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Market Watch

Overall edible peanut market up; let’s hope it’s a continuing trend

By Tyron Spearman
Contributing Editor
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As the nation tries to break free from the worst economic crisis since the Great Depression, producers and rural communities face a unique and diverse set of challenges and opportunities. Can the farmer survive while other segments of the economy finally get growing?

Experts predict that the global economy will rebound at a 3.3-percent average growth rate for 2010 through 2019. A resumption of high growth rates in emerging market countries, such as China and India, and a return to strong growth in other developing countries, including countries of the former Soviet Union, underpin this macroeconomic result.

The U.S. economy should resume growth at 2.5 percent in 2010 and 3.2 percent in 2011, followed by an average rate of 2.7 percent over the remainder of the projection period. Slower growth is expected in the United States than in the world economy.

The return to broad-based, steady global economic growth supports long-term gains in world food demand, global agricultural trade and U.S. agricultural exports. That’s a key in getting growth in export demand since that contributes to gains in farm cash receipts.

The Peanut Economy
The U.S. peanut market is quietly optimistic. Producers don’t want to plant too much and ruin prospects for next year. Striking a balance is difficult when each farmer is independent and doesn’t know what their neighbor is doing or thinking. The advice from peanut leaders is to not over-plant this market.

Growers are aware that usage is moving extremely well after the Salmonella issue and further aware that when things are bad for the consumer, peanut butter usage usually increases. Recent consumption numbers show the economy is still hurting.

With present supplies in inventory, and about 832,000 tons of ending stocks predicted, producers need to keep an acreage increase at less than 10 percent. In some cases, shellers have become risk takers in offering contracts higher than the market. Possible competition from other crops and the need to keep shelling infrastructure occupied have boosted early contract offers for the 2010 peanut crop.

Overall, feelings about the peanut economy are mixed. Producers are not excited about the farm prices, but recognize it could be worse, while peanut butter manufacturers are exceedingly happy that grocery store shelves constantly need replenishing.

Peanut snack marketers and candy companies keep trying to spark the snack business, but consumers are still reluctant to spend those dollars. Shellers and buying points are just hoping to keep supplies moving at a steady pace and that all peanuts wil be sold by 2010 harvest time.

Supply And Demand
Although peanut acreage was reduced 27 percent last season, the industry ended the year with a carry-forward of 1,065,000 tons. That alone influenced early option contract prices lower.

Accounting for the 2010 crop estimate of 1,844,000 tons, and including a few tons of imports, the total supply of peanuts will be as high as 2,939,000 tons. With domestic demand up 3.5 percent for domestic food, that means the peanut industry will use 1,327,000 tons for food, 228,000 tons for peanut crush, 202,000 tons for residual and seed, 350,000 tons for export or a total disappearance of 2,107,000 tons.

Unless there is a bigger boost in peanut butter consumption, the carry forward into next season will be about 832,000 tons.

Farm Bill Help
The average price paid last season keeps dropping, and that will impact the counter-cyclical payment in September after all the 2009 crop is sold. Base owners have received $9.20 per ton, and, as the average price paid to farmers dropped in April to $408 per ton, the average for the eight months was only $435 per ton. If that holds, the 60 percent payout in September could be as high as $14 per ton more. Still, there is a lot of time until all the crop is sold.

Farm Bill talk is about switching from a Market Loan Assistance Program to the Average Crop Revenue Election (ACRE) payments in the 2012 Farm Bill. The program seems to work for corn, soybeans and wheat, but is more difficult for cotton and peanuts. Opposition is mounting to the direct payment from the 2008 Farm Bill.

Market Movement And Contracts
Southeast producers had the opportunity for a $450 per ton option contract, but some producers waited, hoping shellers would be back with improved offers. So far, that has not happened.

In the Southwest, producers wanted a $500 per ton option contract. Shellers finally paid $475 per ton plus some extras that got the producer to $500. Shellers were trying to keep relatively new shelling plants in West Texas busy.

Domestic markets showed a remarkable boom in March with peanut butter up 24 percent and now up about 9.2 percent for the year. Overall, edible peanuts showed a 15 percent increase in March, even in-shells were up 6.9 percent for the month. Marketers are hoping this becomes a trend.

Export markets are not as exciting. A European buyer, when asked about getting the market moving, said buyers don’t have the money.

Argentina continues to harvest a drought-stricken crop, reduced about 24 percent, but late rains improved the situation, and the Argentinians plan to take the European market again with prices lower than the United States. Argentina’s gains have taken the place of Chinese shipments to Europe.

What About 2010?
Plant about the same or just slightly more than last year with a variety that has market potential. Help use up old crop peanuts by joining your state associations in donating to a food bank or to Haiti. That helps to clear out warehouses, which, in turn, will help improve contract offers next year.

Keep an eye on Farm Bill developments. As one farmer commented, “It looks like my help in the future will be a conservation program and food stamps.”

PG


Leading Market Indicators (as of May 5, 2010)

• 2010 Acreage (est up 8% ) - 1,201,000 tons
• 2009 Crop predicted - 1,844,175 tons
• 2009 Crop inspection total - 1,823,192 tons
• 2009 Crop acreage - (dn 29%) - 1,081,000 acres
• 2009 Average yield - 3,412 lbs./A
• 2009 Crop in market loan - 1,674,160 tons
• 2009 Crop not redeemed - 853,809 tons
• 2009-10 Usage (8 mos.) - up 3.9%
• 2009-10 Exports (7 mos.) - dn 17.5%
• National Posted Price (per ton): Runners $431.40, Spanish $427.11,
  Virginia/Valencia $435.26.

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