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Market Watch

Contracting varies from zero acres to 110 percent of last year

By Tyron Spearman
Contributing Editor
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Kick off for the new season is just around the corner. Many producers have their plan-of-action in mind, but more than likely, most farmers will be versatile enough to change plans if needed.

It is an exciting time for farming, but, after all, farmers tend to be more optimistic this time of the year anyway. However, this year the excitement centers around markets and the, perhaps, overly optimistic mind-set that this year might give the farmer a profit to pay off some debts.

The peanut market looks really good right now. Contract prices are higher than usual; new varieties are yielding better; domestic and export markets are growing for a change and officials are bragging that farmers are leading America out of the recession.

As one farmer said, “All these wild, high prices sound good, but I don’t have anything to sell right now!”

I may be the most optimistic person in this industry, which makes it difficult to identify any negative aspects as we develop plans for the new peanut season. As optimistic folks alway say, problems are really just opportunities.

Opting To Not Plant Peanuts
What if acreage of peanuts was reduced 35 percent? That’s what a major portion of buying points are reporting as farmers opt to plant higher priced cotton, corn and even soybeans.

Areas of the peanut belt vary from zero contracted to 110 percent of last year.

The industry is in a balancing act trying to convince farmers to plant peanuts while holding a surplus in peanut warehouses and cold storage. At the same time, shellers are shelling a 2010 crop that has quality problems and is taking more time to clean with major losses in the process.

One expert predicts that 35 percent of the Southeast’s 2010 crop would have to be crushed. Naturally, sorting and blanching causes a reduced amount of edible kernels. Even with a surplus of peanuts, top-quality edible peanuts are demanding a premium price.

Some analysts advocate a 10 to 15 percent reduction in acreage to clear out the pipeline and get the 2010 crop processed, cleaned and sold. Prices next season are likely to stay strong as cotton farmers are already forward contracting bales of cotton for 2012 and 2013 at near $1 per pound.

Input Costs Rising
Producers have little control over input costs, and the squeeze is on. If the farming sector starts making money, the price of seed, fertilizer, chemicals, labor, fuel and about everything else rises so that the farmer has to become more efficient again to squeeze out a profit.

Another crisis in the Middle East is the reason for increased gas prices, and peanut seed will likely approach one dollar per pound this season. The good news here is that the peanut seed have been developed in the public domain and not by a private company as in some industries and should be more reasonably priced. Further, the new varieties continue to yield higher with better grades.

Water supplies are down as kick off approaches. This winter produced less rain to replenish sub-soils and reservoirs in the Southeast, where 70 percent of the U.S. production is concentrated. Experts are predicting another dry summer, though hopefully not as hot and dry as 2010.

Consumption
Peanut usage has been booming with a 12 percent increase for the first five months. However, peanut butter has slowed to a .56 percent increase, while peanut snacks and candy continue to do well. Overall, consumption through January shows a 7.1 percent increase with USDA predicting a 5.8 percent increase this year.

Snack markets should continue to improve as Kraft/Planters increases marketing and advertising. Peanut and peanut butter listings on menus are increasing and new candy products, such as the new Peanut Butter Snickers, should keep peanuts going strong.

Exports
The weak dollar has helped export sales of peanuts, up 11 percent after five months; however, the value is up 20.5 percent compared to last year. Export buyers indicate that economic conditions have caused a slow down in snacks and candy purchases.

Argentine officials are more optimistic about their crop as some rains have improved crop conditions after an early season drought. Yields are likely to be lower, depending on the cultivar, but it is too early to estimate.

Other Problems Or Opportunities
The loss of Temik will impact production decisions. The pesky Palmer amaranth problem is far from being solved. Harvest price insurance guarantees favor cotton over peanuts. Some buyers want more high-oleic peanuts from the Southeast or they may have to import tonnage. A new high-tech grading system is not ready. A new, albeit much smaller, recall of peanut butter for Salmonella raises its ugly head.

Will Peanuts Be Forgotten?
Beneath higher prices and increases in demand are lots of industry opportunities. While solving these problems, there’s also a Farm Bill to be written that will keep farmers producing enough to feed a world population that will double by 2050, besides just trying to save the market loan for peanuts. Remember, farmers farm to make money, and if cotton, corn and soybeans make more, they might just forget peanuts. PG


Leading Market Indicators (as of March 7, 2011)

• 2010 Crop Inspections (3/4/11) - 2,071,147 tons
• 2010 Crop Estimate - 2,077,800 tons
• 2010 Crop In Loan (3/4/11) - 1,810,626 tons
• 2010 Crop Redeemed (3/4/11) - 588,254 tons
• 2010-11 Usage (6 mo.) - up 7.1%
• 2010-11 Export (5 mo.) - up 11%
• National Posted Price (per ton): Runners $694.54, Spanish $641.68,
  Virginia/Valencia $653.06.

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