Sunday, March 26, 2023

Extended Economic Outlook

After two years of declines, peanut acreage is likely to increase in 2023 because of a lack of competing crops.

⋅ BY AMANDA HUBER ⋅

Given the topsy-turvy nature of the general economy, the predictability of row-crop markets is almost a welcome sight. In 2022, peanut acreage and production decreased because cotton prices were high. In 2023, the script will flip, and peanut acreage will be increased again because cotton will be on a down swing. 

Nationwide, peanut acreage was down about 8% in 2022 versus 2021, says Peanut Growers Cooperative Marketing Association manager Dell Cotton.

“Peanut acreage declined about 10% in the Southeast in 2022. Drought in the Southwest led to a 27% reduction. The Virginia-Carolinas was the only production area showing a slight increase of about 4%.” 

Most of the increase in the V-C was in North and South Carolina, he says. 

“As for yields, six states averaged more than 4,000 pounds per acre, which is pretty much the standard benchmark now,” Cotton says. “Farmers have become much more efficient, and yields show that.”

As expected with a decrease in acreage, total U.S. production was down about 10%. 

“Production for the Southeast was down 9%, the Southwest declined 27% and the V-C area stayed about the same as far as production,” Cotton says. “Of the total crop, 83% were runner type, 14% Virginias, 2% Spanish and 1% Valencias.”

Good Yields, Superb Quality

Despite a reduction in acreage and production, yields of the 2022 crop are estimated to be relatively good. 

University of Georgia Department of Agricultural and Applied Economics senior public service associate Amanda Smith says the U.S. Department of Agriculture National Agricultural Statistics Service forecasted 2022 yields at 4,090 pounds per acre for the U.S. and 4,400 pounds per acre for Georgia, down 1% from 2021. 

“If realized, this would be the fourth-highest average Georgia yield on record and third-highest average U.S. yield,” Smith says. 

Quality was also outstanding. “As determined by the USDA Federal State Inspection Service, quality of the 2022–2023 crop looks good with 99.8% of the crop grading Seg. 1, the highest quality grade segment,” Smith says.

Factors For The Acreage Decline

A decrease in acreage for the 2022 crop was not unexpected as there were several factors bringing about this result.

“The oversupply of the 2021 crop led to a lack of contracts and a reduction in acres in 2022,” Smith says. “The 2021–2022 crop was the third-highest peanut crop on record, and supply was expected to exceed consumption by 140,000 tons, resulting in an ample carryover of more than 1.18 million tons. Furthermore, the quality of the 2021–2022 crop was high, and there was no rush to ‘buy’ peanut acres in 2022 with early forwarding contracts.”

Peanuts are likely to look more favorable in 2023 because of lower relative-price expectations with competing crops.

“Prices for cotton, a crop that competes for acres with peanuts, hit record highs during early 2022, leading to a shift in planted acres away from peanuts into cotton. 

“Georgia farmers planted 685,000 acres of peanuts in 2022, down 9.3% from the 2021 crop,” Smith says of the second year in a row of acreage decline in Georgia and nationally.”

Looking To 2023

Again, looking at cotton for signals about the peanut crop, Smith says a reduction in consumer demand for cotton-related products will suppress cotton prices in 2023. “With a lower profit margin and higher input costs, U.S. cotton acreage and production will likely decline.”

This, combined with the two-year decline in planted acres, means that peanut acres will likely increase in 2023.

“Carryover is expected to be around 1 million tons of quality peanuts,” Smith says. “The competition for acres with cotton is also expected down. Continued high fertilizer prices and significantly lower expected cotton prices may push farmers into planting peanuts. 

“Given all of these factors, it is not unreasonable to expect lower-priced forward contracts than we saw in 2022. Season average prices ranging between $450 to $500 per ton are sensible planning expectations for Georgia growers in 2023.”

The good news is that Smith says peanut disappearance of the 2022–2023 crop is projected to remain strong at 3 million tons, which is supported by forecasted increases in food use and exports over last year.

Total Food-Use Record Possible

Peanut consumption increased during the pandemic and continues to be positive, although growth has slowed in some categories.

“Use of all shelled grades increased from 2.379 billion pounds to 2.460 billion pounds in 2021 but decreased slightly to 2.445 billion pounds in 2022,” says North Carolina State University Extension economist Blake Brown. “The increase in use during the pandemic was attributed mainly to increased peanut butter use. In-shell use rose from 141 million pounds to 144 million pounds in 2021 but declined to 130 million pounds in 2022.” 

Smith says, “Demand for edible peanuts remains high with recent estimates of consumption at 7.9 pounds per capita. For the 2021–2022 marketing year, there was an increase in peanuts used in candy, up 13.1%, followed by a decrease in snack peanuts, down 4.0%, and peanut butter, down 2.7%. 

“So far in the 2022–2023 marketing year, peanuts used in candy and snacks are down, but peanut butter use is up. Total food use for the 2022–2023 marketing year is forecast at a record 1.69 million tons. If realized, that would be an increase of 2.1% from 2021–2022,” she says.

Recession Predicted

The export market remains slightly positive, but good quality, edible product takes longer to move into the market. 

Smith says, “Exports are projected up 1.5% to 600,000 tons. Crush is forecast to be down to 403,000 tons, a decrease of 4.2% from 2021–2022. These all combine to an expected total peanut disappearance of 3.07 million tons for the 2022–2023 marketing year, potentially the second-highest consumption on record.”

Overall, the U.S. economy is on course for a recession caused by high inflation. 

Jeffrey Humphreys, Director of the Selig Center for Economic Growth, UGA Terry College of Business, predicts the 2023 recession will last about six months, which is relatively short. 

“A 2023 recession is not inevitable, but it would take near-perfect monetary policy plus a lucky break to avoid one,” he says. “I put the probability of recession at 75%. It will be extremely difficult for the Federal Reserve to cool down the economy enough to contain the highest inflation in 40 years without triggering a recession.” 

Will a recession have consumers turning back to peanut butter on par with pandemic levels? That remains to be seen. PG

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