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Market Watch

The peanut market: the good, the bad and the really big questions

By J. Tyron Spearman
Contributing Editor
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Contracts for peanuts are normally offered by shellers before the start of the New Year, and peanut producers can start their planning for the new season. Not this year. The industry seems to be in a holding pattern, hoping and praying that the massive volume of peanuts will continue to disappear and buyers will want a new supply in 2013.

Last season, producers were offered $750 per ton in December, and even the loan was bringing $1,000 per ton. Peanut producers got excited and produced a crop of more than 3,400,000 tons, 85 percent more than the previous year. Planted acreage was increased more than 44 percent.

The stars lined up for a perfect year for peanut producers. Meanwhile, the peanut market has gone quiet with little or no offers for the 2013 crop and only $30 per ton above loan for 2012 peanuts resting in the loan for $385 per ton. It is not a pretty picture for the peanut farmer with bills to pay and plans to make for a new crop year.

Good Market News

For the peanut market, there is good news, bad news and lots of questions holding the peanut market at bay. The good news is that export buyers are buying U.S. peanuts. Lower prices and a cheap dollar are attracting buyers from around the world, even China. China is buying massive amounts for peanuts and crushing good quality peanuts into peanut oil, this after India changed some of their regulations and U.S. prices became more competitive.

It is almost a buying frenzy as shellers work around the clock to shell peanuts and immediately ship to foreign markets, many of which have not bought from the United States in years. U.S. exports have helped to stabilize the shelled-price market when prices were in decline because of the over-supply.

The question is, “Will the massive volume of peanuts shrink enough to impact the market in time for planting?”

Farmers again have alternative crops with profitable prices at planting. Corn is more than $6 per bushel, cotton is hitting 80 cents per pound and soybeans are over $12 per bushel. Peanut farmers want to grow peanuts, but will switch up to bring in a profit. More good news is that seed supplies are abundant and of excellent quality and the Southeast drought seems to be coming to an end with lots of winter rains.

Bad Market News

The bad news impacting the peanut market is the slow return of the domestic market. U.S. manufacturers will not lower product shelf prices until the lower-priced raw peanuts are made into product. Peanut candy and snacks are dragging, and peanut butter volumes are about the same as last year. Overall, USDA reports a 5 percent decline the first 5 months. That has to change or it may take a couple of years to overcome the crop of 2012. USDA predicts a 7 percent increase by the end of July.

A price of $30 per ton on loan peanuts is bad news, but may be better than nothing. The farmer is selling below the cost of production, which sends the wrong signal to the market, especially for the farmer that did not contract. In most cases, shellers returned the 3.5 percent shrink and added the $30 per ton for $385 per ton. Seed growers were receiving another $25 per ton for $410 per ton.

Carry-forward volume is bad news, too. Buyers watch that number to see what will be available going into next season, knowing that carry-forward usually sets the price for the next season. Going into the 2012 season, the peanut carry-forward was estimated at 500,000 tons. Now, add another 1,070,000 tons, and the over-supply is certain to impact market offers.

Beginning stocks of 500,000 tons, plus production of 3,370,700 tons, gives the market a 3,870,700-ton supply, a record. Demand is estimated at 2,200,000 tons at home and 600,000 tons abroad or 2,800,000 tons demanded, leaving about 1,070,000 tons carry-forward. Some analysts are estimating that exports could get to 800,000 tons. Last year, the peanut industry had an 82-day supply of peanuts; this year, the supply will last 240 days or about seven and a half months.

The Questions

Will the magic of the new varieties repeat and set a new record? What about acres? Peanut farmers need to reduce last year’s acreage 25 percent to about 1,200,000 acres, average about 3,800 pounds per acre and produce a quality crop of 2,280,000 tons for markets to return to a profitable level for all segments.

Another question is what will the government do after nine months of heavy peanuts storage? Will farmers wait and forfeit to the government and shellers fail to exercise option contracts? If so, it would not come at a good time for the government or Farm Bill discussions. The government wants to avoid any forfeits and could lower the loan rate, allowing shellers to buy at a lower price. It has happened before. Some buyers are betting on a “fire sale.”

Speaking of the Farm Bill, the peanut team is set and, when the time comes, we will fight to save a peanut program that is favorable to farmers, consumers and all segments. We have a fantastic, nutritious food that deserves strong support. The future of food, fiber, energy and shelter for the world rests in Congress. It’s time to get it done!

PG


Leading Market Indicators (as of Feb. 12, 2013)

• 2012 Acreage (est.) - up 44%,
• 1,608,000 acres
• 2012 Production (est.) - up 84%, 3,370,700 tons
• 2012 Average Yield (up 806 lbs/A) - 4,192 lb/A
• 2012 Market Loan (2-12-13) - 2,639,301 tons
• 2012 Market Loan Redemptions (2-13-13) - 514,961 tons
• 2012-13 Usage (5 mo.) - dn -5.4%
• 2012-13 Exports (4 mo.) - up 42%
• National Posted Price (per ton): Runners $474.65, Spanish $458.91, Virginia/Valencia $478.17.

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