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Market Watch

Reduced acres, but record yield has market covered through 2010

By Tyron Spearman
Contributing Editor
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Cold, wet weather has dampened the spirits of the peanut market. Carry-out between 850,000 and 900,000 tons is enough to cover the market through December 2010.

The recent decline in prices for corn, cotton, soybeans and petroleum is also causing buyers to delay. The market is not indicating a willingness to encourage additional plantings in 2010.

Big Questions
The big question is, “What do contracts have to be to compete with grain and cotton prices?” Would the same acreage as last year, 1.1 million acres, average the same yield of 3,400 pounds per acre with the new varieties? That would mean a crop of about 1,870,000 tons, less than the present demand of 2,100,000 tons. However, it would take care of about 250,000 tons of carry-out.

Will the weather pattern change? Forecasters have been on target, and the prediction is for a hotter, dryer summer. Remember, the Southeast has had two good growing seasons in a row.

Another consideration is the acreage shift. Georgia, Alabama, Florida and South Carolina grew 74 percent of the U.S. peanuts last year. A Southeast drought could be devastating.

Contract Offers
In the Southeast, shellers offered an option contract of $70 per ton or $425 per ton for runner-type peanuts.

A flex-option contract with a $60 per-ton option contract or $415 per ton floor, which was equal to a 49 cents per pound medium runner, was offered. For each one cent per pound that the shelled price increased over 49 cents per pound, the producer would receive $13.50 per ton. Final pricing required one-third of the contracts be priced by Jan. 20, 2011, another third by April 5, 2011, and the final third by July 12, 2011. If not priced by the deadline, the rebate in effect on that date would be used. Peanuts would have no shrink assessed and no storage and handling fees would apply.

Farmers showed little or no interest in the $425 per ton. By mid-February, offers were increased to $450 per ton and response was more favorable. No word on Virginia type.

Searching For Money
Talk in Congress is about cutting farm payments, including the $36 per ton direct payment, about 25 percent. Another recommendation is to reduce the Adjusted Gross Income commodity payment eligibility for farm and non-farm income by $250,000 over three years.

The recommendation that will hurt peanut farmers most is the elimination of storage and handling. It only saves $2 million on peanuts as the storage and handling is re-paid to the government by the first buyer, but it protects the $355 per ton from the Farm Bill. If approved, the farmer will have a $300 per ton support, and the safety net will be useless. The only time this might cost the government is when peanuts are forfeited.

Counter-Cyclical Payment
Peanuts have averaged about $448 per ton. Counter-cyclical payments are only considered when the average price is below $459 per ton ($495 target prices less $36 per ton direct payment or $459). USDA is not likely to give $11 per ton with the possibility of having to ask for it back.

Domestic And Export Demand
Usage was up 1.6 percent last year, and peanut butter rebounded with an 8.9 percent increase. The trend continues with peanut butter up 9.4 percent and total usage up 3.0 percent.

Peanut snacks, candy and in-shells are impacted by the lack of discretionary spending in the down economy. Government purchases for nutrition programs are up 27.5 percent.

Argentina has reduced acreage 30 percent. Although Argentine and U.S. prices are about the same, there is no interest from the buyers.

China also reports a reduced crop, which should open markets for the United States. Shelled peanut shipments are currently down 25 percent, and in-shell exports are down 14 percent.

Hold The Line
Reserving the right to change my mind, it appears to be a season to hold the line on acres. Sure, a 10 percent increase would not flood the system, but in this economy, it makes sense to make a profit on similar acreage than to ruin next season again.

PG


Leading Market Indicators (as of Feb. 9, 2010)

• 2009 Crop (est.) 1,844,175 tons
• 2009 Crop inspection total - 1,818,062 tons
• 2009 Crop acreage - 1,081,000 acres (down 29%)
• 2009 Yield (avg.) - 3,412 lbs/A
• 2009 Crop in loan - 1,671,202 tons
• 2009-10 Usage (5 mos.) - up 3.0%
• 2009-10 Exports (4 mos.) - dn 14.9%
• National Posted Price (per ton) Runners $444.40, Spanish $440.11, Virginia/Valencia $448.26

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