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Market Watch

Are contract offers over until after planted acreage is known?

By Tyron Spearman
Contributing Editor
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Markets seem to be in a cautious state of not knowing what’s ahead. The economy remains sluggish, but peanut leaders are optimistic as markets see peanut butter usage continuing to lead the way and peanut candy and snacks improving. Exports are lagging behind the norm, but contracts have been slightly above present markets indicating optimism in the market place.

Although markets seem okay, at every turn there is something or someone wanting to take a shot at the only segment of the economy that seems bullet proof, agriculture and the U.S. food supply. The Obama Administration wants to cut the small direct payments farmers receive, stop storage and handling on peanuts and cotton, strip the crop insurance program, pass new costly food safety policies, increase taxes on state and local levels and the list goes on.

Economic recovery seems to be years away.

The peanut market would prefer to stay below the radar and keep consumers happy with a good quality, nutritious product while keeping prices profitable for all segments without wild gyrations.

Down On The Farm
This winter has been the worst in years with cold, wet conditions even into late spring. Farmers worry about all the “pop shots” and how the bad winter might affect soil borne diseases and insect populations. Everyone is predicting a dry, hot summer. This year is different for sure.

Farmers couldn’t plant corn on schedule across the peanut belt. That could increase pressure on cotton, peanut and soybean acreage. Cotton prices have improved taking some committed acreage, but peanuts are still a question.

Is the market over? Hope not. Option contracts for runners in the Southeast opened with $70 per ton above loan or $425 per ton. Farmers waited. Although markets did not move, shellers offered $450 per ton or a $95 per ton option contract.

Many buying points report good farmer response, some with a slight increase. But some buying points did not get farmers to sign, and now all $450 per ton contracts have been discontinued.

The question is, “Is it over?” Were enough peanut acres signed that markets may not respond until after planting? Producers were happy considering $355 per ton loan, $95 per ton option, $36 per ton direct payment, $9.20 per ton counter-cyclical payment, $25 per ton seed premium, $10 per ton hauling fee or a total of $530.20 per ton.

Producers responded positively in the Southwest region with a $525 per ton Spanish contract, that’s a $170 per ton option contract, considering the loan. Farmers signed up quickly, and the contract was filled. But farmers in the Southwest have been reluctant to sign a $450 per ton runner, stating they had to have $500 per ton. Many contracts in this region have not been signed, and acreage estimates will likely determine if that level will be offered.

Counter-Cyclical Payment
Producers knew average prices for 2009 peanuts were running low, mostly caused by the big 2008 crop. USDA picked up on the low averages and awarded a counter-cyclical payment of 40 percent or $9.20 per ton. If prices remain at $436 per-ton average market price, the 60 percent awarded next September would be another $13 per ton.

2009 Crop Value
USDA’s National Agricultural Statistics Service confirms that the price of peanuts in 2009 averaged the same as 2008 – 23 cents per pound ($460 ton). The average price appears to have included options paid to producers.

The value of the 2009 peanut crop at farm-gate level is $835,172,000, a 30 percent decrease from 2008. The highest average price was paid in New Mexico followed by North Carolina.

The lowest average price was paid in Mississippi at 20 cents per pound or $400 per ton followed by Oklahoma.

If the economic impact multiplier for peanut production is seven times, it means the peanut crop is a $5.8 billion impact to the U. S. economy.

Acreage Counts
As a peanut broker recently explained, the market prices for peanuts will rise if acreage is one million acres or less. If peanut acreage is 1.15 million acres or more, prices will likely weaken.

If producers maintain a five percent reduction or 1,081,000 acres, averaging about 3,160 pounds per acre (five-year average) then the peanut crop should yield about 1,816,000 tons. This level would reduce the carry-out of 800,000 tons to about 648,000 tons and give producers a strong market going into 2011. Look for USDA’s acreage estimate on March 31.

Domestic And Export Usage
Peanut usage is up 3.2 percent after six months. In January 2010, all categories showed a positive increase with peanut butter up 4.1 percent, snacks up 4.4 percent and peanut candy up 3.0 percent. For the year, peanut butter remains up 8.5 percent, snacks down 11.7 and peanut candy now posting a one percent increase. Advertising has finally arrived for peanut snacks especially lightly salted and sea salted peanuts.

Export markets are a big question. All markets are lagging behind about 18 percent. Raw shelled shipments from the United States are down 29 percent from last year. The dollar remains low, giving some advantage to U.S. origin.

Argentina reduced acreage because of an early drought, but the crop has recovered well with pegging underway. A lack of rain in some regions is causing problems.

China has offered export peanuts at $400 per ton, higher than U.S. and Argentina. China needs the peanut oil supply at home as more farmers are moving to the city to take manufacturing jobs.

U.S. peanut should be the peanut of choice in export markets for 2010, but Argentina will continue to be a major competitor.

Optimistic Outlook
The good news about nutrition keeps coming, and USDA will possibly increase peanut usage in USDA breakfast programs and other government nutrition programs.

If exports fall into place, the domestic market stays strong and politicians will leave the peanut program and 2008 Farm Bill alone, this could be a great year for producers and the industry.
Plant a reasonable amount of acreage for the markets and think about 2011.


Leading Market Indicators (as of March 15, 2010)

• 2009 Crop prediction - 1,844,175 tons
• 2009 Crop inspection total - 1,822,309 tons
• 2009 Crop acreage - 1,081,000 acres (dn 29%)
• 2010 Crop acreage - USDA Propsective Planting due March 31
• 2009 Average yield - 3,412 lbs./A
• 2009 Crop in market loan - 1,673,886 tons
• 2009 Crop not redeemed - 1,163,920 tons
• 2009-10 Usage (6 mos.) - up 3.2%
• 2009-10 Exports (5 mos.) - dn 17.7%
• National Posted Price (per ton): Runners $429.40, Spanish $435.11,
  Virginia/Valencia $443.26.

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