When we talk about peanut marketing, it’s supply versus demand that eventually rules. The government provides some stability and market protection for the grower; however, prices are influenced by the available peanut supply either in the loan or in the hands of the shellers. Shellers and buying points also have some protection with the market loan program, which furnishes a minimum price plus storage and handling expenses, all of which is paid back to the government when the peanuts are purchased for processing.
The supply/demand scenario is more evident this year when USDA estimates an ending stock of 1,270,000 tons of peanuts after the 2017 crop of 3,617,000 tons. That is based on a total peanut supply of 4,400,000 tons and a disappearance of 3,130,000 tons. Those extra peanuts will eventually be consumed. Meanwhile, the extra supply of peanuts pushes prices downward eliminating any profit and causing some producers to just give up and look for something else to grow.
All About Supply/Demand
The 2018 peanut crop had a ho-hum start as the $500 per-ton contract of last year dropped to $400 per ton this year. Mainly caused by the oversupply, early contract prices were down.
For planting conditions, spring came late as cooler temperatures lasted into April and early May. Drought continues in the Southwest and has also developed in East Georgia and North Florida.
USDA predicted an 18 percent reduction in peanut acreage, based on farmer interviews. A 4,000 pound average yield nationwide would result in a 3,073,600 ton crop, if planting is at 1,536,500 acres. Again, demand is about 3,130,000 tons.
The cutback is not enough to eliminate another year of slightly more than 1 million tons as beginning stocks.
Peanut growers with a peanut base are watching USDA predictions on the Price Loss Coverage (PLC), recently lowered to $85 per ton on 85 percent of the base tons. That payment is not until October and is based on the prices paid to farmers last year.
Through March, peanut usage remains up 2 percent for first eight months; the market posted that same increase of 2.2 percent through March last year. The market at home continues to grow at a steady pace. Again, that supply keeps influencing that market with a commercial storage total of 4.21 billion pounds of actual farmer stock, up 33.3 percent over last year.
As of May 5, the government’s Market Loan had 1,480,000 tons waiting to be redeemed, 680,000 tons more than last year at the same time. Depending on movement from the loan to the market, in previous years, USDA has lowered the repayment rate in order to prevent forfeitures.
After suffering the worst drought in 60 years, Argentine peanut growers have now experienced weeks of cloudy, drizzling weather preventing harvest of what there is of the crop. As of May 1, digging was almost complete, but harvest of those peanuts was not more than 10 to 12 percent. Exports are expected to be about 400,000 tons, and the European Union will have to seek supplies from the United States or other sources such as from Brazil.
Peanut products remain a popular snack for Chinese consumers and demand there is expected to increase. China is the world’s biggest peanut producer, but also a major end user of the nut and therefore a key importer of peanuts.
In China, it was noted that, compared with other nuts, peanuts continue to have a relatively good price advantage. With good public communication and a wide range of healthy nutrition ideas, Chinese consumers will also select more types of peanut products, such as peanut butter, confectionery containing peanuts and peanut oil. The U.S. peanut market hopes that China will continue to import peanuts using some of the extra supply. When China buys, more than 30 percent of the U.S. crop could go to exports.
Other top buyers are Canada (24%) and Mexico (20%). Negotiations of the North American Free Trade Agreement add uncertainty to the North American peanut market.
Lack of contract signing has lots of farmers planting for rotation and depending on the markets to improve as the government loan will provide some stability. The 2018 Farm Bill is still an unknown. Amendments add to the uncertainty as Congress tries to protect the world food supply. It is rumored that President Trump may veto the Farm Bill if the work/education requirement currently tied to food stamps is removed.
What can the industry do to reduce the extra supply? Mother Nature could solve it. The lack of rainfall all across the peanut belt brings new problems, especially for dryland, and the cost of irrigation adds more problems and expense. Trade negotiations around the world could impact tariffs on peanuts. Lots to ponder and watch as we face 2018.