Extended Economic Outlook

Will consumers stick with the budget friendly protein as much in 2021?

• By Amanda Huber •

peanut gradesMarket news offers many bright points. Consumption has hit record numbers. The quality of the 2020 crop is much better than 2019, and producers have more options this year with increased prices of rotational crops. However, there are negatives in the mix. Although China has been an important buyer recently, other countries that typically purchase a more quality peanut have reduced buying. Average yields decreased in 2020, and peanut prices remain stagnant.

In 2020, producers planted 1.66 million acres and are projected to have harvested 1.62 million acres, a 16% increase from 2019. However, average yield decreased from recent years and is projected at 3,796 pounds per acre, down 3.5% from 2019.
Record Demand

As a comfort food, peanuts and peanut butter were needed in 2020.

University of Georgia ag Extension economist Amanda Smith says, “Unlike other commodities that took a hit to both price and demand as a result of COVID-19, peanuts saw a significant increase in demand by consumers who were looking for a budget friendly protein.

“In terms of food use, 2020 was a record year at 1.61 million tons, and we expect to reach another record with the 2020-2021 crop.

“Total peanut food use rose during the 2019-2020 marketing year as a result of greater demand for affordable protein. Compared to the previous year, peanut food use in candy rose 3.9%, snack peanuts rose 2.9% and peanuts used in peanut butter rose 5% to a record-high usage of 1.4 million pounds of shelled peanuts. This trend is expected to continue.

“From August to December 2020, compared to the same period in 2019, we saw an increase in candy consumption of 31.3%, an increase in peanut snacks of 7% and an increase in peanut butter of 4.7%. Total for all grades is up 8.8%. This is all great news as far as demand and consumption of peanuts.”

Clemson University ag Extension economist Nathan Smith says, “Strong domestic use should continue into 2021 with the pandemic having a positive impact on peanut butter sales. Even so, growers can expect prices to remain low. It’s going to take a major shock to production or trade to move peanut prices up over the next couple of years.”

Amanda Smith says quality of the 2020 crop is looking good, and that’s a welcome change from the year before.

“The 2019 crop had quality problems from aflatoxin that created challenges for shellers at the same time as demand for edible peanuts was increasing.

“We are seeing contracts for 2021 peanuts that range from $450 to $475 a ton on a portion of production with a slightly higher price for high oleic or seed peanuts. Georgia peanut producers planted 20% more acres this past year over 2019.”

The Virginia Market

For Virginia-type peanuts, it is a different story. Dell Cotton, manager of the Peanut Growers Cooperative Marketing Association, says the biggest difference between supply and demand was with Virginias.

“Acres were up, but supply was down, not only in the V-C area, but also in the Southwest where Virginias are also grown. Demand was somewhere in the range of 362,000 pounds and supply was 335,732 pounds or 11% down, leaving a difference of 26,268 pounds. Nationwide, it was our fourth largest crop on record, so it wasn’t like we had a bad crop.”

George Lovatt, president of Lovatt and Rushing peanut brokerage firm, says, “In Virginia, with a $450 per-ton contract, total acreage was almost completely unchanged. However, because of the horrible harvest conditions in the V-C region, we have 12.5% fewer tons of Virginias this year than we did in 2019.

That’s a deficit of 48,000 tons, and that’s huge. When we start looking at supply and demand, people who buy Virginia-type peanuts are people who need that type. This year, they will have to buy some runner peanuts just to keep their plant running. There’s a significant shortage of Virginia-type peanuts.”

Export News Good And Bad

Exports to Canada and Mexico present an upward moving trend line that shows solid growth since 2006 for the U.S. peanut industry. Otherwise, Lovatt says, exports have been relatively flat for the past five years.

“In Europe, because of aflatoxin restrictions and now this tariff, we are on a downward path.

“China is an opportunistic buyer that you can’t necessarily identify as a customer. When prices are cheap, quality is poor or peanuts are in surplus, they buy up peanuts as they did in 2012, 2015 and then last year. This year we have better quality peanuts, and I’m forecasting exports to be down.”

Cotton says the export numbers are often misleading.

“We’ve been down in Japan, down in the European Union and in the Netherlands. We’ve been down with those traditional markets, but we’ve been up in China. However, what’s going into China is farmer-stock and it goes straight to the crushing plant for oil. For the most part, that is Seg. 3 peanuts or the aflatoxin peanuts we’ve had from the prior two years.

“While it’s great to move those surplus peanuts, in the meantime, we have lost some of these markets that have historically been pretty strong for us in Europe and also in Japan,” Cotton says, “I’m hoping that the crop being run through shelling plants right now has the quality needed to help us take back some of the markets we’ve lost because we didn’t have the quality peanuts.”

Are Buyers Watching Other Commodities?

“For the industry to be healthy, we have to have balance in supply and demand and everyone in the chain has to be making some money,” Lovatt says. “This may be the first time since 2014 and maybe 2011 that growers have had consistently favorable prices for corn, cotton and soybeans. I’m concerned that the peanut manufacturers are not paying attention to those commodity markets.

“When I speak to the Peanut and Tree Nut Manufacturers Association, one of my favorite lines to the manufacturers is ‘you’ve got to remember peanut growers have options; tree nut growers have orchards.’ When peanut growers find peanut prices at a disadvantage, they can turn to corn or cotton pretty quickly. And they’ve shown a willingness to do that.”

Quite A Bargain

Lovatt says no matter what, peanuts remain an outstanding bargain for the consumer.

For Cotton, he hopes the industry can continue selling the number of peanuts that we have over the past few months.

“Between sustainability and the nutrition information coming out about peanuts, there’s a whole lot of good stuff going on, and I think we are going to be able to reap those benefits.”

Lovatt, too, hopes the growth continues but knows it will be difficult to maintain. “I think the peanut business is in great shape. I wish we could continue this growth trend another four or five years, but I’m thinking we will not be able to sustain it that long.”

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