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Market Watch

Cutting costs and good planning are critical in 2001.

By Tyron Spearman
Contributing Editor

With fertilizer and fuel costs rising, chemical costs increasing slightly and peanut prices staying the same, a peanut farmer must have a good strategy to prevent disaster.

Water is another worry, and water conservation must be a part of the plan.

With a handful of shellers, few to no market speculators and cautious markets at home and abroad, early peanut prices are not likely to change. Quota will settle around $613 per ton for runners, $602 per ton for Virginias and $572 per ton for Spanish, averaging the support price of $610 per ton. Buybacks have eliminated premiums and stabilized shelled prices on the domestic market. Farmers are afraid to divert quota to the loan because it will likely be crushed, causing a loss that must be paid by quota holders.

Acreage should be reduced, but will likely stay the same. Farmers are planting too many peanuts and allowing federal crop insurance to pay for risky fields. Farmers abandoned 225,000 acres, 15 percent of the acreage planted, last season. Had farmers averaged the normal 2,700 pounds per acre on 1,542,000 acres, total production would be have been more than 2 million tons. Demand requires 1,800,000 tons: 1,300,000 tons for domestic use and 500,000 tons for export. Planting 10 percent less would gives us what we need.

Although only 250,000 tons were produced for export last season, contract prices will be depressed. U.S. shellers pushed American peanut prices abroad higher late last season, but manufacturers stopped buying, stating that the higher prices take away their competitive position in the face of the concentrated buying power of hypermarket and supermarket chains. Foreign buyers like U.S. quality, but seek the best quality coupled with competitive prices.


Selling Old Crop
All area associations are expected to make a profit this year.

The Southeast crushed about 5,000 tons of quota, losing more than $2 million. More than 4,900 tons of Segregation 2ís and 3ís have been claimed under disaster transfers and will lose more than $800,000. With more than 110,000 tons of buybacks, the Segregation 1 additional pool will net about $270 per ton after losses, grossing the farmer $270 plus $132 per ton or about $402 per ton.

In the Virginia - Carolina area and the Southwest, only 1.6 percent was Segregation 2ís and 3ís, signifying a quality crop.


Quota Usage
After a 3 percent gain last season, peanut usage is down 8.8 percent. Except for in-shells, all categories are down, with peanut candy down 2.5 percent, peanut snacks down 10 percent and peanut butter down 11 percent.

An estimated 165,000 tons (farmer stock) of peanut product have been imported under various trade agreements, displacing domestic quota. Manufacturers are likely to continue purchasing imports because the quality of imports is improving.


Export Strategy
This free-market section has fewer speculators and competitors. That makes prices harder to determine for farmers and shellers. U.S. export volumes were up 30 percent last year from the previous year. Levels will be lower this season because of a lack of supply.

Argentina increased hectares by 12 percent, and the crop looked favorable at pegging.

The export market is risky for shellers because of currency differences, mandatory delivery to contracts, strict aflatoxin regulations and farmersí unwillingness to contract early and block other origins.


Strategy
Search for money-saving opportunities in production. Limit risks, use insurance, contract maybe half, plan ahead for a water supply, use disease-resistant seed and become more efficient. Attend production and marketing meetings. Ask questions. Get to know your sheller, your customer. Ask Congress for more marketing assistance. Get involved in the legislative discussions. After all, it is your livelihood they are talking about.