The U.S. peanut industry has been
in an over-supply position before
and worked out of it. Production
of 3.2 million tons is more than
anyone predicted, and with the struggling
economies at home and abroad, it
may take longer to solve this dilemma.
The good news is there are plenty of
peanuts with outstanding quality stored
and ready to be consumed. The bad
news is that U.S. consumption is flat,
buying is delayed by limited blanching
capacity, overseas markets are plagued
with struggling economies and a lack of
available money to buy.
Forfeiture Losses May Hurt Program
The “fiscal cliff” in Washington D.C.
has investors waiting for market signals
and leadership. Add to that, the Farm
Bill received Senate approval, but the
House version never made it to the floor.
The more Congress delays, the more
a one-year extension makes sense. However,
that may not be good for peanuts
if USDA loses lots of money in forfeitures
of the 2012 crop.
One would think there is more bad
news than good news. Thankfully, the
U.S. peanut program has the Market
Loan Assistance program. With the volume
of crop produced and without the
market loan protection for producers,
many producers would have received
nothing at harvest.
The Market Loan Assistance program
also provides financing for shellers until
the crop is needed by the trade. Then,
peanuts are redeemed and moved from
warehouses to shelling plants. Farmers
are lucky that in most cases storage and
handling is paid by the first buyer and,
if forfeited, by the government.
About Half Contracted
Analysts estimate about 50 percent
of the 2012 U.S. peanut crop was under
contract. Some of the crop was contracted
at $750 per ton, a few at $700
per ton, some tonnage at $650 per ton
and even some at $600 per ton. Contracts
were limited, leaving lots of
Many farmers did not contract any
peanuts and now must settle for minimum
loan of $355 per ton.
A ‘Wait And See’ Situation
On a normal crop, contracted peanuts
may not exceed 35 to 40 percent. That
usually results in shellers returning to
farmers with contracts to get peanuts
out of the Market Loan Assistance Program
after the higher-priced contract
peanuts are shelled and delivered.
Now, it is a cat and mouse game between
the manufacturer and farmers
with the shellers caught in the middle.
Growers can sit in the Market Loan for
nine months maximum. Many farmers
have delayed placement in the loan so
the nine-month period will end after the
If the drought continues and peanut
plantings are lowered, the 2012 peanut
crop could become valuable again.
Everyone Needs To Make A Profit
The key for the farmer is patience.
Will farmers take the first offer above
$355 per ton? Manufacturers will have
to establish a price that shellers can offer
farmers. Otherwise, the farmer who
can afford to wait on the market will
leave peanuts in the Market Loan.
Many farmers need money to finance
next year and may accept a lower price.
Buyers are watching the shelled prices
slide downward as supplies mount and
more inventory has to be moved.
Remember, manufacturers want farmers
to make a profit, too, so farmers can
continue to produce peanuts. They just
don’t want the competing manufactures
to secure raw peanuts at a lower price.
What Price Is Needed?
Is there a price level farmers must have
to survive? According to the Cooperative
Extension Service in Georgia, cost of
production (on the average) is about
$1,234 per acre. Divided by 2.1 tons, the
farmer needs about $588 per ton to
break even. Of course, each area is different
and even each farm is different.
How Low Will USDA Go?
Another factor is the USDA peanut
program. In 2006, the Market Loan was
filled with an inventory that was destined
to be forfeited to the government.
The government does not want
peanuts, so USDA lowered the price below
the minimum loan offering the
peanuts on a bid basis for a minimum of
$290 per ton, $65 per ton below loan.
Shellers gobbled up the supplies taking
advantage of the profiting opportunity,
and USDA avoided the forfeit.
Could that happen again? USDA
must accept forfeits and has authority
to place the peanuts in the oil market,
barter for peanut butter for schools or
the needy, offer for bid or leave in inventory.
USDA usually makes money
for the program when the forfeited volume
Leading Market Indicators
(as of Oct. 5, 2012)
2012 Acreage (est.) - up 43%, 1,594,000 acres
2012 Production (est.) - up 63%, 2,959,750 tons
2012 Average Yield - 3,714 lb/A
2011 Crop In Loan - 58 tons
2011-12 Usage (12 mo.) - dn -0.9%
2011-12 Exports (12 mo.) - dn -37%
National Posted Price (per ton):
Runners $549.65, Spanish $533.91, Virginia/Valencia $553.17.