independent while retaining control of a farmer’s warehouse receipt. So, work with your local sheller and buying point. Plant for a profitable peanut market and no extra. That’s doing what is right!

PG


Leading Market Indicators (as of April 3, 2009)

• 2008 Crop predicted at 2,496,650 tons
• 2008 Crop tonnage - 2,556,960 tons
• 2008 Crop sold commercial - 396,508 tons
• 2008 Crop in market loan - 2,160,452 tons
• 2009 Acreage (dn 27%) - 1,124,000
• 2008-09 Usage (7 mos.) - up 1.5 %
• 2008-09 Exports (6 mos.) - up 13.1%
• National Posted Price (per ton) Runners $424.75, Spanish $418.95, Virginia/Valencia $427.32