Who Would Have Guessed This?
[dropcap]T[/dropcap]he American peanut industry has just experienced one of the most amazing marketing years in history. Based on USDA estimates and with the industry facing an unusually large carry-forward, prices were reduced throughout the industry and cutbacks from the farm to the sheller were encouraged. Farmers were even encouraged not to plant peanuts for the 2016 season unless they were assured of federally approved warehouse storage, which guaranteed a $355 per-ton loan.
By early 2016, when prices were 15 percent lower than normal, shellers owned contracted but unsold inventory of farmer stock peanuts. With edible buyers comfortable in their coverage, decisions were made to market peanuts to China. Most were shipped as farmer stock directly to crushing plants in China for peanut oil. China and Vietnam became the top buyers of U.S. exports accounting for 52.4 percent through April. Drought in South Africa and a continuous high moisture harvest in Argentina opened the door for even more U.S. exports.
In less than six months, the U.S. over-supply of peanuts was eliminated by China’s purchases. Commodity Credit Corporation (CCC) is now expected to have all inventory redeemed from the loan and no forfeitures from the 2015 peanut crop. The loan started with 2,233,195 tons and the few loans outstanding are likely to be repaid.
The Price Loss Coverage (PLC) program has also been a savior for farmers. Because of the over-supply, producers signed the lower-priced contracts offered. The average yearly marketing price was $386 per ton compared to $440 per ton last year. This means that base tonnage will earn a $149 per-ton PLC payment on 85 percent of the farm base with a budget sequestration reduction estimated at .932 percent for an effective PLC payment of $126.65 per ton.
2016 Crop Estimate
USDA has predicted that farmers will deliver 3,208,900 tons, based on a yield of 4,044 pounds per acre, which would be a record and is 81 pounds per acre more than last year. Peanut acreage was confirmed at 1,650,000 acres, up 3 percent from the previous year.
Most industry insiders agree that the estimate is too high. Quality and possible aflatoxin will also be a concern of the drought-stricken Southeast. In Texas, producers planted nearly 300,000 acres, which had been closer to 165,000 acres in the last few years, to take advantage of the PLC payment on generic base (cotton) converted to peanut base plus collecting crop insurance if peanuts do not produce.
Currently, the U.S. peanut market has firmed because of a lack of inventory. Shellers have comfortably sold new crop into October, but going forward have been reluctant to commit additional tonnage until more of the 2016 crop is harvested. Continuous heat in July and August with limited rainfall has many farmers and shellers concerned about the dryland peanuts and even irrigated peanuts are experiencing lower yields. Flooding from Hurricane Matthew is sure to cause losses, especially in North and South Carolina.
USDA predicts U.S. food use of peanuts will increase 2 percent in 2016/17. Last year, usage was up 3.8 percent, with an August 2016 surprise 12 percent increase. FDA has ruled that peanuts can be classified as “healthy,” and that’s good news as more and more research data strongly endorses peanuts and peanut butter for daily nutrition. Snacking is trending and peanuts and peanut butter are the nutrition of choice.
The strong market performance seen this year is forecast to continue into the 2016/17 marketing year. China is expected to pursue additional imports of low-valued peanuts. Exports for higher-valued food peanuts are expected to be brisk as demand remains strong.
The 2016 peanut crop in Argentina ended with excessive rains and an estimated loss of at least 47,000 hectares plus deterioration of quality. Despite the problems, producers and peanut companies, especially in Cordoba are planning to continue growing and plan to focus on the foreign market. However, as they prepare to start a new planting, it is being reported that land rent per hectare has almost doubled, from $525 to $900 per hectare, greatly increasing the cost of delivering farmer stock to the warehouses. Argentine officials are expecting more acres, but planting peanuts depends on prices of corn and soybeans.
With the U.S. sold out of the 2015 crop and reluctant to price 2016 until more of the crop is harvested, buyers will be concentrating on the upcoming new crops in China and India, which are reported to be 17.5 million metric tons (mt) and 5 million mt, respectively. Argentina will have trouble delivering to the European Union’s quality requirements and will have to be re-milled, which causes delays.
The reduced harvest in Argentina has U.S. sales in the European Union a possibility; however, meeting EU quality standards is a concern.
The Year Ahead
Peanut farmers should experience a good year. Markets at home and abroad are expanding and growing. The peanut program has been successful, especially for base owners, with China’s considerable assistance. The biggest challenge is ample water at strategic production times to maintain quality, along with marketing at the highest price, but keeping customers coming back for more. It’s never an easy challenge.