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Market Watch

Consumption remains high, but contract talk is quiet

By Tyron Spearman
Contributing Editor
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The economic slowdown worldwide makes it difficult for producers to be optimistic. The mainstream media do not help, and the conspicuous absence of early peanut contracts makes a producer cautiously optimistic. Supplies are ample to meet demand at the moment and keep peanut prices firm, but the industry seems unsettled on what they can pay in 2010.

One fact is sure, uncertainty starts the year as farmers start planning. Credit is tight, and rural financing is developing into a problem as area banks and financial institutions are overly cautious and especially concerned about agriculture as prices of commodities don’t indicate a profitable cash flow and even land prices, used as collateral, have suffered major declines.

No peanut contracts have been promoted to growers as growers evaluate other commodities and, while some look favorable, it is early. Consumption remains strong, especially for peanut butter, and even the government is helping by purchasing more peanuts and peanut butter for feeding programs.

Farm Bill Discussion
Discussion in the farm press recently revolves around the decline in major economic indicators, especially in agriculture, in the last year and likely means the Farm Bill needs improving. That’ll get Farm Bill discussions started early since farm income and prices have declined to producers.

Producers already knew that weaker domestic and international markets have undercut prices and returns for many, although not all commodities. The bottom line – net farm income was up $8 billion between 2005 and 2008 but will be down perhaps $30 billion for calendar year 2009 to about $1.5 billion below the 2006 level.

Another aspect of the current economic squeeze has been lack of government assistance when it seems the government is helping everyone else. Government purchases of peanuts and peanut butter have increased, but the 40 percent increase has not led to an increase for farmer stock peanut prices.

Crop Insurance Cutback
The higher economic price structure has caused lower counter-cyclical payments and even direct payments have declined overall. Peanuts have remained at the $36 per ton level. Counter-cyclical was zero in 2008.

USDA shows prices received by peanut farmers have averaged $453 per ton after five months indicating a $6 per ton counter-cyclical payment is possible. USDA will not likely issue a payment in February, but delaying until September when 2009 crop has sold, since collection is required if overpaid.

With cost higher than other commodities, peanut crop insurance is important. However, proposed cuts in the crop insurance program are sending alarms through the insurance industry.

A Washington proposal calls for a close to 30 percent cutback in government involvement. The Obama administration wants to use the funding cuts from the crop insurance program to increase child nutrition program at least $1 billion over the next five years.

The food stamp program has expanded to record levels with 36 million Americans collecting aid, an increase of nearly 40 percent from two years ago.

Crop Numbers
The 2009/2010 Crop Estimate from USDA was 1,814,000 tons. Federal State Inspection Service reports 1,807,268 tons as of Jan. 7, 2010. On disappearance, usage is estimated at 2,140,000 tons. USDA predicted “Domestic Food Usage” to increase about 1.9 percent, but usage is better than the prediction, up 4.3 percent after 4 months.

Total demand is estimated at 2,140,000 tons. Total supply, even with the 27 perent acreage reduction, is estimated at 2,909,000 tons or ending stocks of 769,000 tons. Peanut butter usage continues to set new records, and typically in cold, snowy weather, people tend to eat more peanut butter, especially if electricity is lost.

Ending stocks are predicted by USDA at 769,000 tons, a 30 percent decline from last year bringing supply/demand closer to a balance. The industry prefers a good supply that keeps prices firm, not too many and not a shortage.

El Nino forecasters predicted a cold, wet winter, which usually translates into a drier summer. That was the problem in the Southwest last year. A Southeast drought would devastate peanuts. The Southeast region (Georgia, Florida, Alabama and South Carolina) produced 74 percent of the U.S. peanuts in 2009.

Peanut Planting
The big question for 2010 is how many peanuts will be planted in the United States. Offers have been made at higher levels to manufacturers, but so far no takers. Shellers and buying points are getting the message that if you want peanuts planted, offer more than $400 per ton on runners and even more on other types.

One alternative crop, cotton, posted a 76 to 78 cents per pound price recently and that’s got farmers in the peanut belt forward contracting some acreage.

New, higher-yielding varieties will be in the marketing plans this season. The new varieties in the Southeast have larger kernels, more like Virginia type. The 2009 crop shelled out more jumbos and splits while mediums and No.1s dropped considerably.

Peanut Usage
November peanut usage struggled to keep pace with the recent double-digit growth. Peanut butter continues to shine, up 3.1 percent for the month and up 11.7 percent for the year. Snack peanuts, an 18 percent share of the total peanut edible market, is down 14.9 percent, and in November took a 19.3 percent hit.

Economic conditions appear to be the problem for snack peanuts. With the holiday season, peanut candy usage shows a 3.2 percent positive for the year, but November was slightly down. In-shells looked good in November, up 3.1 percent, but remaining down for the year at 10.8 percent.

Export Values
During the first half of calendar year 2009 (Jan.-June), the United States exported 140,000 metric tons of peanuts and products valued at $169 million. Overall, export value was stable, while volume was down 11 percent compared to the same period in 2008. The United States exported 303,000 MT of peanuts and products valued at $340 million during January through December 2008. Looks like Argentine farmers reduced acreage 15 percent and not the 30 percent predicted.

Medium runners were up to 47 cents per pound by mid-January, and the National Posted Price had increased $20 per ton to approximately $445 per ton indicating the market is improving.

Following The Market
People still love peanuts and peanut butter, and optimism is returning slowly. See you at the Farm Shows and production meetings.

PG


Leading Market Indicators (as of Jan. 8, 2009)

• 2009 Crop prediction - 1,813,800 tons
• 2009 Crop inspection total - 1,807,268 tons
• 2009 Crop acreage - 1,082,000 acres (dn 28%)
• 2009 Average yield - 3,353 lbs./A
• 2009 Crop in market loan - 1,608,519 tons
• 2008 Crop forfeitures - 5,905 tons
• 2009-10 Usage (4 mos.) - up 4.3%
• 2009-10 Exports (3 mos.) - dn 13.5%
• National Posted Price (per ton): Runners $444.40, Spanish $440.11,
  Virginia/Valencia $448.26.

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