The U.S. market is in a “wait and see” mode. The Southeast, where 70% of peanuts are grown, is experiencing hot and dry conditions, one of the longest such periods in history.
Early planted peanuts were considered good, especially those under irrigation. However, late-planted and dryland peanuts are showing damage and increased aflatoxin.
It is too early to tell the full effect this will have on the crop, but both yield and quality are going to be impacted on the runner crop. The question becomes, “What portion is marketable peanuts?”
Despite the concern over quality and yield, the market has not reacted accordingly. For now, there is reluctance to sell forward. Markets are very quiet. Brokers are reporting little interest from buyers. An early estimate is 1.1 to 1.2 million tons carryover from the 2019 crop.
2019 Crop Estimate
The U.S. Department of Agriculture estimates production at 2,741,050 tons, down 3% from the previous forecast and down less than 1% from last year. Harvested area is expected to total 1.38 million acres, unchanged from the previous forecast but up 1% from 2018.
The average yield is forecast at 3,964 pounds per acre, down 122 pounds from the previous forecast and down 37 pounds from the 2018 average yield of 4,001 pounds per acre.
Selling Old Crop
While farmers were harvesting 2019 peanut crop, the market loan nine-month contract was running out. With markets full, farmers and shellers decided to forfeit to the government and not redeem by paying the loan. The volume totaled 79,915 tons on Oct. 1, only 3% of the total market loan volume.
USDA’s Agriculture Marketing Service quickly listed the lots for sale, allowing the peanuts to return to the open market with prices slightly under loan. For example, lot #9 (28,463 tons) sold for prices ranging from $325 per ton to $345 per ton after being forfeited at $355 per ton.
The goal of the government is to avoid forfeitures, if possible, and offer the forfeits to the trade while keeping government cost low.
Under the peanut program, farmers may sign up for Agriculture Risk Coverage or Price Loss Coverage, which is preferred, for financial assistance triggered by low prices. Payment comes one year later in October and is based on prices received by farmers.
A final projected effective price published in August was $430 per ton or $0.2150 per pound. To determine assistance, subtract the Market Year Average from the Statutory Reference Price. For 2018, subtract $430 per ton from $535 per ton (Reference Price), and the projected or final 2018 PLC payment rate is $105 per ton.
This payment applies to 85% of the peanut farm base, and the Farm Service Agency is expected to deliver those funds in October for the 2018 crop. Low prices continue for 2019 with August prices averaging only $405 per ton.
Market Facilitation Program
The Market Facilitation Program provided direct payments to farmers affected by unjustified retaliatory foreign tariffs, which caused a loss of traditional export markets. Payment rates are based on gross trade damages for commodities with assessed retaliatory tariffs by China, India, the European Union and Turkey.
Rates range from $15 per acre to $150 per acre. Assistance is based on total crop plantings in 2019. The first payment of 50% was made in August with the second and third portions to be paid in November and January if market conditions dictate.
Peanut farmers can sign up for the Wildfire and Hurricane Indemnity Program Plus for assistance with production losses from Hurricane Michael. This is for farmers who suffered eligible losses of certain crops, trees, bushes or vines. There were peanut crop losses last year during the storm.
USDA is also working with the Georgia Department of Agriculture to further assist growers through state block grants for producer losses not covered by WHIP+ or other USDA disaster programs.
Depending on quality, farmers may have lowered carryover to about 1.1 million tons. Add the estimated production of 2.741 million tons, plus a few imports, and the U.S. industry could have a total supply of 3.841 million tons.
If total peanut demand is near 3 million tons, which includes domestic usage up 1.9% and exports increasing 6.4%, that means a carry-forward next season of about 841,000 tons.
Domestic usage was down last year by 0.5% but is predicted to increase 1.6% this year.
Plenty Of Peanuts
Contracts will be problematic for the market as shellers have to slog through and depend heavily on blanchers. Buyers are not concerned, as they are 75-80% covered on 2021 from months ago, and we will have plenty of peanuts.
USDA doesn’t yet reflect the estimated decrease in yield, but it will likely be well below 4,000 pounds per acre before we are finished. If we also include some Segregation 2s and 3s off the top, our production could be lower than 2.7 million metric tons, still plenty of availability in a market well covered, including 2018 crop at discounted prices.
Exports And Tariffs
Look for further difficulties with U.S. exports to the European Union as they will now test one in 10 loads on arrival. This will result in more rejections, especially with our problematic crop.
Also, expect further tariffs, which will make us even more noncompetitive with other options, especially Argentina, Brazil and India. These countries are aggressively selling their coming new crop at levels below our offered prices.
As far as purchasing by China, there is no reason to be optimistic that their buying will alleviate the surplus. With the ongoing trade war and other origins cheaper for crush material, China will source from Senegal, Gambia and other African origins where there are no import tariffs imposed.
Furthermore, USA shellers are hesitant to take the risk of shipments to China as inspection and quarantine can play games and hold goods at the port indefinitely to discourage shipments. China is already harvesting new crop and expecting a good crop with little need for outside material unless priced below market levels.
This is causing crush material to drop in price as China doesn’t need it and U.S. crushers are at full capacity with limited buying interest from domestic refiners. The new crop is expected to produce more crush material because of the increase in Seg. 2s and 3s.
The outlook for the export market is not optimistic.
Considering the lack of buyer interest and current crop quality issues, little contracting is expected as shellers will offer $375-$400 per ton, if there is even an offer at all. Some analysts say that, in reality, too many farmers plant for the program and not for market demand.
With cotton and corn at rock-bottom prices, farmers have little choice. Only the end of the trade war with China and their reentering the U.S. cotton market will afford farmers that chance. Expect plantings for 2020 crop to remain the same or slightly increase.