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Market Watch

High costs, lack of competition make 2000 a tough year.

By J. Tyron Spearman
Contributing Editor, The Peanut Grower

It has been tough to make a profit on the 2000 peanut crop. Domestic and export markets are not stirring. Although growers take less in price, production costs climb higher. Drought in the Southeast and Southwest caused irrigation expenses to double over normal years. Fuel and electricity costs have increased by double digits.

After a flurry of pre-plant contracting, mostly in the Southwest and Virginia-Carolina growing areas, markets at home and abroad fizzled.

A 6 percent increase in peanut usage dropped to a 3 percent quota increase at season?s end. Peanut butter and peanut snacks showed positive growth, but peanut candy declined along with in-shell usage.

Export markets fell due to the strength of the dollar against other currency. China reported a 7 percent acreage increase. The Argentine crop shelled out good, and it was clean of aflatoxin. Lower world market prices caused shellers to reduce growers? offers.

Year of Transition
Competition has declined. Most farmers have a choice between only two shellers, plus the government. Competitive selling by the farmer is no longer a significant factor unless you are a large, irrigated grower with lots of quota pounds.

Because world markets were suppressed, American shellers were not aggressive in buying peanuts for the export or domestic markets. The profits for all segments appear in the developed domestic market, as growers and shellers are more concerned about an adequate supply and keeping markets healthy.

With Alabama not producing its assigned quota, buybacks in the Southeast could provide profits from the additional loan pool. The key is keeping quota out of the loan, while buying back enough peanuts to build up the pool average. The risk is buying back too many additional peanuts and having quota pounds placed in cold storage, resulting in quota being crushed next year.

Crop Prospects
The national poundage quota is 1,176,000 tons plus 93,000 tons for seed or 1,270,000 tons. In September, USDA estimated crop yield at 1,876,425 tons. However, they failed to eliminate 80,000 acres abandoned in Texas because of drought. Segregation 2?s and 3?s increased with the drought. Shellers will try to avoid lower grade peanuts.

Loan Profits
Contracts were about $610 per ton for quota, and $300 per ton on additional runners. Some areas had $325 per ton for additionals with buyback clauses attached. Farmers were guaranteed the $325 per ton, but pool profits must be shared with the sheller. Virginia additionals were $375 per ton with markets showing little movement on September 15, the contract deadline.

With buyback funds, $610 per ton plus $25 per ton, placed in the regional association?s additional pool, it is key for shellers to buy back enough to make the guaranteed $325 per ton. Oil prices, maybe $225 per ton, and export edible, by law $400 per ton, will help.

Another Southeast strategy has growers allowing buybacks since Southeast peanuts have problems meeting the 4 parts per billion aflatoxin level in the European Union. The domestic market allows 20 parts per billion aflatoxin, and Southeast peanuts can meet those standards easily.

After October 2, farmers will receive a market transition payment of $30 per ton on quota peanuts produced or considered produced. Farmers will receive $16 per ton on additional tons produced. Federal crop insurance and disaster programs have kept farmers in business.

Growers in the Southeast have yet to employ a management scheme to eliminate aflatoxin. However, present prices do not support clearing land and installing irrigation. Farmers in the Southeast will start thinking like those in the Southwest. If there is no peanut contract, plant cotton.

Clearly, this is an industry in transition. The question is how many will survive. The industry cannot afford to lose any more shellers. Talks on the federal peanut program have begun. Politicians are urging the segments to unite. And do not forget the promotional campaigns. A 10 percent to 20 percent increase in demand will solve lots of problems for farmers and shellers. PG